PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Early Actions on Regulation by Trump a Good Signal

By at 28 January, 2017, 11:11 am

By Raymond Keating-

Imposing additional regulatory costs on entrepreneurs, businesses, investors and banks was a hallmark of the Obama administration. Early signs from the Trump administration point to a major shift in direction on regulatory policy.

My recent report on regulation – Regulation: Costs, Incentives, and the Need for Reform — included assessments of regulation under Obama, as well as findings on the negatives of regulation for small business, entrepreneurship, investment, productivity, job creation and economic growth.  It was pointed out:

“Overreaching government regulation is not a recent development. For example, the 1930s, and much of the 1960s and 1970s were periods of heavy government regulation. In recent years, the United States has been caught in another era of active – even hyper-active – regulatory undertakings, especially since 2008.”

In some key areas, President Trump has taken early steps away from misguided, costly regulations.

REGULATORY FREEZE

For example, on January 20, the Trump administration took a step to freeze new regulations. As reported by YahooNews: “White House Chief of Staff Reince Priebus issued a memo to all federal agencies placing a freeze on new regulatory actions ‘to ensure that the President’s appointees or designees have the opportunity to review any new or pending regulations.’ The move, a common practice for incoming administrations of both parties, instructs agencies to refrain from publishing new rules, and in the case of regulatory actions that have been announced but have not yet taken effect, it instructs agencies to delay their implementation where possible. The memo makes exceptions for emergency measures and rules that have to be completed by statutory deadlines.”

One noteworthy item is that the regulatory freeze includes “guidance documents,” which have the effect in many cases of imposing costs and burdens but sidestep the regulatory process. A piece by Cass Sunstein in Bloomberg reviews the executive order, and writes that Rahm Emanuel issued a similar memo in 2009 when President Obama took office, but the Priebus memo has greater “muscularity.”

OBAMACARE RELIEF

Also, on January 20, President Trump issued an executive order meant to ease some of the burdens from the Affordable Care Act, i.e., ObamaCare. As stated in the order: “To the maximum extent permitted by law, the Secretary of Health and Human Services (Secretary) and the heads of all other executive departments and agencies (agencies) with authorities and responsibilities under the Act shall exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.”

The Coalition for Affordable Health Coverage, of which SBE Council is a member, provided further analysis of the executive order here. Also, regarding the costs and consequences of Obamacare, Grace-Marie Turner of the Galen Institute testified before the House Budget Committee on January 24, about the impact of Obamacare and she nicely summarized her testimony in a Forbes piece here.

INFRASTUCTURE AND PERMIT STREAMLINING

On January 24, the President signed an executive order speeding up environmental review of important infrastructure projects. He also issued a presidential memorandum focused on expediting permitting of manufacturing investments and reducing regulatory burdens on manufacturers. To round out the day, two presidential memorandums were also issued: One directs federal agencies, namely, the Army Corps of Engineers, “to expedite reviews and approvals for the remaining portions of the Dakota Access Pipeline,” and the second essentially re-boots the process for approving the Keystone XL Pipeline, which was rejected, for political reasons, by the Obama administration.

Small businesses will greatly benefit from these moves. As SBE Council has noted in our research and advocacy on Capitol Hill, small firms dominate all sectors of the energy industry and are responsible for the innovation and growth that is occurring in this sector. To wit, 90.7 percent of employer firms among oil and gas extraction businesses have less than 20 workers, 78.1 percent of firms among drilling oil and gas wells businesses have less than 20 workers, 81.5 percent of firms among support activities for oil and gas operations businesses have less than 20 workers, 60.5 percent of firms among oil and gas pipeline and related structures construction businesses have fewer than 20 workers, and 54.7 percent of firms among oil and gas field machinery and equipment manufacturing businesses have less than 20 workers.

In addition, a streamlined approach to regulation and red tape on permitting means reduced costs and barriers for small manufacturers. Three-quarters of manufacturing firms have less than 20 employees. Reducing costs and time are critical to a competitive manufacturing sector, especially for small businesses that dominate this sector.

Regulation’s Disproportionate Impact on Small Businesses

Efforts to rein in regulation-run-amok are critical for small businesses. Again, as pointed out in Regulation: Costs, Incentives, and the Need for Reform :

“Assorted studies make clear the significant costs imposed by the U.S. regulatory system in terms of lost GDP, costs imposed on small businesses, declining entrepreneurship, reduced job creation, and reduced or restrained investment and productivity. Studies over the past 25 years have consistently found that the cost of regulatory compliance disproportionately affects small firms. Indeed, overly burdensome and complex regulations, along with high costs and uncertainties impact business decisions.”

According to a National Association of Manufacturer’s study on the cost and impact of regulation, the per-employee cost of regulation for small firms is $11,724.

Modernizing the Regulatory System

It is critical that in addition to rolling back particular regulations, the regulatory process itself must be fundamentally reformed, altering or putting in check the incentives for excessive, misguided and costly regulatory activity.

Among needed institutional reforms are measures like congressional approval of rules and regulations, independent congressional regulatory analysis, sunsetting all rules and regulations, strengthening the integrity of scientific data used for regulating, increasing the transparency of data and studies, cost-benefit analysis, the opportunity for small businesses to provide meaningful input throughout the rulemaking process, instituting a regulatory budget, and requiring supermajority votes for bills imposing major regulations.

The Regulatory Accountability Act (H.R. 5) and REINS Act (H.R. 26), which both passed the House this month, are two important bills supported by SBE Council that make the above mentioned institutional changes and do much more.

Cutting Regulations by 75 Percent – “Maybe More”

In a White House meeting with business leaders on January 23, USNews.com reported a bold declaration made by President Trump: “Though he didn’t specify exactly what would be cut, he said his administration thinks it can streamline the government’s involvement with the private sector by cutting regulations by ‘75 percent – maybe more.’ Notably, he indicated in a tangent about environmental regulations that ‘some of that stuff makes it impossible to get anything built.’”

Make no mistake, lifting the burden of over-regulation is critical to small business growth and investment. Reducing regulation and red tape will encourage new business creation and quality job creation, which is desperately needed to get our economy back to strong growth.

Raymond J. Keating, Chief Economist, Small Business & Entrepreneurship Council

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