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Reversing Regulations

One of the most significant differences in domestic policy between the Trump Administration and the former Obama White House is the attitude towards regulations. 

According to a Forbes  study by Clyde Wayne Crews Jr. , by the end of the last year of the Obama presidency, The printed version of the Federal Register had reached 97,110 pages, by far an all-time record. That dwarfs, Crews noted, 2015’s count of 80,260 pages, and it shattered the 2010 all-time record of 81,405 by 15,705 pages.

The overwhelming number of regulations was just one issue. The former White House also established vague, undisclosed interpretations of federal regulations.

The Trump Administration moved quickly to reverse Obama’s paradigm. Almost immediately upon taking office, the new President demanded that for every new regulation introduced, 2 old ones must be cut. Agencies have been forced to comply. So far, 14 regulations have been cut for every significant new one implemented.

Additionally, the White House demanded that agencies place their guidance documents on easily searchable public websites. Bureaucracies are now required to permit citizens to give their input on these guidelines, and they will have the ability to ask agencies to withdraw guidance they believe is wrong. Agencies are also prohibited from enforcing rules that have not been made publicly known.

In 2018, the American Action Forum (AAF) noted that the Trump Administration was slashing regulations at a record pace. The study found that the approximately $16.4 billion in regulations emanating from 70 agencies were cut.

The Competitive Enterprise Institute (CEI)    reports that “In 2017, Trump’s first year, the Federal Register finished 2017 at 61,308 pages, the lowest count since 1993 and a 36 percent drop from President Barack Obama’s 95,894 pages in 2016, which had been the highest level in history.”

The latest Heritage Foundation Index of Economic Freedom notes that “The U.S.’s economic freedom ranking has risen six places, and its overall score in the 2019 Index is the highest recorded since 2011. This improvement reflects the impact of major regulatory and tax reforms on economic growth, investment, and business confidence. In 2018, the unemployment rate fell to its lowest point since 1969.  Significant regulatory reform has resulted in the delay or withdrawal of 2,253 pending regulatory actions since January 2017.”

In its 2019 “10,000 Commandments” report, CEI outlines key facts:

  • The estimated $1.9 trillion “hidden tax” of regulation is greater than the corporate and personal income taxes combined. If the cost of federal regulations were a country, it would be the 9th largest, behind India and just ahead of Canada.
  • Each U.S. household’s estimated regulatory burden is at least $14,615 annually on average. That amounts to 20 percent of the average pre-tax household budget and exceeds every item in that budget, except housing.
  • In 2018, the Trump administration issued 3,368 rules. That’s more than the 3,281 final rules in 2017, which was the lowest number of regulations coming out of federal agencies in a single year since the National Archives began publishing rule counts in 1976.
  • The estimated regulatory cost burden is equivalent to more than 40 percent of the level of total federal spending, projected to be $4.4 trillion in 2019.
  • In 2018, Washington bureaucrats issued regulations at a rate of 11 for every one law Congress enacted. The average for this “Unconstitutionality Index” for the past decade has been 28 to one. The five agencies issuing the most rules are the Departments of Commerce, Defense, Health and Human Services, Transportation, and the Treasury.
  • In 207, President Trump’s first year, the Federal Register finished at 61,308 pages, the lowest count since 1993 and a 36 percent drop from former President Barack Obama’s 95,894 pages, which had been the highest level in history. The 2018 Federal Register rose to 68,082 pages (however Trump’s rollback of rules can add to rather than subtract from the Register).
  • In the pipeline now, 67 federal departments, agencies, and commissions have 3,534 regulatory actions at various stages of implementation(recently “Completed,” “Active,” and “Long-term” stages), according to the fall 2018 “Regulatory Plan and the Unified Agenda of Federal Regulatory and Deregulatory Actions.”
  • Of the 3,534 regulations in the Agenda’s pipeline, 174 are “economically significant” rules, which the federal government describes as having annual economic effects of $100 million or more. Of those 174, 38 are deemed “deregulatory” for purposes of E.O. 13,771.
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Trump Moves Against Excess Regs

There are substantial reasons for President Trump’s January 30 announcement of significant cuts in regulations.

