How To Bail America Out From Overregulation

Overregulation has turned the United States into something of a leaky boat. Instead of taking on water, we’re taking on regulatory burden—and losing potential growth. The buildup of regulatory burden in the United States has been estimated to slow economic growth by nearly 1% per year. That adds up to trillions of dollars of growth that could have been achieved but wasn’t.

Now, if your boat is taking on water, the first thing you do is stop the leaks—and fortunately, that seems to be the logic of the Regulations from the Executive in Need of Scrutiny Act of 2023, or the REINS Act. Under the act, any new regulation that would have an economic impact of $100 million or more would require congressional approval. Since 2009, several versions of the REINS Act have come before Congress, but now, the bill seems poised to pass the House.

Regulatory reform is much needed, and on that, REINS is a good start. But it is just that—a start. More needs to be done to control runaway regulation. REINS is an important step in the right direction, but without additional modifications to the regulatory process, we should expect the regulatory state to continue to expand in size and scope, to the detriment of economic growth.

Who’s In Charge Here?

A good first question to ask when we think about regulatory reform is who’s responsible for regulating. And in answering that question, we reveal a big wrinkle in the lawmaking process: Congress has largely abdicated responsibility for lawmaking, to the point where the nation’s most significant policy choices and value judgments are made by regulators, not by Congress. Modern governance in Washington is dominated by regulatory agencies authorized under vague and open-ended statutes, primarily under the control of the White House, and with little effectual oversight by Congress.

For more than four decades, presidents have relied on an obscure office called the Office of Information and Regulatory Affairs (OIRA), housed within the Office of Management and Budget, to oversee the regulations being issued during their terms. Unfortunately, OIRA can’t fulfill a role that requires vetoing, for technical or political reasons, regulations produced by executive branch agencies. First, OIRA is an office of the White House, and executive agencies (or even independent agencies that are headed by the sitting president’s appointees) tend to be rowing in the same direction as the White House. One could easily imagine a scenario in which OIRA merely offers a rubber stamp of approval, with a sheen of supposedly objective, technical assessment, to a White House’s politically determined agenda.

Second, the threshold for triggering an OIRA review of an economically significant regulation is determined by the president. Should that threshold increase (as it did in April, when President Biden’s Executive Order 14094 changed the threshold for an OIRA review from $100 million to $200 million), more rules elude the requirement for regulatory impact analysis and OIRA review of the analysis. That means less oversight and less accountability in the regulatory process.

When it was first created, OIRA review of significant rules certainly helped introduce some analytical rigor and discipline into the creation of regulations. But the office cannot be relied on to do more than improve rules and analyses at the margins. More consequential reform requires greater involvement of the legislative branch. The REINS Act would, to some extent, put Congress back into the role of lawmaking body, which was the intent when the Constitution defined Congress as the “first branch” of government. But alone, it’s not enough.

Making Regulatory Reform Count

So if it’s not enough, we must consider how we can make reform more meaningful. Let’s start first with the REINS Act itself. As it stands, REINS would require Congress to actively approve the costliest of new rules—but how does Congress actually know their costs? Right now, information about the benefits and costs of new rules is sometimes produced by the same agencies that are proposing the rules. EO 14094 will mean even fewer rules are accompanied by an analysis, which begs the question: If a major rule comes to Congress for approval under REINS, where does Congress get information about the rule’s costs and benefits?

Years ago, a bill called the Congressional Office of Regulatory Analysis (CORA) Act made the rounds on Capitol Hill. Early versions of CORA date back to at least the late 1990s, but, like REINS, CORA has been reintroduced several times. The idea was to set up an office housed within Congress with the technical capacity to produce benefit-cost analyses of proposed regulations. Something like CORA could help fill the information gap that Congress might face.

And beyond the REINS Act, there’s much that can be done on the regulatory reform front. REINS simply plugs the holes of our leaky boat, but there is still a lot of water to be bailed out. We will need some modification of the regulatory process that forces review of old regulations in order to modify or eliminate rules that are obsolete, ineffective or otherwise undesirable. Several options have been proposed in Congress, on the state level and in other countries.

The most effective of these has been regulatory budgeting, pioneered by the Canadian province of British Columbia in 2001. The province adopted the one-in, X-out approach to regulatory budgeting, which boils down to telling regulatory agencies that for every new rule they make, they must find a predetermined number of existing rules to eliminate. It was amazingly effective: British Columbia reduced the volume of regulations on the books by nearly 40% within three years. Not coincidentally, its economic growth rate quickly flipped from laggard to leader among the provinces.

It’s telling that British Columbia is still following the one-in, X-out approach more than two decades after it started—and it’s subsequently been taken up by several other countries and jurisdictions. Ohio, for example, recently instituted a one-in, two-out regulatory budget with target of reducing the restrictiveness of regulations by 30% within three years. And in the last few years, the states of Idaho, Virginia and Missouri and the provinces of Manitoba and Alberta have used similar approaches to reduce cumulative regulatory burden.

As my colleague Veronique de Rugy wrote last week for National Review, “the truth is that there won’t be much of an abundance agenda if we don’t remove or reform some of the rules that make it impossibly long and at times prohibitive to build houses and factories, to develop drugs, to start new occupations, and to launch new innovations. A failure to act creates drag on growth, and slower growth itself causes many problems.”

Regulatory reform can help unleash America’s creative potential. So how do we get there? By adding a layer of quality control and involving Congress in the regulatory process, the REINS Act would be a step in the right direction. But there’s more we can—and should—do. We need to find ways to better assess the benefits and costs of regulations, while also working to draw down the number of regulations that are hindering our economic growth potential. Only then can we truly start to bail ourselves out of an overly burdensome regulatory climate.

Originally published in Discourse, a publication of the Mercatus Center at George Mason University. Republished with permission.

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