Regulatory Reform

President Trump has made reforming government regulations a top priority for his administration. He believes that a thorough revision of the regulatory system will help improve the economy and give businesses the tools to succeed.

One of the primary functions of government is to ensure a level playing field in the economy. Free markets are based on the premise that all participants are given equal opportunities to succeed and that no one has an unfair advantage. Government also plays an important role in protecting society from market failures such as monopoly power, negative externalities or a lack of information to help people make educated decisions. One way the government provides these protections is by imposing rules and regulations on businesses under its jurisdiction. Examples of this include environmental regulations, labor laws and consumer protections. 

While government rules and regulations can provide important safeguards, overregulation can hurt businesses and constrain economic growth. According to the Competitive Enterprise Institute, regulatory compliance costs are estimated to reach $1.88 trillion a year, which is equal to about half of all federal spending. On a per-household basis, these regulatory costs add up to more than $14,000 a year.

One of the first actions of the Trump administration was to initiate a series of regulatory reform initiatives. Among the main components of these reforms are that agencies must remove two rules for each new regulation adopted; any costs imposed by new regulations must be offset through regulation repeals in other areas; and the Office of Management and Budget must establish a plan to streamline and reduce the size of the administrative state.

The new executive orders and directives from the White House appear to be having an impact on rules and regulations coming from the federal government. Through the end of the 2017 federal fiscal year, 1,241 new rules were proposed by the Trump administration. This compares to 1,413 proposed rules in the first fiscal year of the Obama administration and 1,757 in the first year of the Bush administration.

When considering rules with a significant impact, the comparison is even more pronounced. Through the end of the 2017 fiscal year, the Trump administration proposed 65 significant rules, compared to 216 in the first year of the Obama administration and 129 during the Bush administration’s first year.

In addition to reducing new and proposed rules, the Trump administration has traveled across the country to hear from businesses about their struggles with regulations. The Small Business Administration’s Office of Advocacy recently met with small businesses in Boise, Idaho; Spokane, Washington; and Coeur D’Alene, Idaho, to hear firsthand about the problems businesses face. 

During these meetings, employers told stories of how small businesses had to close because of onerous federal regulations. Some specific regulations that were mentioned included the Department of Labor’s Minimum Wage rule, the EPA’s Waters of the United States rule, the FDA’s Food Safety regulations, Border Adjustment Tax rules and the Department of Transportation’s trucking rules.

While businesses negatively impacted by government regulations argue that reductions are needed to spur economic growth, others argue that these regulations are necessary to ensure the protection of workers, the environment and the public. For instance, the Federal Aviation Administration has delayed a proposed rule on the regulation of commercial drones in public spaces. The lack of formal rules are actually constraining the growth of the industry since operators lack clear government direction. Another proposed rule from the Environmental Protection Agency to regulate dentists’ disposal of mercury in drinking water has been held up by the regulatory slowdown. Local governments in many areas are pushing for the proposed rule to be released, arguing that the delay is threatening water quality.

There are strong arguments in favor of reducing government regulations and slowing the process of imposing new regulations. The hope is that reducing the regulatory burden on businesses will allow them to grow, which benefits the entire economy. However, to be successful, policymakers must consider all points of view. They must find the right balance between freeing businesses of the bonds of regulation and ensuring the safety and stability of an appropriate regulatory framework.

To read more economic news, please view our monthly Economic Snapshot report on www.zionsbank.com/economy.