Foreign policy, budgets, deficits, immigration, healthcare—the president’s annual State of the Union address covers a lot of ground. But in some areas, it doesn't cover enough. In his speech last week, President Obama didn’t see fit to talk about federal regulation. In fact, he used the word "regulation" not once in his entire speech. And his recent predecessors haven’t done much better. Why is this?
Regulation is not a glamorous issue, and the State of the Union is one of This Town’s most glamorous events. Regulation also lacks the apocalyptic urgency of chronic deficits and the coming entitlement crunch. It doesn’t make for a good venue for partisan brinksmanship. And it lacks both the "if it bleeds, it leads" journalistic appeal of drone strikes and Orwellian drama of NSA surveillance excesses.
But just because it lacks visibility, that doesn’t mean it’s not important. Regulation, according to our estimates, imposes a $1.8 trillion annual burden on the American economy. In sectors ranging from energy to finance to health care, it's been holding back the economy even more than government spending.
Take the much-discussed annual federal deficits under presidents Bush and Obama. In recent years, the government has been spending a little less than a quarter of the nation's GDP, but its revenues rarely top 20 percent of GDP. Given Congress’s and the president’s continuing unwillingness to reduce spending to match revenues, they could turn instead to regulatory reform as a budget balancer.
A deregulatory "stimulus" would help create the conditions for rapid economic growth. If government's 20 percent slice comes from a much larger pie, revenue gains could cover most, if not all of the shortfall, eventually erasing deficits. This, of course, would require keeping spending in check, which may be wishful thinking. But it offers a solution, if politicians really want one.
A deregulatory stimulus would have two planks. One is increased transparency, which was also conspicuously absent from the President's speech. The other is reform of the regulatory process itself.
Transparency would mean far more cost disclosure for new regulations. In 2012, agencies issued just over than 3,700 rules. The Office of Management and Budget issued full cost-benefit analysis on 14 of them, and partial analysis for fewer than 100 rules. That pathetic ratio needs to improve to give Congress—and the public—more effective oversight.
Federal agencies should also publish annual "Regulatory Report Cards" detailing how many rules they issued in the last year, those rules’ cost estimates, the agency's total estimated cost burden on the economy, and other relevant information, similar to the information published for spending programs in the federal budget.
As far as improving the rulemaking process, there are several modest reforms that would improve the government's fiscal health and help the President achieve many of his more telegenic policy goals.
One is to involve Congress more. Congress has delegated away far too much legislative power to agencies, and the result is "regulation without representation." The Rules from the Executive in Need of Scrutiny (REINS) Act, which has passed the House but not the Senate, would require Congress to hold votes on all “major” rules—those with an annual cost of $100 million or more.
Once a rule is in the books, it is nearly impossible to get rid of it, no matter how unpopular or burdensome. That's why all new regulations should come with automatic sunsets after, say, five years, unless Congress votes to renew them. Just as a carton of milk has an expiration date, so should regulations. Old regulations can very easily sour, especially given today's rapid technological and social change.
Finally, to address Congress’s and agencies’ unwillingness to sift through old regulations to figure out which ones to keep and which to scrap, an independent, bipartisan Regulatory Reduction Commission should do this for them on an annual basis. The Commission would send a repeal package to Congress for a prompt up-or-down vote. A bill called the Regulatory Improvement Act, from Sens. Angus King (I-Me.) and Roy Blunt (R-Mo.) would do just that.
These reforms may not be the stuff of presidential oratory. But if enacted, next year's State of the Union will be much healthier.