Sep 08, 2016 - 10:00am

How Our Regulatory System Broke, And Why We Must Fix It.

What’s the issue?

We all learned in grade school that our country’s government was built around the simple concept of checks and balances. Refresher: Our Founding Fathers were a bit skeptical of government power so they went to great lengths to ensure that all three branches of government had distinct but equally important roles to play in establishing the rules that would govern citizens and businesses. One of the most important protections they put in place was frequent elections—a tool by which the American people could hold lawmakers accountable for the rules that were made. 
Somewhere along the way, however, that rulemaking process began to break down. Today, it has been replaced by one in which unelected, unnamed government bureaucrats, instead of elected members of Congress, make the vast majority of the rules coming out of Washington. But don’t let the term “rule” fool you—these so-called “rules” carry the force of law. This gradual shift in rulemaking power is perhaps the single greatest change in our system of government since our country’s founding.

How did this happen?

Again, let’s recall civics 101. As outlined in our Constitution under the Separation of Powers, the legislative branch is responsible for making the laws, the executive branch for enacting and enforcing them, and the judicial branch for evaluating them against our constitution. Over time, however, the legislative branch (ahem, Congress) has ceded authority to the executive branch, which oversees federal agencies. 
By passing vaguely worded laws, Congress has allowed agencies to fill in the gaps when deciding how laws should be implemented. Enter the snowball effect.  Agencies slowly and steadily began exercising greater authority over issues related to the workforce, health care, banking, and the environment until they effectively established themselves as a fourth branch of government. By the time the actual lawmakers realized they had yielded too much power to federal agencies, there was no stopping the regulatory rulemaking snowball. 

What provides agencies with the authority to issue rules in the first place?

The process by which federal agencies propose and establish new rules is established by what’s known as the Administrative Procedure Act (APA), which was enacted by Congress in 1946. While the goal of the APA was to improve transparency, allow meaningful public involvement, and ensure the agencies implement the intent of Congress, it has fallen woefully short of these objectives.
In contrast to the true legislative process, regulatory agencies propose and enact new rules with relative ease.  Once an agency decides that a regulatory action is necessary, it develops and publishes a proposed rule, solicits comments from the public, and then publishes its final rule in the Federal Register with a specific date upon which the rule becomes effective and enforceable as law. While public participation is generally required, that step is often treated as a mere “check the box” formality, allowing agency input to trump the will of the people. 

Exactly how many laws are we talking about?

Today, the vast majority of laws governing the United States are not passed by Congress but are issued as regulations. One study found that in 2007, Congress enacted 138 public laws, while federal agencies finalized 2,926 rules, including 61 major rules (those imposing costs of more than $100 million). During the eight years of the Obama administration alone, regulators have completed 600 major rules. That breaks down to 81 major rules per year or approximately one new rule every three days the government is open. 

Okay, so regulators make more laws than Congress. So what?

Here’s the problem: Agencies are free to enact laws with few restraints and little oversight. They don’t need to collaborate or comprise with any other governing body before changing the landscape in which Americans live, work, and play.
Simply put, the American people no longer have a means to hold those making the law of the land accountable. While Congress was explicitly granted legislative authority, we now operate in a system where regulators are acting with increasing autonomy and decreasing transparency. 

Which federal agencies are issuing these new laws?

While there are dozens of federal agencies that have the power to propose and implement new rules, a handful of them are responsible for the vast majority of significant, high-impact regulations. 
Let’s take a quick look at who the primary players are. For starters, it’s easy to pinpoint the worst offender when it comes to excessive overregulation—the Environmental Protection Agency (EPA). 
Of the 34 major rules issued by federal agencies from 2000-2015, EPA issued 20 of them—more than all other agencies combined. Last year alone, EPA finalized three major rules— the Clean Power Plan, the Waters of the United States rule, and a Revised National Ambient Air Quality (Ozone) Standards—that will dramatically impact the affordability and reliability of electricity as well as restrict opportunities for business to grow. 

