How Federal regulatory reform can benefit all Americans

Federal regulatory reform is an issue that transcends political boundaries, impacting the lives of all Americans. Whether it's by promoting economic growth, creating jobs, or reducing the bureaucratic red tape that stifles innovation, reforming the federal regulatory framework is essential. This article explores the necessity and potential impact of federal regulatory reform, drawing insights from recent research and expert testimonies.

The Economic Impact of Overregulation

Over the past few decades, a growing body of research has highlighted the detrimental effects of excessive regulation on the U.S. economy. For instance, a 2018 study by economists Patrick A. McLaughlin, Nita Ghei, and Michael Wilt found that the accumulation of rules since the 1980s had significantly slowed American economic growth. This slowdown resulted in an estimated $4 trillion loss in U.S. gross national product in 2012, had regulations remained at 1980 levels.

Dr. Douglas Holtz-Eakin, former Director of the Congressional Budget Office, emphasized this point in his 2023 testimony to Congress. He noted that U.S. GDP per capita has risen at an "anemic" rate of only 1.2% in the 21st century, compared to 2.3% annually in the latter half of the 20th century. Holtz-Eakin identified excessive regulatory growth as a key culprit, stating that from 2005 to today, agencies have recorded cumulative totals of $1.5 trillion in regulatory costs and approximately 1.3 billion annual hours of paperwork.

The Burden on Small Businesses

Small businesses are particularly vulnerable to the costs imposed by excessive regulation. These costs compete with opportunities for innovation, capital investment, worker training, and productivity growth. According to a November 2023 study by economists Mark W. Crain and Nicole D. Crain, smaller firms incur regulatory costs of $14,700 per employee per year, which is 20% greater than the cost per employee in large firms. This disproportionate burden hampers the growth of small businesses, which are often key employers in the economy.

International Competitiveness

The U.S. is not among the low-regulatory-cost countries, ranking 16th in terms of regulatory burden. Research by the Crains suggests that if U.S. regulatory costs were reduced to match the average of the five least-burdened countries, U.S. GDP would increase by approximately 8%, translating to about $2 trillion per year or $15,000 per household per year.

Three Presidential Actions to Curb Regulatory Excess

Fortunately, the next president can take immediate steps to reduce economically destructive overregulation by federal agencies. Three complementary reform programs that could be pursued through executive orders are:

Implementing Regulatory Budgeting: Regulatory budgets place a limit on the total cost of regulations that each federal agency is allowed to impose. Variations on text-based metrics have been adopted with some success in various jurisdictions. For example, President Trump's 2017 executive order required federal agencies to repeal two significant rules for each new one adopted, achieving regulatory cost savings of more than a hundred billion dollars in fiscal year 2020.

Recalibrating Cost-Benefit Analysis: Since the Reagan Administration, presidents have directed the Office of Management and Budget to undertake cost-benefit analysis of proposed federal regulations. However, the Biden Administration's 2023 revision of Circular A-4 introduced subjective value judgments into the estimation of costs and benefits, allowing a larger proportion of regulatory proposals to pass cost-benefit muster. Rescinding these changes and reissuing Trump-era executive orders on regulatory reform could help reduce net regulatory burdens and promote economic growth.

Targeting Anticompetitive Market Distortions: Anticompetitive market distortions imposed by governments significantly reduce economic output. The next administration could require agencies to estimate the economic welfare effects of proposed regulations that distort competition. This could be achieved by assigning the Office of Management and Budget to establish protocols for evaluating the distortive effects of proposed regulations.

Swift Presidential Action on Regulatory Reform Is Needed

The current overregulatory status quo acts like a hidden tax on American workers, families, and businesses, stifling economic growth and innovation at a time of increasing international competition. The next president would be well-advised to quickly deploy various regulatory reform tools, including regulatory budgeting, to rein in these regulatory excesses. While additional future initiatives, including legislative reform, may be needed, presidential action is an important and necessary start.