Other Promoting Economic Growth Topics:

Regulation



The Issue


A‌mericans have never been as subservient to government as they are today. So ‌expansive has regulation become that no one even knows the precise number of departments, agencies, and commissions from which thousands of rules materialize each year. The volume and scope of these edicts impose a staggering economic burden on the nation. But loss of individual freedom and the flagrant breach of constitutional principles constitute a far greater cost.

Regulatory compliance requires the private sector to shift an enormous amount of resources away from innovation, expansion, and job creation. These costs ripple across the economy and soak consumers: higher energy rates from the Environmental Protection Agency’s global warming crusade; increased food prices resulting from excessively prescriptive food production standards; restricted access to credit for consumers and small businesses under Dodd–Frank financial regulations; fewer health care choices and higher medical costs because of the (misnamed) Affordable Care Act; and reduced Internet investment and innovation under the network-neutrality rules imposed by the Federal Communications Commission.

While a burden for all, overregulation harms low-income families and fixed-income seniors the most—because the costs translate to higher consumer prices that exhaust a larger share of their personal budgets.

It is not enough to simply reshuffle the rulemaking process. The nation must address the extent to which federal agencies contravene the constitutional principle of separation of powers by autonomously issuing rules, monitoring compliance, and punishing transgressors.


Recommendations


Require Congressional Approval of New Major Regulations. Typically, agencies are given broad discretion to determine what to regulate and how to do so. But under the Constitution, Congress, and not regulators, should make the laws and be accountable to the American people for the results. Requiring Congress to approve new major rules, as provided in the proposed Regulations from the Executive in Need of Scrutiny (REINS) Act, would provide a check on regulators and hold Congress accountable.

Subject “Independent” Agencies to Regulatory Review. An increasing volume of regulation is imposed by so-called independent agencies that operate outside the direct control of the executive branch. The regulations from agencies such as the Consumer Financial Protection Bureau and the Federal Communications Commission are not required to undergo cost–benefit analyses, nor are they subject to review by the Office of Management and Budget. This is a serious gap in the rulemaking process. Legislation should be enacted to subject regulations from independent agencies to the same safeguards applied to executive branch agencies.

Establish Sunset Dates for Federal Regulations. Every new major regulation promulgated by executive branch agencies is supposed to undergo review, but there is no similar process for reviewing regulations already on the books. Old regulations tend to be left in place even when they are no longer useful, which can be particularly harmful when, as now, there is a flood of new regulation. To ensure that substantive reviews occur, legislation should include an automatic expiration of regulation and require agencies to reaffirm the rules through a notice and comment rulemaking. As with any such regulatory decision, this reaffirmation would be subject to review by the courts. Sunset clauses already exist for some new regulations. Congress should make them the rule, not the exception.

Develop a Congressional Regulatory Analysis Capability. In order to exercise its duties responsibly, Congress should improve its capability to analyze proposed and existing rules without relying on the Office of Management and Budget or the regulatory agencies. This could be done through an existing legislative branch institution, such as the Congressional Budget Office or the Government Accountability Office. Such a capability would also help Congress to better evaluate the regulatory consequences of legislation. This need not require any net increase in staff or in budget, but could easily be paid for through reductions in existing regulatory agency funding.


Facts and Figures


FACT: Regulation shifts investment from innovation and job creation to compliance with government edicts.

  • Independent estimates peg total regulatory costs at $2 trillion annually—more than is collected in income taxes each year.
  • During the Obama Administration alone, new major regulations (those with an estimated annual cost of $100 million or more) increased annual regulatory costs to the private sector by $120 billion a year.
  • The actual costs are far greater, both because the impacts have not been fully quantified for a significant number of rules, and because many of the worst effects—the loss of freedom and opportunity—are incalculable.

FACT: As the number of regulations has grown, so, too, have the size, cost, and power of the federal bureaucracy.

  • Federal agencies issued a whopping 23,000 regulations under the Obama Administration.
  • Based on fiscal year 2017 budget figures, administering red tape will cost taxpayers nearly $70 billion, an increase of 97 percent since 2000.
  • Federal agencies often mask politically driven regulations as scientifically based imperatives. In such cases, agencies fail to properly perform scientific and economic analyses, or selectively pick findings from the academic literature to justify their actions and ignore evidence that contradicts their agenda.

FACT: The government dictates virtually every aspect of Americans’ lives.

  • In just 2015, Americans devoted nearly 9.8 billion hours to federal paperwork.
  • Federal regulation increasingly dictates lifestyle choices rather than focusing on public health and safety.

Selected Additional Resources


James L. Gattuso, “Regulatory Budgeting: Not Ready for Prime Time,” Heritage Foundation Backgrounder No. 3173, December 14, 2016.

James L. Gattuso and Diane Katz, “Red Tape Rising: Six Years of Escalating Regulation Under Obama,” Heritage Foundation Backgrounder No. 3015, May 11, 2015.

Diane Katz, “A Regulatory Reform Agenda for the First 100 Days,” Heritage Foundation Issue Brief No. 4652, February 1, 2017.

Norbert J. Michel, ed., Prosperity Unleashed: Smarter Financial Regulation (Washington, DC: Heritage Foundation, 2017).