At 12:01 p.m. on January 20, 2017, federal regulatory policy dramatically shifted from the unparalleled expansion of the Obama Administration to a reform agenda under President Donald Trump. During the Obama years, the nation’s regulatory burden increased by more than $122 billion annually as a result of 284 new “major” rules (roughly defined as those costing the private sector at least $100 million per year). The Trump Administration, in its first six months, launched a multifaceted reform agenda. Whether it ultimately succeeds in reining in decades of regulatory excess remains to be seen.

From Inauguration Day to June 30, only eight new major regulations were issued—two of which increased private-sector burdens, and two that decreased such burdens. (The other four were administrative in nature.) The Trump Administration has also blocked some rules and rescinded others, as well as withdrawn hundreds of regulatory actions in the rulemaking pipeline. However, six months is too short a time span to judge results in the labyrinthine world of federal rulemaking.

The need for reform has never been greater. Regulation acts as a stealth tax on the American people and the U.S. economy, and exacts an incalculable toll on individual liberty. President Trump and his appointees need all of the means available to them to overcome the powerful forces that favor the status quo.

Measuring Obama’s Red Tape

In its final year, the Obama Administration issued nearly 2,800 new rules, including 127 designated as “major.” (Not all major rules impose direct costs on the private sector; many govern administrative matters, such as Medicaid rates or catch limits on fisheries.)

Of the 2016 major rules, 54 imposed direct annual costs of $14.7 billion on the private sector. And during its entire eight years, the Administration imposed more than 23,000 regulations, including 693 major rules, of which 258 imposed a cumulative total of $122 billion in new annual costs on the private sector.

That was nearly double the $68 billion in private-sector costs imposed under the Administration of President George W. Bush.[REF]

As large as that cumulative cost is, it does not account for the total costs of new rules. The $122 billion figure includes only major regulations, not the thousands of other rules issued every year. It also does not capture significant but intangible costs such as lost innovation or violations of individual liberty. Exacerbating matters, independent agencies are not required to conduct cost-benefit analyses for new major rules although some of these agencies generate a large number of regulations.

In many instances, agencies simply failed to calculate regulatory costs. For example, the Consumer Financial Protection Bureau (CFPB), in its 1,700-page rule regulating pre-paid cards (also known as “reloadable” cards), failed to quantify the costs or benefits of this regulatory crackdown on a payment method used by tens of millions of Americans (and particularly popular with those who cannot afford to maintain bank accounts). Industry estimates peg the cost of compliance at $1.5 billion.[REF]

Similarly, there was no cost-benefit analysis prepared by the Commodity Futures Trading Commission (CFTC) for its highly complex rule on the cross-border application of margin requirements for swaps. The agency “discussed” the costs and benefits in qualitative terms, but failed to provide adequate information for sound decision making. As the CFTC Inspector General noted in a recent report criticizing the commission’s lack of analysis: “A thorough consideration of costs and benefits based on rigorous economic analysis informs regulators, Congress, and the public of the likely effects of a policy change.”[REF]

As was typically the case during the Obama Administration, the Environmental Protection Agency (EPA) in 2016 issued the rule with the highest quantified cost: a fuel-efficiency mandate for medium-duty and heavy-duty trucks estimated to cost $2.7 billion per year.

The other four of the five costliest rules in 2016 were:

• Wage and overtime requirements, estimated to cost of $1.5 billion annually. This Department of Labor rule eliminated the “white collar” exemptions from minimum-wage and overtime-pay requirements under the Fair Labor Standards Act. 
• Renewable fuel standards, at an estimated cost of $1.1 billion annually. The EPA regulation set the annual percentages of cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuels required to be added to vehicle gasoline and diesel produced or imported in 2017.
• Energy conservation standards for air conditioners and heat pumps, with a projected cost of $741 million annually. The Department of Energy rule prescribed more stringent energy-conservation standards for these various appliances and commercial and industrial equipment. 
• More stringent regulation of oil and gas and sulfur operations in the Outer Continental Shelf, at an estimated cost of $696 million annually. From the Department of the Interior, the rule revised and added new requirements for exploratory drilling.

