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The Regulatory Tsunami--How a Tidal Wave of Regulations Is Drowning America

Wednesday, October 6, 2010 - 8:00pm

The Des Moines Rotary Club
Des Moines, Iowa

Remarks by
THOMAS J. DONOHUE
President and CEO, U.S. Chamber of Commerce

Introduction

Thank you very much, Suku, and good afternoon everyone.

Suku is a great American success story. Born and raised in Uganda, he came to the United States to attend school, decided to stay, and rose to lead the largest independently owned community bank in Iowa.

Only in America!

That bank happens to be owned by one of Iowa’s most prominent and respected families, the Ruans. I am delighted that John Ruan was able to join us today.

John is vice chairman of my board, a great business leader, and a good friend. I knew his father well and admired him deeply. He started a trucking company with a single truck during the height of the Great Depression and built it into a vast financial empire.

These two men and their families are great examples of what can be achieved under America’s free enterprise system.

There are millions of other stories just like theirs across this great land. Perhaps you share a similar one ... of dreaming big, starting a business, and working hard to earn success.

Today, I’d like to talk about a clear and present threat to that system, a system that helped build America into the greatest country on earth ... a system that provides more opportunity, more jobs, and more prosperity than any other in the world.

Today, American free enterprise—indeed, the American Dream—is being overwhelmed by a tsunami of government regulations.

The more than 100,000 regulations issued over many decades are like plaque that slowly and silently accumulates in the arteries. They are depriving our economic system of the needed oxygen to grow and expand. Eventually they will silence the heartbeat of our economy.

The situation is becoming more acute. In the past two years, we’ve seen a dramatic acceleration of major regulations and mandates, from the health care and financial reform laws to some of the most activist agendas ever undertaken by federal agencies.

Now, let me state plainly and clearly: Business has long recognized the need for sensible regulations to ensure workplace safety, guarantee worker rights, and protect public health.

Businesses need clear rules of the road. They need standards and procedures on how to operate equipment, handle food properly, ensure safe working conditions, and keep the environment clean.

A nation without regulations would be like a busy city street without traffic lights—unsafe and utter chaos.
But we’ve gone too far. America is sinking under the crushing weight of a vast and ever-expanding regulatory state. That burden threatens to short-circuit our recovery, hamper long-term growth, undermine our global competitiveness, and suffocate the entrepreneurial spirit so vital to America’s success.

A century ago, Will Rogers said: “Thank God we don’t get all the government we pay for.”

Well, today we’re getting all that we pay for—and then some!

So, today, I’d like to examine the vast size and scope of the regulatory maze, how it’s impacting our economy, and why—if we don’t act now—we run the risk of moving this country away from a government of the people to a government of the regulators.

The Size and Scope of the Regulatory State

If you want an idea of how far-reaching and all consuming the regulatory state is, consider a publication called The Code of Federal Regulations, or CFR.

Put simply, it includes every regulation in force in this country.

The document is nearly 150,000 pages long spread over 50 different volumes. It is double columned, single spaced, and in fine print.

You can open any volume at random, plunk your index finger down on almost any spot on the page, and you’ll land on a sentence that defies human comprehension.

Federal regulations are only the tip of the iceberg—there are hundreds of thousands, if not millions, of regulations at the state and local levels. In fact, those are often the ones small businesses complain about the most.

California offers a perfect example. A recent study pegged the cost of state regulations at $177 billion in 2007. It also resulted in the loss of more than 1 million jobs.

While many regulations provide valuable benefits to business and society, many are simply outdated, ineffective, overly complicated, and counterproductive. They are too numerous, too pervasive, and too costly.

How costly? The Small Business Administration’s Office of Advocacy puts the total price tag of complying with federal regulations at $1.75 trillion in 2008. That’s trillion with a “t.”

That’s 12% of GDP. That’s $500 billion more than the amount we pay in personal income taxes.

Had every U.S. household paid an equal share of the federal regulatory burden, each would have owed $15,500 in 2008.

The average cost to businesses was nearly $8,100 per employee in 2008. The costs are 36% higher for small businesses, which create 60%–80% of new jobs.

The amount of regulations promulgated and finalized ... the number of major regulations issued ... the money regulators spend to develop them ... and the cost to comply with them ... moves only in one direction—up.

According to the Competitive Enterprise Institute’s publication 10,000 Commandments, approximately 4,000 rules from nearly 70 departments and agencies filled the regulatory pipeline in 2008.

The number of “economically significant” rules—those with an impact of more than $100 million—was up 13% from 2007 to 2008. They were up 14% from the year before that.

In the last decade, well over 40,000 final rules were issued.

This explosive expansion of the regulatory state has occurred under both Republican and Democratic administrations and Congresses.

In fact, from 1980 to 2009—a period some describe as an era of laissez-faire regulation—the total amount of dollars adjusted for inflation spent by Uncle Sam’s administrative agencies skyrocketed.

Regulators will spend $59 billion next year drafting and issuing new rules, regulations, and mandates that you’ll have to follow—or else.

How many regulators does the government employ? 284,000. How many did it employ in 1960? 57,000.

