The Latest in Regulations

Requiring Cost-Benefit Analysis For All Regulations

The Challenge

Conservatives, with good reason, are quick to note the excessive costs of federal regulations: depressed economic growth, stagnating wages, and higher costs for families. The American Action Forum maintains a useful database that details the more than 3,100 regulations issued from 2007 through 2014, which have cost taxpayers an estimated $747 billion.

In its annual report on regulations, the Competitive Enterprise Institute estimates that in 2014 federal regulations cost American consumers and businesses an estimated $1.88 trillion in lost productivity and higher consumer prices, or a staggering $14,976 per household.

As if the regulatory costs we know about are not alarming enough, some of Washington’s most powerful regulators are not even required to perform a cost-benefit analysis (CBA) before issuing a regulation, bypassing public oversight.

President Reagan also recognized the problem of unaccountable regulatory agencies. He responded by issuing an executive order in February 1981 that required executive branch agencies, like the Department of Health and Human Services and the EPA, to perform CBAs before issuing major rules. But under existing law, many independent regulatory agencies (while considered part of the Executive branch) are organized to operate independently of White House influence. As a result, Reagan’s executive order did not cover these independent regulatory agencies. Thirty-four years later, these independent regulatory agencies are still not required to comply with the same CBA requirements as other federal regulators.

Independent regulatory agencies include:

  1. Consumer Financial Protection Bureau
  2. Commodity Futures Trading Commission
  3. Consumer Product Safety Commission
  4. Federal Communications Commission
  5. Federal Deposit Insurance Commission
  6. Federal Reserve System
  7. Federal Energy Regulatory Commission
  8. Federal Trade Commission
  9. Nuclear Regulatory Commission
  10. Securities and Exchange Commission

While these regulators occasionally provide some estimates of the costs of their proposed regulations, 35% of the major regulations these agencies issued from 2003 to 2012 included no such information. None at all.

And when independent regulatory agencies do provide cost information, it is often incomplete. For example, of the 21 major regulations issued by these agencies in FY 2012, 17 included some information about costs and benefits, but only seven of those included an estimate of monetized costs, and none included an estimate of monetized benefits. In other words, not a single regulation was accompanied by a complete cost-benefit analysis.

These are not just minor regulations. For example, this year, when the Federal Communications Commission issued a rule to regulate broadband service under rules that were originally established in the 1930s for telephone service, they didn’t bother to issue a cost-benefit analysis either.

If you think regulators issuing rules without cost-benefit analysis could lead to bad public policy, you are not alone. Even the Obama administration agrees. Its Office of Management and Budget wrote in a 2014 report to Congress, “The absence of such [cost-benefit] information is a continued obstacle to transparency, and it might also have adverse effects on public policy. Recall that consideration of costs and benefits is a pragmatic instrument for ensuring that regulations will improve social welfare; an absence of information on costs and benefits can lead to inferior decisions.”

HIGH-SPEED INTERNET USAGE

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Percentage of individuals living in a household with high-speed Internet use, 2013

Source: U.S. Census Bureau, 2013 Community Survey

The Solution

As the president’s Jobs Council recommended in 2011, Congress should enact a law that subjects independent regulatory agencies to the same cost-benefit analysis requirements as regulatory executive branch agencies are subject to.

A number of regulatory reform bills introduced in Congress would require, among other things, independent agencies to conduct cost-benefit analysis. Using a simpler approach, the Independent Agency Regulatory Analysis Act would authorize the president to require independent regulatory agencies to conduct cost-benefit analysis, in the same way that Reagan’s executive order applied to other agencies.

Bringing this reform to independent regulatory agencies might prevent them from unleashing a flurry of flawed regulations before the end of the president’s term.

The Beneficiaries

American families and businesses can win when policymakers require independent regulatory agencies to conduct cost-benefit analysis before issuing a rule. Requiring cost-benefit analysis could result in regulatory relief that would reduce the prices consumers and businesses pay, grow our economy, and raise the wages of many American workers.

The Conservative Principle In Practice

Regulations can play an important part in ensuring the fair and impartial application and enforcement of our laws, but regulations should always be guided first by the law and second by the facts. Cost-benefit analysis is an important tool in ensuring Washington regulators impartially implement existing laws, rather than just making new ones.

Localize It & Personalize It

One way to discuss the burden of regulations is to talk about the regulatory costs per household using the Competitive Enterprise Institute data linked to above.

Another is to use a specific example that affects most Americans, like the regulation of high-speed Internet service. Seventy-eight percent of Americans live in a household with high-speed Internet. Because of a statutory loophole, however, the Federal Communication Commission was able to issue a regulation affecting broadband service for every American without even conducting an analysis of the costs and benefits. Because of their regulations, access to the Internet will likely become more expensive, and consumer choice will diminish. Information about household use of high-speed Internet in each state may be found in the map above and in a recent report from the U.S. Census Bureau.

Champions

Senator Rob Portman (R-OH) is the sponsor of the Independent Agency Regulatory Analysis Act

Response To Common Arguments

Charge: As evidenced by all the other costly rules the Obama administration has issued, requiring cost-benefit analysis won’t actually stop overregulation.

Response: While imposing a cost-benefit analysis requirement won’t prevent an independent regulatory agency from issuing problematic regulations, quantifying the costs will make it easier for conservatives to fight bad regulations and will allow us to hold regulators accountable for the costs they impose on families and businesses.

Charge: Rather than empowering the president to impose cost-benefit requirements on independent regulatory agencies by executive order, Congress should impose it by statute.

Response: There are a variety of ways to achieve the policy goal, but after 34 years of waiting and leaving these independent regulatory agencies exempt from cost-benefit requirements, it is past time to actually fix the problem.

Message Points

  • Federal regulations cost taxpayers nearly $750 billion between 2007-2014.
  • Despite the high costs that federal regulations impose, independent regulatory agencies, including the CFPB, FCC, and SEC, are not required to conduct cost-benefit analysis of regulations before issuing them.
  • Requiring cost-benefit analysis could provide the kind of regulatory relief that would reduce the prices consumers and businesses pay, spur economic growth, and raise wages.
  • Even President Obama’s Jobs Council recommended that independent regulatory agencies be required to conduct cost-benefit analysis of their regulations.