On-Budget Costs of Regulation

As the number of regulations grew, so did government spending on regulatory enforcement. According to Susan Dudley and Melinda Warren (of George Washington University and Washington University in St. Louis, respectively), regulatory outlays between fiscal year (FY) 2009 and FY 2017, which roughly conforms to President Obama’s two terms in office, increased by 13.3 percent ($6.8 billion), and staff levels increased by 7.4 percent (19,345 full-time employees).

Outlays for administering red tape in FY 2017 are projected to total $65.9 billion, an increase of 3.5 percent over FY 2016.[REF]

The growth of the regulatory budget is not a new phenomenon, and it has occurred under both Democratic and Republican Administrations. The regulatory budget growth during the eight years of President George W. Bush was actually greater than it was under the Obama Administration.[REF]

Midnight Regulations

Some 40 percent of all major rules issued by the Obama Administration in its final year (21 out of 54 rules) were finalized after the election on November 8, 2016. These “midnight” regulations included some of the costliest rules of the final year, including the EPA’s renewable fuel standard and the Department of Energy’s energy-conservation standards.

This rush of rulemaking at the end of a term has been common among both Democratic and Republican Administrations, and regardless of the incoming President’s party affiliation. In 2008, for example, George W. Bush imposed 36 new major rules, far above his average of about 20 major rules annually. A large spike was also recorded in the final year of the George H. W. Bush Administration.

The practice is problematic because the Administration officials who issue midnight regulations have virtually no accountability once the President’s term ends; they face no consequences for the regulatory costs imposed on society.

Legislation to counteract such last-minute rulemaking is pending in Congress. H.R. 21, the Midnight Rules Relief Act, sponsored by Representative Darrell Issa (R–CA), would enable Congress to disapprove a group of regulations together (“en bloc”) rather than one at a time, as is currently the procedure. An identical measure is pending in the Senate as S. 34, sponsored by Senator Ron Johnson (R–WI).

Trump’s First Six Months

On the day President Trump took office, his Administration inherited 1,985 regulations in the rulemaking pipeline—966 in the proposed stage and 1,019 in the final stage.

Like his predecessors, President Trump moved quickly to direct his chief of staff to issue a memorandum to department heads directing them to freeze rulemaking until a designated senior official reviewed and approved the regulations.

The memorandum also directed agency heads to withdraw regulations that had been sent to the Office of the Federal Register but had not yet been published, and to postpone for 60 days the regulations that had been published in the Federal Register but had not yet taken effect.

The memorandum seems to have had its desired effect—there has been a dramatic decrease in the number of new rules adopted.

From Inauguration Day through June 30, the Trump Administration finalized 659 new rules, of which eight were classified as major. Two of these increased regulatory burdens on the private sector, and two decreased those burdens. This is a startling change from Obama’s first six months, during which 1,103 rules were finalized, of which 23 imposed major costs on the private sector. The George W. Bush Administration adopted 1,464 rules in its first six months, of which 25 imposed major costs on the private sector.

Both of the Trump rules that increased regulatory burdens were initiated by the Obama Administration and promulgated by agencies independent of direct White House control. The Securities and Exchange Commission adopted a rule shortening the settlement cycle for broker-dealer transactions (for which costs were not quantified), while the Federal Reserve Board imposed loss-absorption mandates on large banks (with private-sector costs estimated at $1.3 billion).

Of the two rules implemented by the Trump Administration that reduce regulation, one from the Food and Drug Administration postponed the effective date for new nutrition label requirements, and the second, from the Department of Labor, postponed the effective date of its rule expanding the scope of fiduciary duties for investment advisors. By extending the effective dates of these 2016 rules, the regulatory costs have been reduced. The savings, however, are one-time gains. In neither case have the underlying mandates been eased (although efforts to accomplish this are continuing).

