Deregulation for Small Businesses? Don't Hold Your Breath

By Cliff Ennico

February 14, 2017 6 min read

The White House recently issued an executive order designed to reduce government regulation of small businesses (for the full text of the order, visit the White House website).

The purpose of the order is simple: reduce the number of regulations federal government agencies issue each year and (eventually) slim down the Code of Federal Regulations, or CFR. Will that actually happen?

I doubt it.

A recent survey says that small businesses spend on average about $12,000 a year dealing with federal, state and local regulations. And nobody questions whether the CFR has grown out of control. In paper form, the CFR runs at a couple hundred volumes.

Look at your living room wall. Picture it covered floor to ceiling with bookshelves spaced about 9 inches apart. Picture those shelves completely filled with books, no spaces in between. That is the CFR. The federal government updates the CFR each year, so each year, all books on that wall go to a landfill.

No lawyer on Earth (not even me) knows everything in those books. It would take someone years just to read the CFR from beginning to end. It's no wonder a lot of people think government regulation is out of control.

But is the White House executive order the right approach?

It is deceptively simple with three mandates for fiscal year 2017:

—Government agencies that want to create a new regulation must identify two existing regulations to be repealed.

—The total incremental cost of all new regulations created by an agency this year, including repealed regulations, shall be no greater than zero, "unless otherwise required by law or consistent with advice provided in writing by the Director of the Office of Management and Budget."

—New incremental costs associated with new regulations must, "to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations."

That giant shuffling sound you hear is the sound of junior staffers at every government agency in Washington, D.C., poring through the CFR and putting yellow stickers next to regulations that could easily be sacrificed if their agency wanted to publish a new one.

So where's the problem? There are lots of ways to get around the executive order.

First, look at the phrases "unless otherwise required by law" and "to the extent permitted by law." Simply put, if in passing a law, Congress requires an agency to publish regulations and exempts it from the executive order, the agency can blithely ignore the executive order mandate. That probably won't be a big issue under the current Congress, but if Congress changes hands two years from now...

Second, while the total incremental costs of all new regulations an agency publishes must be zero, there are lots of creative ways to play with that math. For example, an agency could eliminate two old regulations costing $250 each with a new one costing $500 and stay within the executive order mandate.

Third, the executive order covers only federal regulations. Most regulations that strangle small businesses are published by state and local governments.

Fourth, the executive order gives the Office of Management and Budget very broad authority to provide agencies with guidance on how to comply with the order. This guidance must address the following, among other things: "processes for standardizing the measurement and estimation of regulatory costs; standards for determining what qualifies as new and offsetting regulations; standards for determining the costs of existing regulations that are considered for elimination; processes for accounting for costs in different fiscal years; methods to oversee the issuance of rules with costs offset by savings at different times or different agencies; and emergencies and other circumstances that might justify individual waivers of the requirements of this section."

In short, more regulations!

Lastly, and most importantly, by taking a quantitative approach to reducing regulation, the executive order ignores the qualitative side of regulations. While there's no doubt many government regulations have outlived their purpose, no longer make sense or should otherwise be eliminated — for many examples, visit www.dumblaws.com — many regulations are necessary for public safety and order. You wouldn't want the butcher at your local supermarket to sell tainted meat, or use a scale that's off balance.

Some regulation is beneficial, but too much cripples. How much is too much? Ay, there's the rub.

A better approach to reducing regulation is to reduce or eliminate the agencies that publish them. Congress could, for example, limit the authority of an agency or pre-empt state and local governments' authority to regulate in a certain area. The federal budget could reduce the size of an agency to the point where staffers would be forced to identify the regulations they feel are most important to enforce and disregard the rest (to some extent, this is already happening at the IRS).

A smaller federal government will naturally lead to a smaller CFR, and therefore, more freedom for America's small businesses.

Cliff Ennico ([email protected]) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our webpage at www.creators.com.

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