Where We Stand: Our Principles On Reforming Regulation

According to estimates prepared by economists Mark Crain and Thomas Hopkins for the Small Business Administration, regulations cost Americans $843 billion (over $8,000 per household) in 2000. This is almost half the amount collected in federal taxes and close to the $1 trillion paid in personal income taxes that year.

Not all regulations are unjustified.Many, in fact, are quite beneficial. For instance, most would agree on the need for some security rules to protect citizens against terrorism, although the extent and scope of those rules may be subject to debate. Yet, given the costs of regulation, the presumption of policymakers should be against regulation and in favor of market solutions wherever possible. Policymakers should therefore adopt a new regulation only when the need has been clearly demonstrated and only after considering the expected benefits and costs, as well as the likely alternatives.

It is not enough just to limit the number of new regulations. The total burden of regulation on American consumers should be reduced. To do that, policymakers must examine existing regulations and eliminate those that are no longer needed.

The President should:

• Issue clear guidance to agencies on the need to reduce regulatory burdens, making it clear to policymakers and the public that this is a major priority. Failure to set such a tone and provide explicit guidance will practically guarantee the failure of reform efforts in the face of bureaucratic and political opposition.
• Strengthen the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA), making sure that it has the expertise, resources, and authority to ensure that each proposed regulation is meaningfully reviewed. OIRA was reinvigorated by the Bush Administration, playing an active role in consideration of new rules and ensuring that full costs and benefits are considered before rules are promulgated. However, it is bureaucratically outgunned in regulatory battles: There are over 4,300 regulatory agency staffers for every OIRA staffer.
• Require independent agencies to submit cost-benefit analyses to OIRA. Almost half of all major regulations now come from independent agencies such as the Securities and Exchange Commission and the Federal Communalizations Commission,which currently are outside OIRA’s reach and are subject to no third-party review of their proposed regulations.

An Office of Regulatory Analysis charged with providing Congress with information on the cost and impact of regulation and possible alternatives would provide an additional independent source of analysis on regulation. The new office could be modeled after the Congressional Budget Office, which provides Congress with information on spending programs and acts as both a complement to and a check on the Office of Management and Budget.

New technologies, ranging from wireless phone service to broadband Internet connections, have vastly changed how Americans communicate. The telecommunication regulatory system, however, has not been changed since passage of the Telecommunications Act of 1996, when wireless phones were in their infancy and the Internet was a clunky toy for high-tech geeks. As a result, innovation is unnecessarily stifled and investment is needlessly discouraged.

Congress should enact a new telecommunications act to bring the regulatory system into line with 21st century realities. Among other things, the legislation should:

• Roll back rate regulation in markets that are competitive. Where consumers have choices, the marketplace— rather than regulators—should determine prices.
• Eliminate requirements that force companies to share their investments with competitors. Such “unbundling” regulations discourage investment and are not necessary where multiple competitors exist.
• Eliminate artificial legal distinctions between “telecommunications” and “information” services. These distinctions are meaningless in a world where services are converging.
• Reform and reduce wasteful subsidies. Ideally, subsidies should be eliminated. If this is not possible, they should at least be targeted only to those in economic need and provided through direct appropriations rather than hidden in consumer telephone bills.

The financial industry has been federally regulated for over 70 years, and many of its products bear an explicit government guarantee or insurance. However, these regulations have often stifled innovation or produced a moral hazard resulting in a government bailout. Reducing unnecessary and outdated regulations will increase productivity and reduce the chance that taxpayers will be asked to pay for regulatory failures.

• Reexamine the lengthy series of regulations and illconsidered laws that were the result of recent corporate and financial scandals. These extremely technical laws have had a major negative impact on normal corporate actions. The Administration and Congress need to reexamine laws such as the Sarbanes–Oxley accounting reform law to remove unnecessary burdens on smaller publicly traded corporations. In addition, they need to revise or eliminate recent Securities and Exchange Commission regulations on corporate governance and mutual funds because they impose unnecessary or ill-considered micromanagement in the name of consumer protection.

The constant development of new financial products challenges regulation that would divide the financial industry into neat segments based on traditional markets. Financial institutions law and regulations need to be modernized to eliminate provisions that restrict competition, hamper innovation, or impose unnecessary burdens on normal industry operations.

The Family and Medical Leave Act (FMLA) of 1993 provides employees with up to 12 weeks per year of unpaid leave to recuperate from a “serious health condition” or care for a new child or a sick or injured relative. The Department of Labor’s Clinton-era rules for enforcing the FMLA go well beyond Congress’s intentions and place unreasonable burdens on employers.

• Strengthen the definition of a “serious health condition.” Roughly half of human resource supervisors report that they have been obligated to give FMLA leave, often for mild illnesses such as the common cold, that they believed was illegitimate. New rules should limit the use of FMLA leave to situations involving more acute ailments that require significant medical care.
• Introduce new rules for “intermittent leave.” The current rules allow employees to continue working while receiving periodic treatment. They also have created an unnecessary recordkeeping burden for employers, who in some cases have been forced to track leave time down to the minute. New rules should allow intermittent leave to be tracked on a more reasonable half-day basis.

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In 2001, President George W. Bush rejected U.S. participation in the Kyoto Protocol, an international global warming agreement that would have committed the U.S. to limit “greenhouse” gas emissions such as carbon dioxide. (In 1997, the Senate voted unanimously against the agreement.) Emissions by most nations, however, are not covered, and much of the science of climate change is still unsettled. In addition, the protocol would have cost Americans thousands of dollars in increased energy costs, hindered job creation, and even reduced quality of life. Yet some Members of Congress have proposed legislation that would cap greenhouses gas emissions, even without ratification of the Kyoto Protocol. Policymakers should continue to reject such proposals.