In the same six-month period, the Trump Administration’s Office of Information and Regulatory Affairs (OIRA) conducted significantly fewer reviews of new rules—and withdrew a higher proportion of rulemakings—than either the Obama Administration or the Bush Administration—the lowest number, in fact, since recordkeeping began in the 1990s.

Congressional Review Act Resuscitated

A total of 15 rules have been “disapproved” under provisions of the Congressional Review Act (CRA)—a 1996 statute that provides for fast-track review of regulations. If passed by Congress and signed by the President, a resolution of disapproval rescinds a regulation and prohibits a future rule that is “substantially the same.”[REF]

Since it was enacted in 1996, the CRA had been successfully used only once, in March 2001. But this year, it became one of the primary tools available to block last-minute Obama rules from taking effect.

Executive Orders on Regulatory Review

The Trump White House also issued 39 executive orders (EOs) in his first six months. Two, in particular, are intended to have a direct and substantial impact on the regulatory process:

EO 13771 directs executive departments and agencies to identify for repeal at least two existing regulations for every new regulation they promulgate.[REF] The order also calls for a budgeting process to manage regulatory costs, and prohibits any increase in the total incremental cost of all regulations finalized in 2017 (unless required by law or advised by the Director of the Office of Management and Budget (OMBv). For future years, the EO directs the OMB director to set the amount of incremental costs an agency will be allowed to impose, if any.

Regulatory budgeting has long been discussed, and poses challenges in obtaining accurate costs from regulators, who exercise broad discretion in their calculations.[REF]

EO 13777 directs the head of each regulatory agency to designate a Regulatory Reform Officer to oversee the implementation of regulatory reform initiatives and policies within the agency.[REF] Under the order, each agency is also instructed to establish a Regulatory Reform Task Force to evaluate regulations and recommend those appropriate for repeal, replacement, or modification.

By ensuring that agency staff are focused on controlling regulatory costs, sound regulatory practices can be built into each agency rather than just imposed from outside. That should improve the likelihood of lasting reforms.

Other significant EOs and memoranda include:

Presidential Memorandum on Fiduciary Duty Rule. This directs the Secretary of Labor to examine the Fiduciary Duty Rule[REF] to determine, through legal and economic analysis, whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice. If an affirmative determination is made, the EO directs the Secretary of Labor to publish for notice and comment a proposed rule rescinding or revising the Fiduciary Duty Rule.

Presidential Executive Order on Promoting Energy Independence and Economic Growth. The order directs agencies responsible for regulating domestic energy production to propose revisions or rescissions of regulatory barriers that impede U.S. energy independence. It also rescinds several Obama EOs and policies related to climate change, and directs reconsideration of the $7.2 billion Clean Power Plan. And, it directs the Administrator of the EPA and the Secretary of the Interior to review, and, if necessary, revise or rescind several regulations that place unnecessary, costly burdens on coal-fired electric utilities, coal miners, and oil and gas producers.

Presidential Memorandum Regarding Construction of the Dakota Access Pipeline. This directs relevant officials to expedite requests for approvals to construct and operate the Dakota Access Pipeline.

Presidential Memorandum Regarding Construction of the Keystone XL Pipeline. This invites TransCanada to re-submit its application to the Department of State for a presidential permit for the construction and operation of the Keystone XL Pipeline, and directs the Secretary of State to expedite review.

Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal. This directs the Secretary of Health and Human Services and the heads of all other relevant departments and agencies to “waive, defer, grant exemptions from, or delay” Obamacare rules “that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.”

