Dr. Hemphill teaches Business and Society in the M.B.A. program. In the B.B.A. program, he teaches courses in Corporate & Business Strategy, Business and Society, Innovation Management and International Business. His research areas include: Strategic Management of Technology and Innovation; Technology and Innovation Policy; Business Governance and Ethics; and Global Business and International Political Economy.
In President Donald Trump’s “Contract with the American Voter” (“the Contract”) – the president’s plan of what he promised to do to in his first 100 days in office – a key component is a pledge to reduce the regulatory burden on businesses, their employees, and consumers, and there appears to be solid public support for this policy change.
In a recent poll (conducted February 7–9) of 1,000 registered voters conducted by the American Viewpoint for the American Action Network, respondents were asked the following question: “Trump and Republicans in Congress are proposing reforming the regulatory system by identifying and eliminating unneeded and duplicative regulations as well as those that are slowing down job growth. This proposal will also create a temporary moratorium on any new regulations. Do you favor or oppose this proposal to reform regulations?”
Those surveyed on this question responded in “favor” by a plurality of 57 percent (34 percent “strongly” and 23 percent “somewhat”) versus 35 percent who said they “oppose” (22 percent “strongly” and “13 percent “somewhat”). What is of noteworthiness is that among those respondents identifying themselves as politically “independent,” there is nearly two-to-one support (60 percent to 31 percent) for “regulatory reform.” The “pent-up” demand for regulatory reform that Trump had recognized among American voters leading up to the November election appears to be justified in this poll’s results.
The increasing regulatory burden on the U.S. economy is well documented. According to James L. Gattuso and Diane Katz, Heritage Foundation regulatory policy experts, more than 22,700 regulations were issued by the Obama administration, increasing regulatory costs on the country by more than $120 billion annually. And this cost is likely an underestimation, because the impacts have not all been fully quantified for a significant number of federal administrative rules. Furthermore, according to a 2016 study, the Mercatus Center at George Mason University estimated federal regulations have created a considerable drag on the U.S. economy, amounting to an annual reduction in U.S. real GDP growth of 0.8 percent.
In his Contract, Trump identified “six measures to clean up the corruption and special interest collusion in Washington, DC.” One of the six measures is “a requirement that for every new federal regulation, two existing regulations must be eliminated.” On January 30, Trump implemented his promise when he issued Executive Order 13771 (“Reducing Regulation and Controlling Regulatory Costs”). Under Section 2 of this executive order, the president explicitly states, “Unless prohibited by law, whenever an executive department or agency publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed.”
The Office of Management and Budget, in a February 2 memorandum sent to executive departments, agencies, and commissions, further explained Executive Order 13771’s requirements: “In general, executive departments and agencies may comply with those requirements by issuing two ‘deregulatory’ actions for each new significant regulatory action that imposes costs. The savings of the two deregulatory actions are to fully offset the costs of the new significant regulatory action.” In effect, with this executive order, Trump is placing a “moratorium” on increasing regulatory costs on the U.S. economy.
Moreover, on January 20, the president, in his “Memorandum for the Heads of Executive Departments and Agencies, Regulatory Freeze Pending Review,” placed an executive hold on all administrative rules (with exceptions made to those pertaining to emergency circumstances relating to health, safety, financial, or national security matters). This has become a standard action initiated by previous Republican presidents when entering office.
Furthermore, this memorandum directs agency executives to refrain from sending regulations to the Office of the Federal Register until a department/agency head who has been designated by the president reviews and approves it; withdraw all regulations that had been sent to the Office of the Federal Register but have not yet been published; and postpone, for 60 days, regulations that have been published in the Federal Register but have not yet taken effect, for the purpose of reviewing questions of fact, law, and policy (as permitted by law).
A week after Trump’s inauguration, his administration withdrew 24 significant administrative rules that were about to be sent to the Federal Register for publication and delayed the effective dates of approximately 250 other rules, including 30 Environmental Protection Agency regulations. Additionally, Trump signed an executive order requiring every federal agency to establish a Regulatory Reform Task Force to evaluate their agency regulations and recommend administrative rules for repeal or modifications.
A legislative option the U.S. Congress has available is to review interim and final “major” and “non-major” administrative rules under the Congressional Review Act (CRA), originally signed into law in 1996 by President Bill Clinton. A “major rule” is defined as one with $100 million or more in expected economic impact. However, through December 2016, only one CRA resolution has been successfully enacted, which occurred in 2001 by President George W. Bush. It involved an Occupational, Safety and Health ergonomics rule initiated in the final days of the Clinton administration.
Under CRA, eligible rules begin with a notification to Congress from the respective agency of the adoption of a new regulation. This notification begins a 60-day period during which Congress can introduce a “resolution of disapproval” of the rule. Only a simple majority of votes is required for passage of such a resolution, i.e., 218 votes in the House and 51 votes in the Senate. Therefore, under this process, most CRA-eligible rules are those issued by the Obama administration in the second half of 2016.
Moreover, a rule or regulation disapproved by Congress under the CRA “may not be reissued in substantially the same form, and a new rule that is substantially the same as such a rule may not be issued, unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.” Thus, while a CRA resolution does not require the same supermajority as a law, it has the same effect in limiting rules and regulations that future presidential administrations can issue.
On February 14, Trump signed a CRA resolution that repealed a transparency regulation requiring mining companies to disclose financial transactions with foreign governments. Critics of the regulation argue it created a costly and unnecessary burden on international American energy companies.
Congressional Republicans are planning to use the act generously in the weeks and months ahead. “This is the first of many Congressional Review Act bills to be signed into law by Trump,” said House Speaker Paul Ryan (R-WI). Congress is presently occupied with repealing late-Obama-era regulations and rules concerning coal mining, “fracking” (utilized in oil and gas exploration), and land management, among others.
Yet another critical success for Trump and his regulatory reform agenda was the recent Senate vote confirming Scott Pruitt as administrator of the U.S. Environmental Protection Agency (EPA). Under Pruitt, EPA will soon likely issue a directive scaling back existing EPA regulations, including a rule reducing carbon-dioxide emissions from power plants.
In an interview with The Wall Street Journal published in February, Pruitt argued his renewed focus on statutes and federalism will produce certainty, which will be good for business: “The greatest threat we’ve had to economic growth has been that those in industry don’t know what is expected of them. Rules come that are outside of statutes. Rules get changed mid-way. It creates vast uncertainty and paralysis, and re-establishing a vigorous commitment to rule of law is going to help a lot.”
In summary, the Trump administration has had a successful first month in addressing its regulatory reform agenda. It will be up to the Republican-controlled Congress to assist the president in the upcoming weeks, as they will have the responsibility of passing CRA “resolutions of disapproval” for Trump’s signature, “repealing and replacing” the Patient Protection and Affordable Care Act, as well as confirming key leaders for the Departments of Labor and Interior and the U.S. Food and Drug Administration.
The first 100 days of the Trump presidency has the potential to be a watershed regulatory reset of the steadily encroaching federal regulatory state that has developed over the past quarter-century.