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REINing in Regulation

Monday, November 22, 2010

The REINS Act would require that the House, Senate, and president approve every new major administrative rule proposed by a federal agency before it takes effect.

With a Republican tsunami having swept Democrats out of control of the House of Representatives and the Senate now significantly less Democratic, the upcoming 112th Congress offers an opportunity to reconsider the nation’s regulatory state. Senator Jim DeMint (R-South Carolina), has recently introduced the Regulations from the Executive in Need of Scrutiny Act of 2010 (REINS). In 2009, Representative Geoff Davis (R-Kentucky) introduced similar legislation in the House. Both bills have significant Republican co-sponsorship, including Representative John Boehner (R-Ohio), the presumptive Speaker of the House in the next Congress.

The REINS Act would require that every new major administrative rule proposed by a federal agency be approved through simple majority vote by the House, Senate, and the president before such rule takes effect. This legislation defines a “major rule” as one that the administrator of the Office of Information and Regulatory Affairs of the Office of Management and Budget deems may result in an annual economic effect of $100 million or greater, a major increase in costs or prices for consumers, or significant adverse effects on the economy.

Federal regulations cost American businesses and taxpayers $1.75 trillion in 2008, an amount equal to 14 percent of U.S. national income this year.

This legislation contrasts with the existing regulatory approval process instituted under the Congressional Review Act of 1996, whereby major administrative rules take effect unless Congress passes and the president signs a joint resolution disapproving them.

Regulations, in the form of administrative rules, have serious implications for taxpayers as hidden, so-called “regulatory taxes.” According to a recent study conducted by economists Nicole Crain and W. Mark Crain of Lafayette College, the regulatory costs for U.S. businesses in 2008 were $8,086 per employee, with small businesses (fewer than 20 employees) bearing an annual regulatory cost of $10,585 per employee. Furthermore, Crain and Crain estimate that federal regulations cost American businesses and taxpayers $1.75 trillion in 2008 (an increase of 3 percent since 2004), an amount equal to 14 percent of U.S. national income that year.

The new healthcare law creates 183 new agencies, commissions, panels, and other administrative bodies.

Through fiscal 2010, the Heritage Foundation found that federal agencies had promulgated 43 rules costing an estimated $28 billion—the highest annual costs of regulation since 1981. There is more to come. Davis Polk & Wardwell LP, a multinational law firm, reports that the Dodd-Frank Wall Street Reform and Consumer Protection Act requires 243 new federal rulemakings, 67 studies, and 22 new periodic reports. According to the U.S. Chamber of Commerce, adding new rulemaking authorized by this legislation to those that are presently mandated will promulgate an estimated 533 new rules. Already, the Congressional Research Service reports that the U.S. Department of Health and Human Services has failed to meet one-third of federally mandated deadlines under the new national healthcare law. The new healthcare law creates 183 new agencies, commissions, panels, and other administrative bodies.

The REINS Act would force congressional oversight and increased transparency of the often-ignored federal administrative rule process and would focus both chambers on those regulations having the greatest impact on the U.S. economy. Given the sluggish economy and high unemployment, this growth-oriented legislation is worth a look.

Thomas A. Hemphill is an assistant professor in the School of Management at the University of Michigan-Flint.

FURTHER READING: Scott Shane explains “Why Small Businesses Aren’t Hiring,” Alex Pollock analyzes “Why the Fed Cannot Regulate ‘Systemic Risk’,” Arthur Brooks lists the “Top Ten Ways Government Kills Jobs in America,” and Kevin Hassett advises the Obama administration to “End, Don't Extend, Bush Tax Cuts for Fresh Start.”

Image by Darren Wamboldt/Bergman Group.

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