Presidential Executive Order on Core Principles for Regulating the United States Financial System. This directs the Secretary of the Treasury to identify all Treasury regulations that are an undue financial burden on taxpayers, add undue complexity, or exceed statutory authority. It also establishes Core Principles of financial regulation, including (1) empowering Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth; (2) preventing taxpayer-funded bailouts; (3) fostering economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry; (4) enabling American companies to be competitive with foreign firms in domestic and foreign markets; (5) advancing American interests in international financial regulatory negotiations and meetings; (6)making regulation efficient, effective, and appropriately tailored; and (7) restoring public accountability within federal financial regulatory agencies and rationalizing the federal financial regulatory framework.

Presidential Executive Order on a Comprehensive Plan for Reorganizing the Executive Branch. This order is intended to improve the efficiency, effectiveness, and accountability of the executive branch by directing the OMB Director to propose a plan to reorganize governmental functions and eliminate unnecessary agencies.

Presidential Executive Order on Identifying and Reducing Tax Regulatory Burdens. This directs the Secretary of the Treasury to review all “significant” tax regulations issued by the department on or after January 1, 2016, and, in consultation with the Administrator of OIRA within the OMB, identify regulations that impose an undue financial burden on taxpayers; add undue complexity to the tax laws; or exceed the statutory authority of the Internal Revenue Service. The Secretary is also directed to delay the effective date of such regulations, if possible, and to modify or rescind such regulations through notice and comment rulemaking.

Unified Agenda

The new Administration in July released its first Unified Agenda of Regulatory and Deregulatory Actions.[REF] This document—typically published twice a year—outlines the rulemaking plans for each agency. Under President Obama, the Unified Agenda consistently included between 120 and 130 major rules,[REF] reaching a high of 144 pending rules in the spring of 2016. In President Trump’s agenda, the number was cut by about two-thirds, to 49, with agencies having withdrawn 469 rulemakings. The Administration also reconsidered 391 active rulemakings by reclassifying them as long-term (282) or inactive (109).

For regulations that conflict with Administration policies, agencies may propose either to delay the effective date of a rule, or to rewrite or repeal a rule. This requires following the rulemaking procedures under the Administrative Procedures Act, including providing justification for the action and subjecting it to public notice and comment. For example, on March 22, 2017, the EPA announced that it would reconsider whether stricter standards on automotive emissions for greenhouse gases are necessary.

The Obama Administration on January 12 had announced its determination that the standards were appropriate.[REF] However, the EPA failed to consider whether the standards were technically feasible. Given that carbon-dioxide (CO₂) emissions are regulated through adjustments in fuel efficiency—standards set by the National Highway Traffic Safety Administration (NHTSA)—a sound determination by the EPA requires consideration of the standards that the NHTSA considers feasible. As the Federal Register notice states: “EPA has concluded that it is appropriate to reconsider its Final Determination in order to allow additional consultation and coordination with NHTSA in support of a national harmonized program.”[REF]

As part of a broader effort to scale back the Obama Administration’s vast web of global warming programs, President Trump on June 1 announced the U.S. withdrawal from the Paris climate agreement, which President Obama had signed as an executive agreement on April 22, 2016. The United States, under its Intended Nationally Determined Contributions, was committed to reduce greenhouse gas emissions in 2025 by 26 percent to 28 percent compared to 2005 levels.

The Trump Administration also revoked an Obama directive allowing transgender students in public schools and other government facilities to use the bathrooms and locker rooms as befit their gender identity. A two-page “Dear Colleague” letter announcing the revocation on February 22, 2017, stated that the Obama directive lacked legal justification.

The Trump Administration has also initiated a variety of other rule delays and reconsiderations, including:

In late July, the EPA issued a proposal to repeal the rule, replacing it with more limited regulation.[REF]

• EPA “waters of the United States” rule. Also facing repeal is the EPA’s 2015 rule on the “waters of the United States” (issued jointly with the U.S. Army Corps of Engineers). The rule created a new definition for the waters that the federal government can regulate under the Clean Water Act.

