President Trump's Executive Order Targets the Regulatory State

On Monday, President Trump ignited new complaints from proponents of government intervention in the market after issuing a new executive order entitled “Reducing Regulation and Controlling Regulatory Cost.” As the title indicates, the executive order aims to reduce federal government regulations by requiring that for each new federal regulation proposed, there must also be two existing regulations eliminated from the books for the remainder of FY 2017. In addition, it sets a cap on the economic costs imposed by federal regulations. For the remainder of FY 2017, the cost of new regulations must be offset by the removal of at least two existing regulation. Starting in 2018, a cap would be set in place and new regulations must still be overset.

This is potentially good news for small businesses and consumers. According to the American Action Forum (AAF), during the Obama administration there were over 600 major regulations that cost the economy roughly $740 billion issued by the federal government. The Government Accountability Office defines “major regulations” as any regulation that will (1) have an annual impact on the economy of $100 million or more, (2) increases the prices of goods or services for consumers, and (3) negatively impacts competition or investments domestically and internationally. Some researchers have estimated that overall regulations cost nearly $2 trillion  every year, which have negative impacts on economic growth and employment.

Although this executive order has already halted $181 billion in total regulatory cost after being in effect for a couple of days, some tax and business experts have criticized the order as “imprecise and ill thought out.” These experts claim that the regulatory repeal will “complicate tax planning.” This criticism may be valid in the short term as business try to figure out which rules apply and how, but over the long term, an overall simpler regulatory code would be more beneficial to business and consumers.

The Trump administration justifies this executive order by stating, “It is the policy of the executive branch to be prudent and financially responsible in the expenditure of funds, from both public and private sources. In addition to the management of the direct expenditure of taxpayer dollars through the budgeting process, it is essential to manage the costs associated with the governmental imposition of private expenditures required to comply with Federal regulations.”

Military, national security, and foreign affairs regulations are exempt from the order, as are independent agencies, such as the Federal Trade Commission and the Securities and Exchange Commission. However, the Director of the Office of Management and Budget (OMB), the position for which Trump has nominated Congressman Mick Mulvaney (R-S.C.), is given broad authority and power by this executive order to carry out the implementation of this order. The executive order gives the Director of the OMB to exempt any category of regulation from the rules of this executive order.

More specifically the executive order gives authority to the Director of the OMB to provide guidance to the heads of federal agencies and departments in adhering to the “one in, two out” rule. The Director of the OMB will determine what is considered a new or offsetting regulation, establish the criteria for calculating the cost of both new and existing regulation, and have the authority to waive requirements in given situations. The Director will also be responsible for setting the regulatory budget and be required to “identify to agencies a total amount of incremental costs that will be allowed for each agency in issuing new regulations and repealing regulations for the next fiscal year.”  If an agency presents a regulation that exceeds this established “total incremental cost allowance,” it will not be approved, unless otherwise approved by law or the Director of the OMB.

When boiled down, this executive order essentially establishes a regulatory budget, administered by the OMB and used to rein in the ability of federal agencies by creating additional regulatory burdens on small businesses and consumers. This idea of creating a regulatory budget by which agencies will need to comply is not new. A related regulatory budget proposal was twice introduced by Senator Lloyd Bentsen (D-TX) in the late 1970s and early 1980s. More recent adoptions of a regulatory budget include those of Senator Marco Rubio (R-FL) and Senator Mike Lee (R-UT).

After concern over expansion of the executive branch under the New Deal, Congress enacted the Administrative Procedure Act in 1946 to govern the way agencies propose and established regulations. Its main sponsor, Pat McCarran (D-TX) called the law "a bill of rights for the hundreds of thousands of Americans whose affairs are controlled or regulated" by federal agencies. Yesterday’s action, according to the White House Press Secretary, is the first significant reform of the regulatory state since the early 1980s. With this new order, agencies must account for the regulatory bills imposed on the private sector.

Reducing burdensome regulations that drive up the cost of goods and services for consumers and hinders small businesses from forming is a key principle of limited government. Allowing small businesses to compete against one another and larger businesses allows for innovation and better products. Any positive impact on taxpayers and consumers from this executive order will depend on how the Director of the OMB administers it. There are plenty of well intended laws and executive orders whose impact is inhibited by poor implementation. Taxpayers should be cautiously optimistic about this executive order and be vigilant over the appointment and actions of the next Director of the OMB.