A Rapid Acceleration

If you think we’ve seen dramatic increases in recent years, you ain’t seen nothin’ yet!

The Environmental Protection Agency is advancing 29 proposed major rules and 173 others—an unprecedented level of regulatory action.

The Labor Department is considering dozens of restrictive workplace policies based largely on the AFL-CIO’s wish list.

The massive health care law creates 183 new agencies, commissions, panels, and other bodies.

The nearly 2,400-page financial regulatory reform bill creates nearly 500 regulatory rulemakings, 60 studies, and 93 reports— compared to Sarbanes-Oxley, which only called for 16 rulemakings.

Now, we needed financial regulatory reform. And I don’t mean to imply that regulators alone got us into this mess. There’s plenty of blame to go around, including government, businesses, and individuals.

But we need to understand clearly the role regulators and regulations played. Many argued that it was a lack of regulation that got us into this mess. While the crisis did highlight some regulatory gaps that needed to be filled, the much larger problem was that regulators didn’t know how to enforce the rules already on the books. They didn’t understand what they were regulating. They lacked the expertise.

And we have literally dozens of state and federal financial regulators with overlapping jurisdictions. If everyone is in charge, no one is in charge.

So what did Congress do? Did it consolidate and modernize this bureaucracy? No. Instead, it created two brand new regulators, each with a half-billion dollar budget, for starters.

It granted additional powers to each of the existing agencies that failed to anticipate the last crisis in the hopes that more money, power, and bureaucracy will magically help them prevent the next one.

The financial crisis shows that lawmakers’ knee-jerk response to any problem is to shower it with more regulations—without ever considering unintended consequences, the “real-world” impact of their actions, or even understanding the problem they are trying to address.

Unfortunately, when a regulatory agency fails, the usual response is to make it bigger, not abolish it.

Impact on Business

The impact of these regulations on businesses large and small is pervasive and insidious. Let me give you a few examples.

The EPA’s so-called endangerment finding—which concludes that greenhouse gas emissions from new cars endanger public health and welfare—could lead to the largest regulatory rulemaking in history.

The regulations could ultimately extend beyond mobile sources to include as many as 6 million American businesses, many of which are not currently regulated. 

Owners of office buildings, warehouses, hotels, churches, and large farms would be required to obtain permits that cost up to $125,000 each.

The Department of Labor is developing a regulation that will require employers to give workers detailed explanations of why they are not eligible for overtime.

In addition to creating another opportunity for enforcement and citations, this will fuel major increases in litigation and class action lawsuits seeking excessive damages against employers.

And, of course, there’s the blizzard of regulations spawned by the new health care law. One of the first ones issued defines what constitutes a grandfathered plan so restrictively that many will be disqualified. So much for the promise of keeping a plan you like.

I could literally go on for hours with more examples. But the question that must be asked is this: How do these help employers create new jobs?

That is the only thing that matters right now to millions of Americans who have been out of work for far too long.

The obvious answer is that these regulations do nothing to help create jobs. In fact, they make employees more expensive to hire and keep.

Another impact: America used to be a nation of great builders, but when was the last time you heard of a major new infrastructure project?

We haven’t built an oil refinery or new nuclear power plant in three decades.

The reason: Complying with myriad regulations—and dealing with the inevitable lawsuits—isn’t worth it.

The “Not In My Backyard” folks have even blocked or delayed 169 green projects. They have organized local opposition, changed zoning laws, opposed permits, filed lawsuits, and bled projects dry of their financing. 

They have manipulated the regulatory system. Call it “green tape” bureaucracy. Their efforts are undermining job creation and slowing the adoption of environmentally friendly energy technologies.

Taken individually, people can argue the merits of a specific regulation in a particular area. But taken collectively, the regulatory activity now under way is overwhelming and beyond anything we have ever seen.

It’s a clear impediment to America’s job creators ... except perhaps for those eager to create jobs in the federal government to police our economy and the American people.

It is vitally important that the administration, Congress, the regulators, and the private sector examine what has been created. We must address the cumulative job-killing impact of overregulation before it’s too late.

Turning Back the Tidal Wave

What can be done to stem the tidal wave of regulations that threaten America? Congress, the regulatory agencies, and the business community all have an important role to play.
Congress needs to stop passing bills that pass the buck to the regulators. If lawmakers didn’t pass misguided, sloppy, far-reaching bills in the first place, the tsunami would be a 3-foot wave.

Let me give you some examples. The health care and financial reform laws dramatically empower existing agencies or establish new ones with unprecedented authority.

The health care law hands significant new powers to the Department of Health and Human Services and vests its secretary with broad, unchecked discretion.

The financial reform bill establishes what might be the most powerful regulatory agency ever conceived in a free country—the Consumer Financial Protection Bureau—with a huge budget, nearly boundless authority, and no accountability.

Congress exercises virtually no oversight of the huge, sweeping bills it passes. Regulators are left to do as they see fit.

Even regulations with a major economic impact are rarely reviewed by Congress.