  The 2015 defini­tion tramples property rights and overrides the important role that states play in water steward­ship. Property owners are losing their ability to derive value from their land, restricting investment and diminishing property values, and curtailing property tax revenues. Farmers, too, are deeply concerned that their land-use practices will be restricted, thereby reducing their productivity—and income.[REF]

• EPA climate-change regulations. The Trump Administration has targeted the EPA’s Clean Power Plan, for which costs are estimated at $7.2 billion annually. The centerpiece of the Obama Administra­tion’s global warming crusade, the rule was the first direct regulation of greenhouse gas (GHG) emissions from power plants. It dictates state-specific restrictions on GHG emissions, with a target reduction of 30 percent below 2005 levels by 2030. According to the EPA, the Clean Power Plan will reduce carbon emissions by 870 million tons by 2030. But overall, the rule will cut the annual increase of CO₂ emissions by one one-hundredth of a percent.

  For this meager result, the Clean Power Plan will more than double the number of coal-fired power-plant closures than would otherwise occur absent the regulation. Not only will electricity rates increase, but so will the prices of virtually all U.S. products.

  Under a March 28 Executive Order from President Trump, the EPA was directed to consider rescinding the rule. The complication, however, is that it also is under court order to regulate GHG. To resolve this dilemma, EPA Administrator Scott Pruitt is reportedly considering a “repeal and replace” approach, under which the current rules are replaced immediately with less costly mandates.

• Network neutrality. The 2015 net-neutrality rule, formally titled the Open Internet Order, reclassified “Internet access” as a common carrier service under the Communications Act of 1934. This seemingly technical change subjects Internet service providers to comprehensive regulation by the Federal Communications Commission (FCC). Second, the FCC requires service providers to treat all bits of content travelling over their networks in equal fashion. FCC Chairman Ajit Pai is moving to revoke the order.
• Nutrition labeling. On May 4, 2017, the Food and Drug Administration (FDA) announced that it is pushing back the compliance deadline for its rule on Nutrition Labeling of Standard Menu Items[REF] from May 5, 2017, to May 7, 2018 (following two previous delays). Similarly, on June 13, 2017, the FDA announced its intention to extend the compliance date for the Nutrition Facts Label rule.[REF] According to the FDA, “The framework for the extension will be guided by the desire to give industry more time and decrease costs, balanced with the importance of minimizing the transition period during which consumers will see both the old and the new versions of the label in the marketplace.”[REF]
• Beryllium standards. On June 27, 2017, the Occupational Safety and Health Administration (OSHA) announced a new proposed rule[REF] to modify the agency’s recent beryllium standards for the construction and shipyard sectors. (On January 9,OSHA issued a final rule[REF] that established new protections for workers who are exposed to beryllium. On February 1, 2017, OSHA temporarily delayed,[REF] until March 21, 2017, the effective date of the rule.) Beryllium is a lightweight metal used primarily in specialty alloys and beryllium-oxide ceramics. It is also present as a trace material in metal slags.[REF]
• Ozone standards. The EPA is extending the deadline[REF] for promulgating initial area designations by one year for the 2015 ozone standards.[REF] The EPA is giving states more time to develop air-quality plans and considering greater flexibility for states—some of which have yet to meet the 1997 and 2008 standards.
• Truck driver training. Prompted by a January 20, 2017, memorandum from President Trump, the Federal Motor Carrier Safety Administration has delayed the effective date of stricter truck driver training standards. The rule was slated to take effect on February 6, 2017.
• Overtime Rule. On June 30, 2017, the U.S. Department of Labor told the U.S. Court of Appeals for the Fifth Circuit that it intends to abandon the Obama overtime rule, but pursue new rule-making to set a more reasonable salary level.As issued, the rule eliminates the “white collar” exemptions from minimum-wage and overtime-pay requirements under the Fair Labor Standards Act.

