A task force of House Republicans on Tuesday released an agenda for regulatory reform, the latest in a series of policy documents designed, according to Speaker Paul Ryan, R-Wis., to apply America’s timeless principles—liberty, free enterprise, consent of the governed—to the problems of our times.
Titled “A Better Way,” the project prescribes congressional actions to address poverty, taxes, national security, health care, regulation, and the restoration of constitutional authority. With input from the public, members and staff of 10 House committees have contributed to the effort.
Here is an in-depth look at “A Better Way” from several Heritage Foundation research fellows:
Regulatory Reforms
The new tract on regulatory reform opens with the observation that the last recession ended in 2009, but the economy has only been limping along ever since. “Job growth has been weak. Household income has stayed put. Business investment has barely budged.”
The authors then conclude that: “One likely contributor is the growing federal regulatory burden.”
That’s a considerable understatement. According to The Heritage Foundation’s newest edition of “Red Tape Rising,” the Obama administration has increased the annual cost of major rules by an astonishing $108 billion. (And that’s the government’s lowball estimate.) Combined with the regulatory burdens imposed during the administration of George W. Bush, the annual cost of red tape has increased by $176 billion since 2001.
As the new regulatory reform agenda states, “It is time for serious and fundamental reform. Every step in the process needs to be revamped.”
That’s for sure. When it comes to regulation, the White House, Congress, and federal agencies routinely breach legislative and constitutional boundaries. The “Better Way” identifies both systemic reforms that are urgently needed as well as reconsideration of some woefully outdated regulatory regimes that no longer reflect current conditions.
It is not enough only to consider how to reform federal regulation. A more substantive debate must address the extent to which it is even appropriate for the federal government to intervene. The new agenda rightfully acknowledges the myriad benefits of devolving a great many regulatory responsibilities to states and the private sector.
Among the most important reforms in the document is the intention to impose accountability on Congress for the most burdensome rules.
To that end, the agenda calls for requiring the explicit approval of Congress before any major regulation is allowed to take effect. This reform was the centerpiece of the so-called REINS Act (Regulations From the Executive in Need of Scrutiny), which was passed by the House in July 2015 but is still awaiting action in the Senate.
The agenda also calls for a much more rigorous rulemaking process. Agencies very often fail to quantify the costs—and overstate the benefits—of their rules, and in too many instances simply fail to conduct any cost analysis at all. But analyzing costs is necessary to identify the trade-offs inherent in rulemaking, and to determine the most efficient and effective course of action among various alternatives. It is also crucial information that allows the public to hold regulators accountable. Without such information, regulators are free to act on a whim.
Thus, the recommendations include:
- Requiring a detailed and rigorous accounting of the direct and indirect costs of rules, including the impact on jobs and on low-income households.
- Requiring publication in the Federal Register an advance notice of proposed rulemaking involving a major or high-impact rule, a negative impact on jobs and wages rule, or a rule that involves a novel legal or policy issue arising out of statutory mandates.
- Requiring that the agency adopt a rule only on the basis of the best evidence and at the least cost.
- Holding a hearing before the adoption of any high-impact rule (the cost of which is expected to exceed $1 billion annually).
- Require a formalized, multi-agency analysis of the cumulative impacts of specific major rules on jobs, energy prices, electric reliability, and global competitiveness.
Some of these reforms, and others, were incorporated in the Regulatory Accountability Act, which passed by the House on Jan. 13, 2015. It is also entirely reasonable, as recommended in the agenda, to require regulation to be based on publically available, reproducible research and data.
Another persistent problem requiring attention is the tendency of lawmakers to enact vaguely worded statutes that effectively delegate their policymaking powers to regulatory agencies, and a string of judicial precedents that uphold such deference. In response, the agenda proposes to prohibit a court from deferring to an agency’s interpretation of a rule if the agency fails to comply with specific rulemaking procedures. Also worthy of support is the recommendation to prevent high-cost regulations from taking effect while litigation is pending.
Rulemaking is increasingly being conducted by independent agencies outside the direct control of the White House.
Regulations issued by agencies such as the Federal Communications Commission, the Securities and Exchange Commission, and the Consumer Financial Protection Bureau are not subject to review by the Office of Information and Regulatory Affairs or even required to undergo a cost-benefit analysis.
This is a gaping loophole in the rulemaking process. The agenda recommends that the Commodity Futures Trading Commission be required to perform cost-benefit analysis, which is reasonable. However, all independent agencies should be fully subject to the same regulatory review requirements as executive branch agencies.
Dozens of other reform recommendations populate the new report, which ought to be required reading for all members of Congress. Regulation acts as a stealth tax on the American people and the U.S. economy.
The weight of this tax is crushing. Absent substantial reform in the post-President Barack Obama era, economic growth and individual freedom in America will continue to suffer. The reform agenda released today offers informed and practical guidance for 2017 and beyond.
