Free to Prosper: Regulatory Reform
A Pro-Growth Agenda for the 116th Congress
View the full chapter on regulatory reform here
All legislative Powers herein granted shall be vested in a Congress of the United States.
—Article I, Section 1, U.S. Constitution
After decades of growth, the rate of issuance of new federal regulations has slowed under the Trump administration. One notable executive order (E.O.) requires agencies to add zero net costs and to eliminate at least two existing regulations for each new one enacted. The actual ratio of rules eliminated to rules enacted since the E.O. was issued has been closer to five to one. To date, it is difficult to tell whether total costs have merely stopped growing or have actually decreased. A major reason for that is a lack of publicly available agency data and shortcomings in the data that agencies make public. Yet overall regulatory growth has almost certainly slowed, likely saving billions of dollars for consumers and producers over the past two years.
The reforms so far have mostly come via executive order rather than legislation. That means that the next president can undo most Trump-era reforms with the stroke of a pen. Congress’ job now is not merely to keep this momentum going, but to carry its own weight in pushing reform. To do that, it must reassert the legislative authority it has over-delegated to regulatory agencies. Although Congress has played a role in eliminating certain individual regulations, no measures yet enacted address the systemic problem. The rules of the rulemaking game have allowed the federal regulatory state to grow larger than Canada’s entire gross domestic product (GDP)—and will allow it to keep growing without further reform. The rulemaking process itself is where Congress most needs to act.
There are two main areas in which Congress can enact meaningful reform. One is to rein in regulatory guidance documents, which we refer to as “regulatory dark matter.” When an agency issues a new regulation, it is required to go through a notice-and- comment period, as specified in the Administrative Procedure Act (APA). Agencies sometimes dodge that requirement by regulating instead through Federal Register notices, guidance documents, memoranda, bulletins, administrative interpretations, and other means outside standard rulemaking procedure.
The other area is a variety of reforms to increase agency transparency and accountability of all regulation and guidance. The fact that the Code of Federal Regulations now exceeds 180,000 pages and contains more than 1 million individual regulatory restrictions, with annual estimated costs of around $2 trillion, is an indictment of the current rulemaking process. To encourage better agency behavior, Congress should require:
- Annual regulatory report cards for rulemaking agencies;
- Regulatory cost estimates from the Office of Management and Budget (OMB) for more than just a small subset of rules; and
- Retrospective review of existing rules that have real-world data by which to gauge their effectiveness.
To improve regulatory cost accountability, in 1996 Congress passed the Congressional Review Act (CRA), which set up a period of 60 legislative days after agency publication of a regulation during which the rule will not take effect. That pause affords Congress an opportunity to pass a resolution of disapproval to repeal the regulation. To its credit, the 115th Congress invoked the Congressional Review Act to overturn agency rules for the first time since early in the first term of the George W. Bush administration. Congress should keep this power in mind for when agencies issue regulations without authorizing legislation.
Although there is little bipartisan appetite for working with the Trump administration on reforms, the environment could change, particularly concerning certain low- hanging-fruit reforms, such as better disclosure.
To put those recommendations into context, specific shortcomings in oversight of the ordinary, everyday rules and regulations should be noted.
First, the central review process conducted by the White House Office of Management and Budget to ensure that rule benefits exceed their costs is lacking. This executive branch regulatory review was initially formalized by President Ronald Reagan’s Executive Order 12291 (February 17, 1981) and extended in less strict form by subsequent executive orders from other presidents. As the Table 1.1 shows, of the more than 3,000 rules issued by agencies annually, cost–benefit analyses reviewed by OMB typically exist for only about a dozen, with a handful of other rules accompanied by a reviewed cost analysis.
Second, the Administrative Procedure Act’s notice-and-comment rulemaking process is broken. Agencies often fail to issue notices of proposed rulemaking for a substantial portion of their rules, which undermines democratic accountability and the public’s opportunity to weigh in on rules that affect them, according to a December 2012 Government Accountability Office (GAO) report.
Third, aside from rarely defunding agency actions, Congress rarely uses its most powerful accountability tool, the Congressional Review Act, to pass resolutions of disapproval of costly or controversial agency rules. Its 2017 invocation to repeal 15 rules from the end of Barack Obama’s presidency was the first time Congress had invoked the CRA since the 2001 repeal of a Department of Labor (DOL) ergonomics rule.
Fourth, even if Congress were more inclined to assert its legitimate authority over the regulatory enterprise, the Congressional Review Act has long been undermined by agency nonobservance of its procedures. As Curtis W. Copeland demonstrated in a paper prepared for the Administrative Conference of the United States, many final rules were not properly submitted by agencies to the GAO’s Comptroller General and to Congress, as required under the CRA. That submission is necessary should Congress introduce a formal CRA resolution of disapproval of an agency rule, so its neglect creates a major lapse in accountability.
With spotty public notice and inadequate accountability, it is imperative for Congress to go on the record frequently regarding the merits of particular regulations. This matters because although the number of rules has decreased overall from about 3,500 per year during the Obama administration to about 3,300 per year during the Trump administration, that still averages to a new regulation roughly every two and a half hours, 24 hours a day, seven days a week. That is a lot of activity for anybody to be able to monitor.
At root, overregulation results from a breakdown of checks and balances under the Constitution’s separation of powers. Overdelegation by Congress has enabled regulatory agencies to assert control over wide swathes of the American economy through both rules and guidance. On one hand, regulatory streamlining requires far more congressional oversight of agency regulatory actions, including hearings, better information disclosure, and slashing of agencies’ budgets when they exceed their bounds. On the other hand, Congress needs to grapple with the reality that it has relinquished much of its legitimate authority to the executive branch.
In a two-pronged approach, Congress must heighten (a) disclosure of regulatory matters and (b) its own accountability for “laws” made by regulatory agencies— either formally, as notice-and-comment regulation, or informally, as guidance and “dark matter.” At the least, Congress can start by recognizing the fundamental need to enforce the Administrative Procedure Act’s already limited scrutiny of rules and incorporate guidance into the process.
In this chapter:
- Improve Regulatory Oversight and Accountability
- Rein in Overregulation and Regulatory “Dark Matter”
- Strengthen Disclosure with a “Regulatory Report Card”
- Implement a Regulatory Reduction Commission and Sunsetting Procedures
- Require Votes on Major or Controversial Rules
- Implement a Regulatory Cost Budget
- Restrain the Runaway Administrative State by Reining in Chevron Deference