And when Congress does determine that a regulatory agency has gone too far, it should exercise its power of the purse and cut off funding for the implementation of the regulation.

Like tax increases, regulations are never repealed. They exist ad infinitum.

The result is a bloated bureaucracy and an alphabet soup of federal agencies regulating all manner of things.

Milton Friedman once observed: “Pick at random any three letters from the alphabet, put them in any order, and you will have an acronym designating a federal agency we can do without.”

The federal agencies must do a much better job of complying with laws designed to ensure the use of quality data, cost-benefit analyses, and the scrupulous review of regulations.

Agencies must adhere to the Data Quality Act, which requires that federal agencies’ scientific and statistical information is sufficiently transparent and reproducible; that agencies ensure the quality of data provided by third parties; and that agencies establish an administrative appeal process for correction requests that are denied.

Agencies must be made to comply fully with the Regulatory Flexibility Act and produce legitimate estimates of the impact their regulations will have on small businesses— and make sure their regulations will have the least impact possible.

The agencies routinely ignore these requirements. For example, in the EPA endangerment finding I mentioned earlier, EPA failed to consider the impact of the rule on American jobs and the economy as required by law.

It did not conduct an analysis of the potential for losses or shifts of employment as mandated by the Clean Air Act.

The arrogance of the agencies is sometimes breathtaking.

For example, EPA refused to extend the comment period for any of its greenhouse gas rules, despite requests from members of Congress ... and even when it was discovered that a broken e-mail address for public comments was printed in the Federal Register.

Insurance plans that have raised premiums to cover new mandated benefits under the health care law have been warned by HHS Secretary Kathleen Sebelius that they may be banished from participating in the new exchanges if she deems their increases “unreasonable.”

Government needs to police itself. Even by the administration’s own standards, there has been both a reduction in the number of economic analyses produced by the agencies and diminished oversight by the Office of Information and Regulatory Affairs, or OIRA [OH-I-RAH], the office that oversees the regulatory process.

In 2007, every single economically significant regulation had a Regulatory Impact Analysis. In 2009, one of five had no analysis.

In their haste to regulate, agencies are increasingly short-circuiting the democratic process.

They are issuing interim final regulations, which take effect before anyone has had an opportunity to comment on them.

This is fundamentally at odds with our democratic process and flies in the face of the administration’s promise to be the most transparent in history.

U.S. Chamber Efforts

So Congress is not exercising sufficient oversight. Agencies are being granted unprecedented powers even as they routinely ignore safeguards designed to ensure that regulations are well reviewed, use the best possible data, and achieve their goals with the smallest economic impact possible.

Meanwhile, the number and scope of regulations grow exponentially and continue to choke our recovery and sap our long-term potential.

The U.S. Chamber says, “Enough is enough.”
We are devoting extraordinary resources and energy to explain, communicate, and counter the threat of this regulatory tsunami cresting over our country.

We’re going to hold the government’s feet to the fire.

We are beefing up staff and will play a major role in implementing the new health care and financial reform laws.

The Chamber has participated in more than 300 separate rulemakings—including a handful involving private standards-setting groups like FASB—covering a broad array of issues, from environment and labor to health care, agriculture, and immigration.

We believe that our input has immeasurably improved dozens of regulations large and small.

When appropriate, we will advocate aggressive use of the Congressional Review Act, or CRA, to overturn regulations in Congress.

The Chamber led the successful effort to overturn the Clinton ergonomics regulation under the CRA in 2001.
Our public policy law firm, the National Chamber Litigation Center, stands ready to take the whole alphabet soup of federal agencies to court to make them follow the law and the Constitution.

Just two weeks ago, we announced a major lawsuit against the SEC for its new “proxy access” rule.

We’ve sued the EPA six times this year alone for failing to follow the law when creating a whole host of new greenhouse gas regulations under the Clean Air Act.

Litigation is one of our most powerful tools for making sure that federal agencies follow the law and are held accountable.

We’re also using our bully pulpit to focus attention on the problems these new regulations will cause employers through a new web site, a viral video, and a tongue-in-cheek board game called “This Way to Jobs,” which depicts all the regulatory pitfalls businesses face on a daily basis.

We’re going to make our case in the media and not allow them to oversimplify or mischaracterize our position. We won’t let them get away with painting us as
pro-pollution because we oppose an unworkable, unscientific, and costly environmental regulation.

Conclusion

Ronald Reagan once said: “You can’t stand for big government, big taxes, and big bureaucracy and still be for the little guy.”

Today, the little guys are taking it on the chin, and so are the big ones.

The proliferation of regulations is like death by a thousand cuts. Each new regulation is like a millstone around the neck of our economy, weighing us down even as our global competitors race ahead.

No one doubts that the system’s goals and the people who run it are well intentioned. But we cannot judge our system by intentions alone; we must also look at results.

And the results are not encouraging.

Today, we are issuing a clarion call for Americans and lawmakers to stop the encroachment of a government by the regulators before it’s too late.

At stake is the health of our economy, our standard of living, our global competitiveness, and the free enterprise system that is at the heart of the American Dream.

Thank you for very much.

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