General Regulation

VII. Key Issues: Regulation & Reform >> B. Health Care Regulation  >> General Regulation(last updated 12.19.17)

Federal Rulemaking Process

Current Policy

  • Overview. For an overview of the federal rulemaking process, see CRS Report RL32240, The Federal Rulemaking Process: An Overview, coordinated by Maeve P. Carey.
  • Executive Order 12866. Agencies that are subject to cost-benefit analysis requirements are not required to conduct a cost-benefit analysis for every rule—only those rules that are deemed economically significant.
    • Economically Significant Rules. Economically significant rules are those that may “have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities [footnote 36]. These rules are referred to in the OMB reports as “major” rules. Although the definitions of “major” rules and “economically significant” rules contain slight differences, the two terms are often used interchangeably [footnote 38].
    • Significant Rules. Rules that are significant, but not economically significant, are subject to requirements for OIRA review and may have a less formal assessment of costs and benefits, but agencies are not generally required to conduct a complete cost-benefit assessment for those rules. For “significant” rules, agencies are asked to conduct an initial assessment of costs and benefits, but not a complete cost-benefit analysis [footnote 39].
  • RFA. The Regulatory Flexibility Act (RFA) requires regulatory impact analyses for proposed and final rules that will have a “significant economic impact on a substantial number of small entities.” The phrase “small entities” is considered in the RFA to include small businesses, local governments, and not-forprofit organizations. For more information about requirements of the Regulatory Flexibility Act, see CRS Report RL34355, The Regulatory Flexibility Act: Implementation Issues and Proposed Reforms, coordinated by Maeve P. Carey [footnote 16].
  • UMRA. Title II of the Unfunded Mandates Reform Act (UMRA) requires agencies to analyze and reduce costs associated with federal mandates upon state, local, and tribal governments and the private sector  2 U.S.C. §§1532-1538. For more information about UMRA, see CRS Report R40957, Unfunded Mandates Reform Act: History, Impact, and Issues, by Robert Jay Dilger and Richard S. Beth [footnote 17].
  • Independent Agencies. The cost-benefit analysis requirement does not apply to independent regulatory agencies, a class of agencies that were created by Congress to have various characteristics of independence from the President. These agencies are listed at 44 U.S.C. 3502(5) [footnote 32].
    • Curtis W. Copeland, Economic Analysis and Independent Regulatory Agencies, report prepared for the consideration of the Administrative Conference of the United States, April 30, 2013.
    • CRS Report R42821, Independent Regulatory Agencies, Cost-Benefit Analysis, and Presidential Review of Regulations, by Maeve P. Carey and Michelle D. Christensen.
  • Cost-Benefit Analysis.
    • Requirements. CRS Report R41974, Cost-Benefit and Other Analysis Requirements in the Rulemaking Process, coordinated by Maeve P. Carey.
    • Methodology.
      • In 2003, OMB issued Circular A-4 to provide guidance to agencies on how to conduct cost-benefit analysis. See Office of Management and Budget, Circular A-4, “Regulatory Analysis,” September 17, 2003 This guidance provides information such as what discount rates agencies should use, how to choose a time period for estimating future costs and benefits, etc. Since 2003, OMB has issued several additional guidance documents to provide instruction to agencies on complying with regulatory analysis requirements [footnote 15].
      • OMB’s 2011 guidance document, Regulatory Impact Analysis: A Primer, instructs agencies to quantify the costs and benefits in terms of units—for example, the number of premature deaths avoided each year or the number of prevented nonfatal illnesses—as well as monetizing the costs and benefits associated with each of these effects, to the extent possible [footnote  46].
  • Variations in Regulation Across Administrations. Art Fraas and Richard Morgenstern, Identifying the Analytical Implications of Alternative Regulatory Philosophies, Journal of Benefit Cost Analysis, vol. 5, no. 1 (2014), pp. 137-171. Provides a discussion of differences between the Obama, George W. Bush, and Clinton Administrations’ priorities for cost-benefit analysis and OIRA review [footnote  48].