— Diane Katz, senior research fellow in regulatory policy
Financial Regulations
It’s fitting that financial market regulations are one of the main targets of this reform effort because financial regulations have moved away from these core principles for decades. There’s no doubt that this shift away from free enterprise contributed to the 2008 financial crisis, and it’s also clear that the 2010 Dodd-Frank Act extended the dangerous policies of the past.
The authors of the report clearly understand what’s wrong with financial regulations. On page 39, they noted that:
Regulators have an important role to play in making sure consumers and investors have all the facts necessary to make informed decisions, but excessive regulation has empowered regulators to substitute their judgment for that of consumers and investors, and make decisions for them about what financial products or services they should be able to access.
The report provides pages of solutions to these problems, many of which are similar to those in House Financial Services Committee Chairman Jeb Hensarling’s, R-Texas, recently announced legislation. A key component of both plans is to move toward a new regulatory framework that “offers highly-capitalized, well-managed financial institutions an option for relief from excessive regulatory complexity.”
The basic idea is very simple: Strongly-capitalized financial firms should only have to comply with a simple set of rules, not dozens of all-encompassing rules. History has proven that these extensive rules mainly serve as barriers to entry for new firms, and that they don’t really keep financial markets safe.
It’s very hard to argue, especially in the wake of the 2008 crisis, with providing highly capitalized firms relief from government micromanagement. Here are a few of the sensible reforms the task force is promoting.
Repeal much of Title I of Dodd-Frank. Title I created the Financial Stability Oversight Council, a council that consists of the federal regulators that entirely missed the last financial crisis. The council designates firms that regulators view as systemically important, thus enshrining too-big-to-fail. Aside from these designations, the council is wholly incompatible with free enterprise.
While it would be better to fully repeal Title I, the task force recommends repealing the council’s ability to designate systemically important firms. Such a change is sorely needed because allowing the government to explicitly identify these firms is entirely incompatible with ending too-big-to-fail.
Repeal Title II of Dodd Frank. One of the most troubling aspects of Dodd-Frank is known as orderly liquidation authority, and it’s found in Title II. Though the name sounds pleasant, orderly liquidation authority gives federal regulators the authority to seize troubled financial firms—with minimal judicial review—and close down their affairs. Title II also authorizes the Federal Deposit Insurance Corporation to hold taxpayers responsible for the most worthless assets on a company’s books.
The time-tested bankruptcy system, with its legal protections and judicial supervision, is a far better system. The task force rightly supports dumping Title II in favor of enhanced bankruptcy for large financial institutions.
Strengthen penalties for wrongdoing. The task force recommends several key reforms that would hold financial firms accountable to investors and capital markets. For instance, the plan would expand the Securities and Exchange Commission’s and the Department of Justice’s authority to obtain monetary penalties for the most serious securities law violations. The report also suggests increasing the maximum civil penalty amounts that can be assessed for violations involving financial institutions.
Modernize the Federal Reserve. The task force suggests several key reforms based partly on Rep. Bill Huizenga’s, R-Mich., Fed Oversight Reform and Modernization Act (the FORM Act), a piece of legislation that already passed the U.S. House. The FORM Act would protect the Fed’s independence from short-term political interference, and would require the central bank to conduct monetary policy based on a transparent rule of its own choosing. The House Republicans would also subject the Fed’s regulatory activities to congressional appropriations.
Though it would be better to get the Fed completely out of the regulation business, this change would arguably hand “the people’s elected representatives an important tool with which to hold these bureaucracies accountable and achieve greater transparency in government operations.”
— Norbert Michel, research fellow in financial regulations
Energy Regulations
A key component of Ryan’s reform agenda is that affordable, reliable energy matters. And as the the report highlights, in almost every step of the process, the federal government is standing in the way.
From resource extraction and transportation to controlling where a company can actually sell its energy, the federal government is obstructing free enterprise. Federal ownership keeps coal, oil, and natural gas in the ground and keeps people out of work. Overbearing regulations, such as the Obama administration’s global warming agenda, will shutter coal-fired power plants for little to no climate benefit.
Top-down government decisions that have no legitimate economic or environmental rationale, such as preventing the construction of the Keystone XL pipeline or where companies can well liquefied natural gas, control and distort energy markets. Borders shouldn’t prevent producers from selling their products to willing customers nor force consumers to pay artificially high prices, but the government is keen to restrict energy exports or slap tariffs on solar imports.
When the government obstructs energy production and the movement of energy and energy technology, American families and businesses are the ones who pay the price. A higher price than they otherwise should. Ryan’s regulatory reform agenda emphasizes the benefits reaped by all Americans as a result of energy free enterprise. Drivers are saving money at the pump but also through lower prices wherever they shop. Businesses are locating to the U.S. and citing the fracking boom as a reason why.
When the government isn’t outright blocking energy extraction, it is virtually grinding it to a halt.