How do they do that much harm?

Let’s start with the ozone rule, which imposes billions in costs on state and local governments, hampering development in local economies across the nation. Under the rule, businesses could be denied federal air permits, putting construction—and construction jobs—at risk. 
Meanwhile, the Clean Power Plan, or CPP, upends the entire U.S. energy sector by requiring states to drastically cut emissions from traditional power plants. CPP would increase average electricity prices in 40 states, costing households up to $79 billion. In a sense, EPA’s new power plant rule forces an industry to do something that’s technologically impossible. Thankfully, the Supreme Court stayed, or blocked, the rule from implementation until pending lawsuits play out in the judicial system.
And then there’s the Waters of the United States rule, or WOTUS, which expands federal jurisdiction over land features. Under the rule, a simple roadside ditch could become a federally regulated waterway. The rule has left landowners and businesses uncertain about what they can do with their own property, and it was finalized without the required regulatory impact analyses or consultations with states or affected stakeholders.

Okay, so the EPA has overstepped its bounds. Any others?

Sadly, yes. Other federal agencies actively issuing sweeping regulations with little thought about the economic impact include the Department of Labor (DOL), the National Labor Relations Board (NLRB), and the Consumer Financial Protection Bureau (CFPB).
DOL’s Overtime Rule, for example, demands a dramatic adjustment for salaried workers that many small businesses aren’t able to absorb. The result is less workplace flexibility and operation disruptions. In addition, the agency’s new retirement regulations make it harder for millions of Americans to save for retirement by making it more costly for businesses to offer retirement savings plans to their employees. These reforms unfairly impact small businesses.
The NLRB has compounded the problems for small businesses by expanding the long-standing definition of a “joint employer.” In doing to, NLRB has caused many small companies to question expansion in the current climate of uncertainty and risk. Under the new rule, franchises may find themselves liable for workplaces they don’t even control.

What impact do these rules have on our country? 

Where the system is really broken is in how it deals with the most complex and high-cost regulations—those that have the most profound effect on the fabric of our society. Between 2000 and 2015, federal agencies have issued 34 rules that each imposed more than $1 billion in costs.
Collectively, these rules inflict about $125 billion in costs on the American economy every year. Additionally, it’s worth noting that this may be just the tip of the iceberg since a number of independent agencies, including the U.S. Securities and Exchange Commission and the Federal Communications Commission, are not even required to conduct cost-benefit analysis on their rules so the economic impact is never even assessed.

So you’re saying that federal regulations are bad?

Not at all. On the whole, the regulatory process has generally worked well in managing routine matters, and there is no question that we need regulations to keep our air clean and our workers, customers, and families safe. But regulations must be based on a demonstrated need, they must be backed by sound data that clearly demonstrates that the benefits outweigh the costs, and they must be subject to checks and balances. Otherwise, this fourth branch of government threatens to knock down entire industries, shutter small businesses, and kill jobs.

How do we fix the system and restore balance?

Congress can take a big step toward fixing the system by passing the Regulatory Accountability Act (RAA) to improve transparency and accountability, and modernize the Administrative Procedure Act. RAA would focus on the most significant and high-impact regulations that have a nationwide impact on jobs and economic growth—that is, the rules that stifle investment and dampen Americans’ risk-taking drive and entrepreneurial spirit. Most importantly, RAA would ensure congressional intent is achieved, and that the will of Congress and the will of the American people are driving our lawmaking process. 

Okay, so what’s the bottom line?

Americans respect our system of checks and balances as outlined in our constitution, and we deserve a regulatory system that does, too. Without that system, rules are unfair, impractical, costly to businesses of all sizes, and they fail to protect everyone’s rights.
In short, the federal regulatory process must be reformed to ensure that agencies implement the will of Congress and that the courts uphold the constitutional principle of separation of powers, so our country can get back to work without the undue, unchecked burden of overregulation.  
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