IS PRESIDENT TRUMP REPEATING REAGAN’S MISSTEPS ON REGULATORY “REFORM”?

Posted on February 8, 2017 by Robert Percival

President Donald Trump’s first weeks in office have seemed like a reality TV show highlighted by frequent signing ceremonies for hastily-drafted executive orders.  One of these orders, signed on January 30, is entitled “Reducing Regulation and Controlling Regulatory Costs” (Executive Order 13771).   President Trump described it as mandating “the largest cut by far, ever in terms of regulation” and the key to “cutting regulations massively” for businesses. The order requires federal agencies to repeal two existing regulations for each new regulation they issue and it gives each agency a regulatory budget of zero for the imposition of aggregate costs on industry during the current fiscal year. 

The words “cost” or “costs” appear 18 times in the executive order; entirely missing from it is any discussion of the benefits of regulation.  By focusing solely on reducing the costs of regulation, President Trump is repeating a crucial mistake the Reagan administration made after launching a major “regulatory reform” initiative in 1981.  President Reagan’s Executive Order 12291 created a new system of regulatory review centered in the Office of Management and Budget (OMB).  It mandated that federal agencies perform cost/benefit analyses to support any major rule likely to cost more than $100 million annually.  Subsequent Presidents of both parties have retained this requirement and the centralization of regulatory review in OMB’s Office of Information and Regulatory Affairs.

Unlike Trump’s executive order, Reagan’s order directed federal agencies to consider both the costs and benefits of regulation.  It specified that such agencies should seek to maximize net benefits to society and to issue regulations only when their potential benefits outweighed their potential costs.  However, the Reagan administration undermined these directives by maintaining that costs and benefits need not be weighed when an agency proposed to repeal a regulation.  This contributed to a disastrous effort to repeal limits on the amount of lead additives that could be used in gasoline.

At the direction of Reagan’s Task Force on Regulatory Relief, EPA proposed to repeal the lead limits that had been sustained in the D.C. Circuit’s historic, en banc decision in Ethyl Corporation v. EPA.  While this would have saved oil refiners a small amount of money, it would have dramatically increased lead poisoning, costing society far more.  Yet, despite the Reagan administration’s new emphasis on cost/benefit analysis, no cost/benefit analysis was performed because EPA was proposing to repeal a regulation.

The rulemaking to abolish limits on lead in gasoline spawned such a firestorm of opposition, even from conservative columnist George Will, that the Reagan administration was forced instead to strengthen the regulation.  Three years later, after William Ruckelhaus had returned to lead EPA, the agency performed a cost/benefit analysis of phasing lead out of gasoline entirely.  After the analysis found overwhelming net benefits from banning leaded gasoline, EPA did so. Today nearly every country in the world has followed the U.S. in banning leaded gasoline, dramatically reducing lead poisoning.  Economists estimate that lead phase-out now generates more than two trillion dollars per year in net benefits globally. 

Under President Trump’s new executive order, federal agencies must repeal two rules, regardless of their benefits, in order to take any new regulatory action.  And the costs of the new regulation must be offset by the reduced costs from repealing existing rules. Thus, if EPA wants to strengthen regulations on lead in drinking water to protect people like the residents of Flint, Michigan, Trump’s executive order requires it to repeal two existing rules, for example (god forbid) by no longer prohibiting oil refiners from adding lead to gasoline. 

President Trump’s executive order has legal qualifiers that offer some hope.  It purports not to “impair or otherwise affect” agencies’ existing legal authority and it requires federal agencies to comply with the Administrative Procedure Act (APA) when repealing rules.  The APA’s judicial review provisions direct courts to strike down agency actions that are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”  If an agency’s only justification for repealing a rule is to comply with President Trump’s new directive, it should be possible to convince a reviewing court that the action is arbitrary enough to be struck down. 

President Reagan’s efforts to relax environmental regulation generated a backlash in Congress, which responded by greatly strengthening the environmental laws and adding numerous deadlines for EPA action.  But that was because Congress then was controlled by lawmakers who cared about environmental protection.  Today’s Congress is controlled by lawmakers who regularly campaign against EPA regulations.  Regulations that are outmoded, ineffective, or excessively burdensome should be repealed, as President Obama directed in 2011 when he issued Executive Order 13563.   But President Trump’s poorly drafted Executive Order 13771 opens the door to repealing long-established protections for public health, safety and the environment without consideration of the enormous benefits they produce.



Comments (2) -

James Holtkamp United States
2/8/2017 1:39:29 PM #

I agree!

Dr Richard B Belzer United States
2/8/2017 4:27:00 PM #

There are a number of seriously incorrect statements here.

First, Percival’s characterizations of “major” and “economically significant” regulations is simply incorrect. EO 12291 defined “major rule” as one "likely to result in an annual effect on the economy of $100 million or more” (Sec. 1(b)(1). EO 12866 defined as “economically significant” any rule that, inter alia, “may … [h]ave an annual effect on the economy of $100 million or more.” Both definitions are stated in “effects.” The term “effects” was used in order to capture benefits, costs, transfers, and any other species of interest, such as budget ramifications to the States.

Second, EO 13771 does not revoke EO 12866.  The regulatory budget in EO 13771 supplements, not supplants, EO 12866.

Third, nothing about the RIA requirements in EO 12866 have changed. Indeed, OMB’s Interim Guidance on implementing EO 13771 explicitly directs agencies to use OMB Circular A-4 for estimating both the costs of new regulatory actions and the cost savings from eliminating past regulatory actions.benefit-cost analysis.

Fourth, the language in EO 13771 not “impairing” authorities granted to agencies by laws is not materially different from language found in EO 12866 (Sec. 9).

Fifth, the claim that "the Reagan administration undermined [the consideration of both benefits and costs, as set forth in EO 12291] by maintaining that costs and benefits need not be weighed when an agency proposed to repeal a regulation” deserves serious empirical support. Only a single anecdote is offered, and it is historically inaccurate on the relevant margin. It was a high-quality benefits assessment that carried the day in the lead case phase-down regulation that Percival cites.

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