These developments are happening in spite of the federal government, certainly not because of it. The United States has an abundance of conventional resources like coal, oil, and natural gas but also uranium for nuclear power. But the federal government prohibits resource development in many parts of the country, including off the coasts of America’s states. Opening access would give companies more opportunity to develop America’s energy resources, be they conventional or unconventional, such as wind or solar.
When the government isn’t outright blocking energy extraction, it is virtually grinding it to a halt. As the report mentions, “On average, it currently takes the BLM [Bureau of Land Management] 227 days to approve or deny a permit to drill, while it takes states on average 33 days.”
Over the last few years, federal environmental regulations have become increasingly overbearing, with little to no benefit to show for it. Regulatory agencies commonly underestimate or ignore costs, exaggerate environmental benefits, and push constitutional boundaries.
A conservative energy agenda doesn’t mean freedom for businesses to pollute but recognizes that many of the federal government’s major environmental regulations are outdated and, increasingly, counterproductive—even to the point of stifling environmental improvements. For instance, a business may be reluctant to invest in a new technology or to upgrade a power plant to yield better environmental outcomes simply because of all the daunting regulatory obstacles to getting such a project underway.
As the Ryan agenda discusses, proper reform would not only eliminate burdensome federal regulations but also empower states to regulate energy and environmental activities without federal interference. State and local governments, working with private individuals, respond better to the unique interests and concerns of their communities.
One area of energy policy that deserves more discussion is federal interventionism by way of taxpayer-funded subsidies. Corporate welfare creates dependence on the taxpayer and reduces the incentive to innovate to be cost-competitive with other energy technologies. True economic reform should not pick winners and losers but instead allow natural market forces to drive technological development and prices absent government intervention. The federal government’s role should be limited to the basic functions of protecting property rights and enforcing the rule of law.
As the Ryan economic agenda outlines on energy, policies that operate under economic freedom will expand access to energy, stimulate economic growth, and improve the environment. Eliminating cronyism must also be a staple of any energy policy reform.
—Nick Loris, Herbert and Joyce Morgan Fellow in energy and environmental policy
Water and Agriculture Regulations
In the context of the Clean Water Act, there are many things to like in the plan. There’s also an important recommendation regarding a key food and agricultural policy issue: mandatory labeling of genetically engineered food.
Properly interpret the normal farming exception under the Clean Water Act. The Clean Water Act states that farmers don’t have to secure dredge and fill permits when engaged in normal farming activities. This exception though has been narrowly interpreted to mean only activities that have been “existing and ongoing.” As Heritage recommended in its “Environmental Policy Guide,” all farming and ranching activities should be exempted, regardless of when they began.
The House Republican plan recommends to “codify a complete prohibition on requiring permits for normal farming, ranching, and silviculture activities, as well as pond, ditch construction, and maintenance.”
Modernize the Clean Water Act. Instead of a one-size-fits all approach to regulating water bodies, the report recommends a more flexible approach that shifts more power to the states. According to the report, there should be a “bottom-up” approach.
States are already supposed to play a leading role in the Clean Water Act and work with the federal government, but this principle has been lost as the Environmental Protection Agency and U.S. Army Corps of Engineers continue to seek out more power to regulate almost every type of water imaginable (the report recognizes this federal power grab). The end goal should be to have clean water, and shifting power to the states and local communities is the best way to achieve this goal.
Withdraw the ‘Waters of the United States’ Rule. The House report recommends that the EPA and Army Corps of Engineers withdraw the infamous “Waters of the United States” rule. This extreme rule seeks to regulate every type of water, including man-made ditches and land that is dry most of the year except when there’s heavy rain. The recommendation says that the agencies should go back and start the process again. The problem with this recommendation is there’s little reason to believe that the agencies will come up with anything better. Congress itself needs to take action and properly define “navigable waters,” which are the types of waters that can be regulated under the Clean Water Act.
As stated in Heritage’s “Environmental Policy Guide“:
[Congress should] define the waters covered under the CWA [Clean Water Act], generally limiting federal authority to regulating traditional “navigable waters.” A clear congressional definition is critical. In his concurrence in Sackett v. EPA, Justice Alito noted, “Real relief requires Congress to do what it should have done in the first place: provide a reasonably clear rule regarding the reach of the Clean Water Act.”
Prohibit mandatory labeling of genetically engineered food. The House Republican plan points out the many problems with mandatory labeling of genetically engineered food, and recommends that this labeling be in the purview of the federal government. While preemption of state law may or may not be appropriate, the report is certainly correct in being critical of mandates that will mislead, not inform consumers. Mandatory labeling compels speech that misleads consumers, legitimizes bad science, undermines a critical technology, and hurts agriculture (as I’ve explained here).
There are numerous recommendations in this new House Republican report, including many others on environmental issues. When it comes to water policy in particular, the report seems to be on the right track.
—Daren Bakst, research fellow in agricultural policy
This piece originally appeared in The Daily Signal