The executive order, “Reducing Regulation and Controlling Regulatory Costs,” directs agencies to eliminate two current regulations for every new one initiated. The goal is to set annual limit on the cost of new regulations, according to sources close to the President.

The White House had previously noted that “In 2015 alone, federal regulations cost the American economy more than $2 trillion. That is why the President has proposed a moratorium on new federal regulations and is ordering the heads of federal agencies and departments to identify job-killing regulations that should be repealed.”

The move is the second action by the new Administration affecting the over-regulation crisis.

On January 20, the same day as the Mr. Trump was inaugurated, , a memorandum entitled “Regulatory Freeze Pending Review” was issued. That measure read “With respect to regulations that have been published in the [Federal Register] but have not taken effect, as permitted by applicable law, temporarily postpone their effective date for 60 days from the date of this memorandum… for the purpose of reviewing questions of fact, law, and policy they raise.”

The reasons for the White House moves are substantial. As the New York Analysis of Policy and Government  reported in 2016, President Obama broke records when it comes to over-regulating the American people.  Research by the Competitive Enterprise Institute (CEI) indicates that the Administration was on pace to enact 89,416 regulations in 2016. In mid-October, the total had already reached the 70,318 mark.
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CEI notes: “six of the seven all-time high federal register page counts have happened under the Barack Obama administration. So this year is set to be a massive record-breaking year in terms of rulemaking, at least according to Federal Register heft. It is quite likely the Federal Register could top 90,000 pages.”

Washington’s addiction to regulation is more than just a nuisance. The CATO institute asserts that “It is widely recognized that excessive regulation is unnecessarily killing jobs.”

The Daily Signal found that “job-creating entrepreneurs in the United States have been dispirited by the scope and cost of escalating red tape…Since 2009, the expansion of Uncle Sam’s regulatory control has been one of the prime culprits in America’s startling decline in economic freedom and overall competitiveness. Each new edict has meant a new government bureaucracy that entrepreneurs and producers must navigate. Worse, the trend of overregulating our economy has also bred cronyism and tarnished our free-market system. As reported in the 2015 Index of Economic Freedom, an annual study that benchmarks the quality and attractiveness of the entrepreneurial framework across countries, the United States remains stuck in the second tier economic freedom rank of the ‘mostly free,’ with its business freedom score plunging to the lowest level since 2006. This increased regulatory burden, aggravated by favoritism toward entrenched interests, has notably undercut America’s historically dynamic entrepreneurial growth. A 2014 Brookings Institution analysis shows that with business exits now exceeding new business formations, entrepreneurial dynamism in the United States has been steadily dwindling. In light of the excessive and costly regulatory environment, it is not surprising that America’s ongoing economic recovery has been far from dynamic. Fewer Americans can prosper in this overregulated economy.”

The cost of compliance with the tidal wave of regulatory mandates is overwhelming. CEI estimates that in 2015, regulatory-related expenses were approximately $1.88 trillion, 10% of the entire American GDP and over 5 times the cost of federal corporate income taxes that year.

It’s not only businesses that have been impacted. The Competitive Enterprise Institute has also found that regulations cost each US household “$14,974 annually in regulatory hidden tax, or 23% of the average income of $65,596.

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Government vs. Small Business

Small businesses play a vital role in the U.S. economy.  Why, then, are they treated so poorly by government? The Small Business Administration enumerates the top ten vital roles these enterprises play:

  1. Small businesses make up more than 99.7% of all employers.
  2. Small businesses create more than 50 percent of the non-farm private gross domestic product(GDP).
  3. Small patenting firms produce 13 to 14 times more patentsper employee than large patenting firms.
  4. The 22.9 million small businesses in the United States are located in virtually every neighborhood.
  5. Small businesses employ about 50 percent of all private sector workers.
  6. Home-based businessesaccount for 53 percent of all small businesses.
  7. Small businesses make up 97 percent of exportersand produce 29 percent of all export value.
  8. Small businesses with employees start-up at a rate of over 500,000 per year.
  9. Four years after start-up, half of all small businesses with employees remain open.
  10. The latest figures show that small businesses create 75 percent of the net new jobs in our economy.

