Regulatory Rhetoric Meets Regulatory ResearchTweet
March 30, 2018
Every year the Office of Management and Budget (OMB), which oversees rulemaking across the entire federal government, issues a report on the net benefits and costs of major regulations established during the last ten years. The report operates as an overview of the collective regulatory actions of various federal agencies. Congress established the reporting requirement in the Regulatory Right-to-Know Act of 1999.
Toward the end February the Trump Administration issued its first regulatory benefits and cost report. It notably concluded that that the benefits from the major rules finalized over the past ten years far exceed the costs of implementing them.
Specifically, OMB estimated that the country reaped between $287 billion and $911 billion in annual benefits from the last decade of major rules while only spending between $78 billion and $115 billion to implement them. That’s a big return on investment.
The report’s conclusion wasn’t overly surprising. In fact, in the more than 15 years since Congress began requiring these reports, the benefits have always outweighed the costs. It’s notable this year because it stands in such stark contrast to the months of anti-regulatory rhetoric and policies by the Administration.
President Trump made reducing regulations a major focus of his presidential campaign, and upon election he moved quickly to begin fulfilling those campaign promises.
On January 30, just 10 days into his term, President Trump issued Executive Order 13771 on Reducing Regulation and Controlling Regulatory Costs. This order instructed agencies to utilize a “one-in, two-out” approach when creating new regulations, which requires agencies to identify two existing regulations for elimination when proposing new significant regulations. The order also established an entirely new regulatory budgeting system where the total incremental cost of new regulations from each agency for this fiscal year “shall be no greater than zero.” Agencies must offset all new incremental costs associated with new regulations through the elimination or modification of existing regulations.
About a month later, on February 24, President Trump issued Executive Order 13777 on Enforcing the Regulatory Reform Agenda. This order established a framework for agencies to follow as they pursue regulatory reform. President Trump instructed agencies to appoint a Regulatory Reform Officer that would oversee a Regulatory Reform Task Force to review existing regulations and identify those with the greatest potential for modification or repeal.
President Trump wants to eliminate as much as 75 percent of regulations.
The problem is that the Administration seems to be solely focused on the cost of regulations, rarely acknowledging that regulations bring any benefits. For instance, the regulatory budget required by EO 13771 creates restrictions on agencies based only on the costs of new regulations. Benefits are not factored into the budget calculations. So if a new major regulation costs $100 million to implement and creates $500 million in benefits for the country, the agency still has to find a way to cut $100 million from costs of other regulations—regulations that likely also produce more benefits than costs.
This myopic focus on costs alone may be because of the difference in who bears those costs and who realizes the benefits. For the most part, the regulatory costs are shouldered by companies in whatever industry the regulation covers. The regulatory benefits are more spread out among consumers, whole communities, and the overall economy.
This can create an imbalance in perception if the government agencies don’t keep an objective eye on their goals. Regulated companies, keenly feeling the pinch of costs associated with regulations, complain loudly and continually about number and scope of regulations and how they don’t deliver benefits to their bottom line. Meanwhile, citizens disconnected from implementation of the regulations often do not realize how they benefit from the rules with healthier communities, better products, safer workplaces. So despite reaping the benefits, people often remain fairly silent about the importance of regulations. This imbalance in feedback, especially if an administration is particularly friendly to industry perspectives, can make it appear that regulations are nothing but an inconvenience or impediment to business, costing money and not delivering much benefit.
But this OMB report—as have the previous reports—reveals the reality: regulations, expensive and unwanted by companies, deliver much higher benefits to the country than they cost us. It may not seem that way to individuals or companies that bear the burden of complying with regulations, but through both Republican and Democratic administrations, careful study has found that benefits of major rules justify the work and effort the rules impose.
OMB breaks with the work in those previous reports by including language that implies a lack of confidence in their own numbers. “We are issuing this report after a change in administration, and therefore would like to clarify that OMB’s reporting of the results of these [regulatory impact analyses] does not imply an endorsement by the current Administration of all of the assumptions made and analyses conducted at the time these regulations were finalized.”
The suggestion that regulatory cost and benefit numbers from previous administrations may not be trustworthy is unexpected and troubling. While administrations have not always agreed with every regulatory choice of previous administrations, in large part the analysis is accepted as reliable. This has allowed agencies to focus on new challenges rather than repeatedly rehashing previous work after every change in administration.
Previous rulemaking, along with the associated cost-benefit research, is also generally accepted because—regardless of who is in the White House—cost-benefit analysis remains a fairly consistent and rigorous process. This is not a process that has been thrown together haphazardly. Multiple administrations, including industry-friendly ones, have helped develop and refine the process. Additionally, the agency personnel and experts making rules and analyzing the costs and benefits remain largely the same across different administrations. They help ensure that only defendable data and justified calculations are used in the rulemaking process. This objective consistency is at the heart of the regulatory process.
But OMB doesn’t follow that reasoning in the draft report. “New circumstances provide an opportunity to take a fresh look at how each of these analyses is conducted,” the report notes. Presumably the “new circumstances” is a reference to the change in administration. But a change in who sits in the White House should not change how the numbers add up or how much a person’s health is worth.
The report further explains that OMB is considering adjusting the costs and benefits “if a subsequent analysis” suggests those original calculations “did not adequately analyze impacts, or if subsequent analysis suggests that the impacts are different than originally expected.” While reliable objective new data that raises significant questions about a regulation should be examined, OMB leaves it unclear what type of information would qualify as “subsequent analysis.” This could create a loophole that allows regulated companies and industries, despite their clear bias against regulations, to offer slanted studies to get another bite at the rulemaking apple. Would such claims from parties with conflicts of interest be sufficient to reconsider a regulation and recalculate the costs and benefits? Even though studies have found that if anything costs are over-estimated?
There is no reliable evidence suggesting that cost-benefit calculations of previous administrations are widely inaccurate or flawed. And without such evidence, it would be wasteful and highly disruptive to the regulatory process to allow any new administration to recalculate.
OMB is accepting comments on the draft report through April 6.
Open Government Program Manager, POGO
Sean Moulton is the Open Government Program Manager at POGO.
Authors: Sean Moulton
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