Proposed Changes in Rulemaking Process

  • On 1.11.17, the GOP-controlled House passed:
    • Regulatory Accountability Act. Puts a ceiling on the regulatory costs coming out of Washington by instructing federal agencies to craft the “least expensive” rules they possibly can.
    • Require Evaluation before Implementing Executive Wishlists (REVIEW) Act. Prevents federal agencies from issuing expensive regulations while they are facing court challenges. Once the legal battles are resolved, the rules could move forward.
    • Separation of Powers Restoration Act. Would prevent courts from deferring to the regulatory interpretations of federal agencies, which makes it difficult for those rules to be challenged. Goodlatte said the current law “rubber stamps” regulations.
    • All Economic Regulations are Transparent Act (ALERT) Act. Instructs federal agencies to publish costs estimates for rules they are working on while they are still in development.
    • Providing Accountability Through Transparency Act instructs federal agencies to publish “plain language” summaries of their rules online, so the “public can understand what the agencies are actually proposing to do.”
  • H.R. 4003, Regulatory Reporting Act of 2015. CBO Cost Estimate. H.R. 4003 would direct all federal agencies, with the help of the Department of Justice, to prepare a report to the Congress that lists each agency rule that is enforced through a criminal penalty. The report also would weigh the use of a criminal penalty for enforcement against a number of criteria. CBO is unaware of any comprehensive source of information on criminal penalties used to enforce regulations. However, based on information from a few federal agencies, CBO expects that on average it would take large agencies a few months to compile the information. CBO estimates the report would cost about $1 million to prepare over the 2016-2017 period; such spending would be subject to the availability of appropriated funds.
  • Business Roundtable. Using Cost Benefit Analysis To Create Smart Regulation: A Primer and Key Considerations for Congress and Federal Agencies, December 2014.

Number of Regulations

  • See CRS Report R43056, Counting Regulations: An Overview of Rulemaking, Types of Federal Regulations, and Pages in the Federal Register, by Maeve P. Carey for a more detailed discussion of the nature and quantity of regulations issued each year.
  • CRS Report R41651, REINS Act: Number and Types of “Major Rules” in Recent Years, by Maeve P. Carey and Curtis W. Copeland.
  • OMB’s website, www.Reginfo.gov, provides data on the number of “significant” rules that OMB reviews each year (but not on the number of those rules that agencies issue each year). The data on OMB reviews show that the number of such rules reviewed each year is approximately in the range of 100-250; this is likely very similar to the number of such final rules issued each year [footnote 37].

Optimal Design of Regulations

This overview points out there are 3 requirements for an effective regulation: a) the regulation must address the cause of a policy problem of concern; b) there must be sufficient and effective monitoring to ensure compliance; and c) the consequences for non-compliance must be sufficient.

Regulators must strike a balance between the costs imposed by a regulation while allowing some rule violations to go undetected. The costs of constant surveillance so pervasive as to detect all rule-breaking would be too high. Similarly, there must be some reasonable balance to ensure that the punishments imposed for rule-breaking are consequential enough to ensure compliance without being disproportionate to the actual harm caused by the violation.

An efficient regulation achieves its objectives at low cost. By definition, this requires a regulation to be effective (else it is imposing costs with little benefit). As well, it is important to consider 3 offsetting effects that reduce a rule’s effectiveness:

  • Changes in behavior that undermine a rule’s effectiveness (e.g., wearing seatbelts motivate drivers to drive faster);
  • Workers who makes us safer inevitably incur risks to life or health in doing so;
  • In reducing one type of risk, society unavoidably is precluded from addressing a different type of risk (due to opportunity costs) and in the worst case may actually increase other risks.

An analysis has found that for every $1 in regulatory costs, there is an additional hidden $0.14 in costs imposed by the latter two factors.

Due to diminishing marginal productivity, it generally is far more costly to eliminate the last 10% of any risk than the first 10%, so regulation resources need to take this into account to avoid being allocated inefficiently. Ideally, inputs should be organized to equalize the marginal benefits obtained from the last dollar of spending since failure to do so implies that society could either achieve greater benefits for the same cost or the same benefits at lower cost simply by re-allocating regulatory resources to programs that are most cost-effective.

