1 February 2017

Here’s the one thing Trump is right about

By William O'Keefe

The Federal Register, where US regulations are published, began publication in 1936. Back then, it was 11 pages long.

By 1960, the Code of Federal Regulations, which makes up the bulk of the Federal Register, had grown to almost 23,000 pages.  Now, it is almost 175,000.

This expansion of the administrative state has had an extensive economic impact. In June 2013, a paper by John Dawson and John Seater in the Journal of Economic Growth estimated that federal regulations have reduced growth by about 2 per cent per year between 1949 and 2005. They found that if federal regulations had remained at 1949 levels, current GDP would be $38.8 trillion higher.

That number may be unrealistically high, but there is no doubt about the negative impact of regulations on the economy. A Heritage Foundation report, Red Tape Rising, found that “more than $22 billion per year in new regulatory costs was imposed on Americans” in 2015, “pushing the total burden for the Obama years to exceed $100 billion annually”. That represents a lot of jobs lost, or not created in the first place.

As government has grown, so have the incentives for the bureaucracy to regulate more. This is not just an issue in America – Britain and the EU have their own well-known problems with regulatory overreach. Just consider the sheer volume of EU regulations set to be incorporated into British law as part of Theresa May’s “Great Repeal Bill”, which will take years if not decades to unpick.

During his election campaign, Donald Trump set a goal of removing two federal regulations for each new one issued. And his instructions to federal agencies confirm that he really means it.

It’s a daunting task.  But daunting isn’t the same as insurmountable. So what can politicians do, on both sides of the Atlantic, to kick-start the process?

To start with, all regulations that have been in effect for 40 or more years should be prime candidates for sunsetting unless they are reaffirmed, during a public consultation period, as still necessary.

Major regulations – in the US, those with an impact of $100 million or more – should be given priority treatment. In Washington, that process should begin with the Environmental Protection Agency (EPA), which was on a regulatory rampage during the Obama Administration: during this period, it issued more than 3,300 new regulations, many of which will have a significant impact.

Another problem common across the West is the insane complexity of the tax code, and the regulations surrounding it. Tax reform is one of the highest priorities of Congress and the new Administration. The emphasis should be placed on simplification, so that most families and small businesses can file their returns without needing to hire someone to do the job for them.

And of course, once we’ve cut the regulations, we need to make sure they don’t come creeping back. That means legislation to make sure that these reforms cannot easily be unpicked by a change in government.

Regulatory reform legislation should include setting an annual regulatory budget, as well as require that every major regulation obtain congressional or parliamentary approval before taking effect.

And sunset provisions should not just be part of all major rules, but extended to all government agencies and quangos.

Both Britain and America are facing extraordinary political moments – but just as a good crisis should not go to waste, neither should the current alignment between Congress and White House in the US, or the opportunities presented by Brexit.

For all their convulsions, the next 12 months present a rare, and potentially fleeting, opportunity to reverse the growth and power of the administrative state – and in the process both to kickstart growth, and foster individual liberty.

William O'Keefe is Founder and President of Solutions consulting, and the former EVP/COO of the American Petroleum Institute