The Wall Street Journal notes that while elected officials issue a great deal of affectionate about these endeavors,

“The legislative track record tells another story. It is one in which the interests of big corporations are dominant, and many laws and regulations seem designed to bend the marketplace in their favor and put small, independent businesses at a competitive disadvantage. Since the late 1990s, the overall market share of firms with fewer than 100 employees has fallen from 33% to 28%, according to U.S. Census data. There are nearly 80,000 fewer small retailers today than in 1999. Starting a new business also appears to have become harder. Despite their prominence in our tech-fueled imagination, the number of startups created annually fell by about 20% between the 1970s and the 2000s, Census data shows…A report …by the research organization Good Jobs First… found that two-thirds of the $68 billion in business grants and special tax credits awarded by the federal government over the past 15 years went to big corporations. State and local economic development incentives are similarly skewed.”

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“After complying with the multitude of state and federal legal requirements, business owners should still have time left over to actually run their businesses. Entrepreneurs shouldn’t have to be lawyers to run businesses in the United States. Unfortunately, that is just about where we find ourselves today. It is not where we want to be if we desire a return to sustained prosperity…job creation, productivity improvements and welfare-enhancing innovation have slowed…the problem is caused by the combined weight of hundreds of regulatory or statutory burdens imposed on small and start-up enterprises. The problems fall into eight basic categories.

  1. Poor Tax Policy.Poor tax policies raise the cost of capital, impose high taxes on risk taking and impede economic growth. Moreover, the tax system is monstrously complex, imposing inordinately high compliance costs on small and start-up firms.
  2. Inadequate Access to Capital. Securities laws and, to a lesser extent, banking laws and practices, restrict entrepreneurs’ access to the capital needed to launch or grow their businesses. After all, without capital to launch a business, other impediments to entrepreneurial success are moot.
  3. Expensive Health Care.The U.S. health care system is the most costly in the world and the Patient Protection and Affordable Care Act (Obamacare) imposes high costs on firms with 50 or more employees.
  4. Burdensome Energy and Environment Laws.Environmental and energy regulations raise the cost of energy and limit development of energy resources.
  5. High and Growing Regulatory Costs.The cost of complying with increasingly burdensome and complex regulations continues to grow rapidly. These rules have a disproportionate adverse impact on small and start-up companies that can ill afford to use scarce resources on regulatory compliance rather than growing their business.
  6. Onerous Labor and Employment Laws.Increasingly complex and opaque labor and employment laws raise the cost and risk of employing people. They reduce wages and cost jobs.
  7. Bad Immigration Rules. The U.S. immigration system makes it difficult for firms to gain access to talented foreign workers and for immigrant-entrepreneurs to enter the United States to start a business.
  8. Costly Legal System.The U.S. legal system is the most costly in the world, imposing high and potentially ruinous costs on small firms.

The Goldwater Institute  has proposed an approach to address the obstacles facing small business:

“States can take a major step toward restoring the freedom of enterprise that is every American’s birthright by enacting model legislation called the Right to Earn a Living Act. The proposed law recognizes that the right of individuals to pursue a chosen business or profession, free from arbitrary or excessive government interference, is a fundamental civil right. The act provides substantive protection for those rights while at the same time preserving the ability of state regulatory agencies and local governments to protect the public through legitimate and proportionate health and safety regulations. The act would require that any ordinance or rule that limits entry or competition in a business or profession ‘shall be limited to those demonstrably necessary and carefully tailored to fulfill legitimate public health, safety, or welfare objectives.’ That language contains three essential components: legitimate, necessary, and tailored. ‘Legitimate’ refers to traditional police powers such as the protection of health and safety. By contrast, economic protectionism— favoring some businesses over others — is not a legitimate object of government. ‘Necessary’ and ‘tailored’ refer to proportionality. Is a ban or monopoly necessary, or would free or regulated competition suffice? Is a particular rule properly applied to a specific profession, or is it largely unrelated to the products or services that are provided?”