Total Cost of Regulations

  • Congressional Research Service. Maeve P. Carey. Methods of Estimating the Total Cost of Federal Regulations. January 21, 2016. Scholars and governmental entities estimating the total cost of regulation use one of two methods, which are referred to as the “bottom-up” and the “top-down” approach. The bottom-up approach aggregates individual cost and benefit estimates produced by agencies, arriving at a governmentwide total.
    • Bottom-Up Estimates. In 2014, the annual report to Congress from the Office of Management and Budget estimated the total cost of federal regulations to range between $68.5 and $101.8 billion and the total benefits to be between $261.7 billion and $1,042.1 billion (2014 dollars).
    • Top-Down Estimates. The top-down approach estimates the total cost of regulation by looking at the relationship of certain macroeconomic factors, including the size of a country’s economy and a proxy measure of how much regulation the country has. This method estimates the economic effect that a hypothetical change in the amount of regulation in the United States might have, considering that economic effect to represent the cost of regulation. One frequently cited study estimated the total cost of regulation in 2014 to be $2.028 trillion, $1.439 trillion of which was calculated using this top-down approach.
  • Office of Management and Budget (2014). 2014 Report to Congress on the Benefits and Costs of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities.  This is the latest complete report available; the draft report for 2015 was released 10.16.15. Note that annual OIRA reports on the benefits and costs of federal regulations going back to 1997 all can be retrieved from this page. The most widely-reported bottom-up estimate of federal regulatory costs, although it is limited by being restricted to major rules adopted within the past 10 years.
  • W. Mark Crain and Nicole V. Crain (2014). The Cost of Federal Regulation to the U.S. Economy, Manufacturing and Small Business, A Report for the National Association of Manufacturers, September 10, 2014.  One of the most prominent examples of the top-down approach, although it is not a purely top-down measure of the cost of regulations. It combines a top-down estimate—their estimate of the cost of economic regulation—with a bottom-up estimate of environmental, tax compliance, occupational safety, and homeland security regulation. However, the estimate of the cost of economic regulation resulting from their top-down methodology is almost 75% of the total estimate, totaling $1.439 trillion out of $2.028 trillion in the 2014 study [footnote 71].
  • John W. Dawson and John J. Seater. Federal Regulation and Aggregate Economic Growth. Journal of Economic Growth. January 2013″Regulation’s overall effect on output’s growth rate is negative and substantial. Federal regulations added over the past fifty years have reduced real output growth by about two percentage points on average over the period 1949-2005. That reduction in the growth rate has led to an accumulated reduction in GDP of about $38.8 trillion as of the end of 2011. That is, GDP at the end of 2011 would have been $53.9 trillion instead of $15.1 trillion if regulation had remained at its 1949 level. One channel through which regulation has reduced output is TFP. We find that federal regulation can explain much of the famous and famously puzzling productivity slowdown of the 1970s.”
  • W. Mark Crain and Thomas D. Hopkins (2001). The Impact of Regulatory Costs on Small Firms: A Report for the Office of Advocacy, U.S. Small Business Administration 2001.
  • Thomas D. Hopkins (1995). Profiles in Regulatory Costs: Report to the U.S. Small Business Administration. November 1995.

Economic Impact of Regulations

  • Bailey, James and Diana Thomas. Regulating Away Competition: The Effect of Regulation on Entrepreneurship and Employment.  Mercatus Center (9.9.15). Using novel data on the extent of US federal regulations for 215 industries (as classified by their North American Industrial Classification System codes) from the Mercatus Center’s RegData database and data on firm births and employment from the Statistics of US Businesses, the study confirms the hypothesis that regulation inhibits business growth and job creation while protecting larger, existing businesses:

    • Firm births. A 10% increase in the intensity of regulation leads to a statistically significant 0.5% decrease in overall firm births. There is a statistically significant decrease among births of small firms but no statistically significant effect on births of large firms, confirming the hypothesis that incumbent firms benefit from regulation because it deters new entrants.
    • Firm deaths. Regulation had no statistically significant effect on firm deaths. Regulation drives away new entrants, but does not put existing firms out of business. In fact, there is some evidence that firm deaths may decrease with increased regulation as businesses benefit from less competition.
    • New hires. A 10% increase in regulation is associated with a statistically significant 0.9% decrease in hiring among all firms and a 0.5% decrease specifically among small firms.
  • Broughel, James. Regulation and Economic Growth. Mercatus Center, May 18, 2017. In this brief but authoritative work, James Broughel lays out a basic theoretical framework for understanding how regulations affect economic growth. He provides a useful starting point for researchers of regulation and growth by reviewing what economists have learned about growth over the past 60 years and by describing the puzzles yet to be solved.  The book includes a unique classification system for distinguishing among the various “shocks” induced by regulation and tracking how these shocks translate into “effects” in terms of economic growth. It should prove helpful to academic researchers, advanced undergraduate and graduate students, policymakers, and anyone else who wishes to assess with greater precision the repercussions of the complex web of rules that governs our lives.
  • Chambers, Dustin and Courtney A. Collins. How Do Federal Regulations Affect Consumer Prices? An Analysis of the Regressive Effects of Regulation.  Mercatus Center (2.23.16). When the federal government introduces new regulations for an industry, there are numerous potential consequences for both producers and consumers. Often, complying with regulations is costly for firms, and these higher costs may in turn drive up prices for consumers. Higher prices caused by regulatory growth are unlikely to affect all consumers equally. High-income and low-income households tend to have different spending patterns, and regulations may have a larger impact on one group than on another. This study examines the relationship between regulatory expansion and higher prices and finds that price increases caused by regulation have a disproportionately negative effect on low-income households. The poorest households tend to spend a larger proportion of their income on goods that are heavily regulated and subject to both high and volatile prices. This cost should be recognized in policymakers’ efforts to consider the costs and benefits of new and existing regulations.
  • Patrick McLaughlin, Laura Stanley. Regulation and Income Inequality: The Regressive Effects of Entry Regulations. Mercatus Center, Jan 20, 2016. This study for the Mercatus Center at George Mason University examines the relationship between income inequality and the number of regulatory steps necessary to start a business. Looking at 175 countries and multiple variables, the study finds that there is a positive relationship between entry regulations and income inequality.

Monetizing Intangible Effects of Regulations

Monetizing Life and Health Impacts

  • Broughel, James and Kip Viscusi. Death by Regulation: How Regulations Can Increase Mortality Risk. Mercatus Working Paper (11.30.17). A regulation is likely to result in more people dying than it saves if its cost-per-life-saved falls above the range between $75.4 million and $123.2 million (the midpoint of which is $99.3 million).
  • Curtis W. Copeland. How Agencies Monetize “Statistical Lives” Expected to Be Saved By Regulations, CRS Report R41140.
  • Robinson, Lisa A. How US Government Agencies Value Mortality Risk Reductions (9.23.08).
  • Viscusi, W. Kip. Monetizing the Benefits of Risk and Environmental Regulation. Fordham Urban Law Journal, vol. 33, no. 4 (2005).
  • Viscusi, W. Kip.  What’s to Know? Puzzles in the Literature on the Value of a Statistical Life. Journal of Economic Surveys, vol. 26, no. 5 (2011).

Accuracy of Regulatory Impact Assessments

  • Winston Harrington, Richard D. Morganstern, and Peter Nelson. On the Accuracy of Regulatory Cost Estimates. Journal of Policy Analysis and Management, vol. 19, no. 2 (Spring 2000), pp. 297-322. Authors compared ex ante studies to ex post studies and found that agencies frequently overestimated both costs and benefits of regulations [footnote 58].
  • Winston Harrington, Richard D. Morganstern, and Peter Nelson. “How Accurate Are Regulatory Cost Estimates?” Resources for the Future, March 5, 2010.  This is a similar ex post study of several cost-benefit estimates that had been produced by agencies subsequent to the foregoing 2000 study. Again, they concluded that regulatory agencies tended to overestimate the total costs of regulations, explaining that “a variety of factors contribute to initial government agency cost estimates that may differ from the realized results, although in some cases this is coincident with differences in benefits produced by regulations” [footnote 59].
  • Office of Management and Budget. Validating Regulatory Analysis: 2005 Report to Congress on the Benefits and Costs of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities. In a chapter on “validation” of cost estimates, OMB examined a number of ex ante cost-benefit estimates and compared them with ex post estimates, when they were available. OMB’s conclusions were that the costs of regulations were more often overestimated by the agency, but that the benefits were sometimes overestimated as well [footnote 60].
  • Winston Harrington, Grading Estimates of the Benefits and Costs of Federal Regulation: A Review of Reviews. Resources for the Future Discussion Paper, September 2006.