Recommendations for Reform

The burden of federal regulation has grown without constraint for decades—with $122 billion in new annual costs added in the Obama years alone. President Trump has pledged to “massively” reduce regulation, and he has so far succeeded in slowing regulatory output. But the necessary systemic reforms require action by Congress—in particular, to increase scrutiny of existing and new regulations to ensure that each is constitutional and necessary, and that costs are minimized. The Heritage Foundation proposes the following reforms to accomplish this:

1. Require congressional approval of new major regulations issued by agencies. Congress, not regulators, should make the laws and be accountable to the American people for the results. No major regulation should be allowed to take effect unless and until Congress explicitly approves it. Legislation to require such congressional approval for all major rules, known as the REINS Act (Regulations from the Executive in Need of Scrutiny) passed the House, but is still awaiting action in the Senate. In addition, legislators should include requirements for congressional approval of rules in every bill that expands or re-authorizes regulation. Such an approach would demonstrate how REINS Act requirements work in practice, paving the way for their broader application.
2. Create a congressional regulatory analysis capability. In order to exercise regulatory oversight, especially if the REINS Act is adopted, Congress needs to be able to analyze various regulatory policies objectively. Congress currently depends on the White House’s OIRA, or the regulatory agencies themselves, for analyses, and needs an independent source of expertise. This could be accomplished through an existing congressional institution, such as the Congressional Budget Office or the Government Accountability Office, or through a new unit established by Congress. This new capability need not require a net increase in staff or budget, but could easily be paid for through reductions in existing regulatory agency expenses.
3. Automatically sunset regulations. While the REINS Act would strengthen review of new regulations, measures for reviewing existing red tape are also necessary. Congress should set sunset dates for all major regulations. Rules should expire automatically if not explicitly reaffirmed by the relevant agency through the formal rulemaking process. As with any such regulatory decision, this reaffirmation would be subject to review by the courts. Such sunset clauses already exist for some regulations. Congress should make them the rule, not the exception.
4. Codify regulatory impact analysis requirements. All executive branch agencies are currently required to conduct regulatory impact analyses (including cost-benefit calculations) when proposing any new major rules. Codifying these requirements would ensure that they cannot be rolled back without congressional action and provide the basis for judicial review of agency compliance.
5. Subject independent agencies to executive branch regulatory review. Rulemaking is increasingly being conducted by independent agencies outside the direct control of the White House. Regulations issued by agencies such as the FCC, the SEC, and the CFPB are not subject to review by OIRA or even required to undergo a cost-benefit analysis. This is a gaping loophole in the rulemaking process. These agencies should be fully subject to the same regulatory review requirements as executive branch agencies. Such a requirement has broad support, even from President Obama’s former OIRA chief Cass Sunstein.
6. Reform “sue and settle” practices. Regulators often work in concert with advocacy groups to produce settlements to lawsuits that result in greater regulation. Such collaboration has become a common way for agencies to impose rules that otherwise would not have made it through the regulatory review process. To prevent such “faux” settlements, agencies should be required to subject proposed settlements to public notice and comment. The Sunshine for Regulatory Decrees and Settlements Act (H.R. 712) would do just that.
7. Increase professional staff levels within OIRA. OIRA is one of the only government entities in Washington that is charged with limiting, rather than producing, red tape. More resources should be focused on OIRA’s regulatory review function. This should be done at no additional cost to taxpayers: The necessary funding should come from cuts in the budgets of regulatory agencies.

Conclusion

The unparalleled expansion of the regulatory state is crushing America’s entrepreneurial spirit, productivity, and economic growth. The new Administration of Donald Trump has promised reform, and it has succeeded in slowing regulatory output. But six months is too short a time to judge results in the world of regulation, where actions take years, not days. It remains to be seen whether President Trump will succeed in reversing decades of regulatory overreach.

—Diane Katz is a Senior Research Fellow in the Thomas A. Roe Institute for Economic Policy Studies, of the Institute for Economic Freedom, at The Heritage Foundation.