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Washington’s heavy hand hinders U.S. economy

As the New York Analysis of Policy & Government recently reported, American manufacturing remains in a state of crisis, with less employment in that crucial sector of the economy now than at the start of the Obama presidency. The impact of that issue on the U.S. trade balance is severe.

The most recent releases of the U.S. Census Bureau and the U.S. Bureau of Economic Analysis indicate a worsening of the trade deficit, with the deficit increasing by a very significant $15.5 billion in the latest survey. Year-to-date, the goods and services deficit increased $6.4 billion, or 5.2 percent, from the same period in 2014. Exports decreased $11.7 billion or 2.0 percent. Imports decreased $5.3 billion or 0.8 percent.

The impact of adverse government actions concerning manufacturing is substantially responsible, although almost all sectors of the economy have been affected.  The Heritage Foundation’s latest “Index of Economic Freedom” noted that “substantial expansion in the size and scope of government, including through new and costly regulations in areas like finance and health care, has contributed significantly to the erosion of U.S. economic freedom.  The growth of government has been accompanied by increasing cronyism that has undermined the rule of law…”

Tax rates play a key role. The National Association of Manufacturers has released a study, “The United States needs a more competitive corporate tax system,” which clearly outlines the problem.

A summary of the report:

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“It is abundantly clear that, when compared to the rest of the developed world, the U.S. rate is out of step at best and uncompetitive at worst. The current global tax system in the United States puts manufacturing firms at a disadvantage inside and outside foreign countries. The current global tax system in the United States puts manufacturing firms at a disadvantage inside and outside foreign countries. If the United States converted to a territorial system as part of comprehensive tax reform, it would remove the current barrier to corporate repatriations (transfers in foreign subsidiaries’ profits to U.S. parent companies), promoting a marked rise in domestic investment. The profits of C corporations (entities taxed separately from their shareholders) are taxed once at the corporate level at the corporate income tax rate and again when the after-tax profit is distributed back to shareholders at personal income tax rates. The already high corporate tax rate, coupled with double taxation of dividends and capital gains, reduces economic efficiency by discouraging capital formation and broader economic growth.

“Currently, the United States is the only country in the G-7 that taxes the active foreign earnings of its companies worldwide. Only four other OECD countries have a worldwide system—Chile, Ireland, South Korea and Mexico. The other 29 have a territorial tax system in which business income earned abroad by foreign subsidiaries is wholly or partially exempt from home country tax. Again, the United States fails to respond to global trends. Fourteen of 34 OECD member countries had a territorial tax system in 2000, increasing to 23 in 2005 and 29 in 2014…

“The Tax Foundation maintains an international tax competitiveness index for the 34 OECD countries. Key principles of tax policy examined in the rating system are the competitiveness of the tax code, its neutrality between consumption and savings and whether it favors one industry over another. On all counts, the United States scores poorly, placing 32 out of 34 in the 2014 index. As outlined above, U.S. corporate tax rates, both statutory and marginal effective, are higher than tax rates in our major trading partners, making it harder for U.S. companies to compete in the global marketplace. Similarly, the U.S. worldwide tax system, an outlier when compared to tax systems in most other developed countries, puts U.S. global companies at a competitive disadvantage vis-à-vis their competitors outside the United States. Converting from a global to a territorial tax system would make U.S. rules more internationally competitive and unlock an estimated $2.1 trillion in stranded profits held abroad by U.S. multinationals. Our tax code is also biased, favoring consumption over saving (through high capital gains and dividends taxes, high estate taxes and high progressive income taxes). Furthermore, double taxation of corporate profits discourages firms from electing the C corporation structure that has wider access to capital markets.”

The continuing problems of slow-to-no growth, and high unemployment particularly in middle-class jobs could be resolved by a lessening of the heavy hand of government in areas such as business regulation and taxation. It is a step urgently required by the American economy.