Regulatory Agenda: A Look Inside
The president’s Unified Agenda, a guidebook to near and long-term regulatory actions, finally hit the Internet. The Agenda is a little late, as it’s officially the Fall 2011 regulatory plan.
The highlights: 138 “economically significant” active (impact of $100 million or more) regulations; 45 significant completed final rules; and, 29 significant long-term actions.
Here’s a snapshot of economically significant long-term agency actions:
- EPA has five scheduled actions (17 percent): notably, a review of particulate matter air standards, new ozone standards (smog), and a review of ambient air standards for lead.
- FCC surprisingly has seven actions (24 percent): notably, “Broadband Over Power Line Systems,” universal service reform, and an action for “IP-Enabled Services.”
- Department of Labor has six actions (21 percent) scheduled: notably, a proposed rule for grandfathered health plans under the Affordable Care Act (ACA), preventative services under the ACA, and a combustible dust proposal.
Regarding EPA’s 12 economically significant active regulations:
- Cooling water towers: expect a final regulation, judicially imposed, by July 27, 2012. The proposed rule, a significant improvement over mandated closed-cycle towers, was expected to cost roughly $5 billion during the immediate life of the rule.
- Diisononyl Phthalate: the likely result of this regulation is the removal of millions of toys deemed “toxic.” Phthalates are chemicals added to plastics, and while not acutely dangerous to children, expect large costs once the rule is final.
- Greenhouse gas standards for new stationary sources: a notice of proposed rulemaking is scheduled for January 2012, consistent with Gina McCarthy’s (of EPA) public statements. Expect a final rule this June.
- CAFE standards for cars, light-duty trucks: the $141 billion rule that could drive up vehicle prices by more than 19 percent is scheduled for final action by August 2012.
President’s Agenda in Perspective:
- Last night the president claimed, “I’ve approved fewer regulations in the first three years of my presidency than my Republican predecessor did in his.” Based on his last three Unified Agenda’s, President Obama has an average of 142 economically significant active regulations. Four years ago, President Bush averaged 90 economically significant active measures, or 57 percent fewer than President Obama.
- In addition, last night the president claimed 500 announced reforms. However, a search of his agenda reveals just 360 regulatory reform proposals, a 38 percent exaggeration.
- Finally, tracking proposed or final rules under his deregulatory effort, there are only $1.2 billion in total rescissions, just a fraction of the $10 billion goal.
Genachowski Rubs It In
“It was a reminder of the benefits and power of competition.” Words of a capitalist fanatic praising free markets and a light regulatory state? Sadly, this was Federal Communications Commission chairman Julius Genachowski defending his regulatory attack against AT&T and T-Mobile.
Speaking at the Consumer Electronics Show, Genachowski once again launched into the merger debate that was settled months ago. Of course, the merger’s failure was a display, not of competition, but the power of three unelected commissioners to derail a $39 billion deal. The terms of the merger were debatable; Genachowski’s actions were not.
Back in November, after AT&T and T-Mobile withdrew their merger application from FCC review, Genachowski proceeded to release an unofficial staff report that had the Left drooling over the (moot) details. The release of the staff report after the formal withdrawal was unprecedented, but when you consider the commission’s actions to push net neutrality into law and intimidate telecom companies, it was business as usual for FCC.
When pressed by Consumer Electronics Association president Gary Shapiro that government should provide more certainty, Genachowski disagreed. He argued that merger rules and guidelines should be more fluid and that companies should pay more attention to FCC’s competition reports, as if the companies themselves are somehow unaware of the state of market competition.
Genachowski’s bureaucratic arrogance is characteristic of the administration’s general regulatory strategy. With more than $230 billion in published regulatory burdens in 2011, including $102 million from FCC, the administration has taken a “Fire, Aim, Ready” approach to regulations on America’s employers. Whether it’s shoddy health-care analysis, arguing that regulations create jobs, or moving the goal posts on mergers to ensure “fluidity,” no wonder the president convenes one jobs panel after another.
The bottom line: Genachowski and his fraternity of independent agencies shouldn’t be picking winners and losers in the marketplace. They’re subsidizing Solyndra, regulating coal out of existence, and now proclaiming the “proper” level of competition. Should we be surprised that the administration always seems to be on the wrong side of the job-creation ledger? And Genachowski’s recent remarks hardly inspire confidence that this regulate-first ethos will change in 2012.
As Genachowski concluded at CES, “The costs of inaction — and the costs of incorrect action — are enormous.” There are a few telecom companies and a few energy companies who know all too well the costs of “incorrect action.” Sadly, this administration doesn’t have a clue.
This article originally appeared in National Review Online.
The Week in Regulation: January 17-20
A slow week in regulation was marked by just one Dodd-Frank final rule and a perfunctory rulemaking under the Affordable Care Act. Regulators published $135.8 million in cost burdens during the four-day week.
Administrative agencies proposed 43 rules and implemented 30 final rules. Federal agencies issued 5 new documents “deemed significant under [Executive Order] 12866,” bringing the yearly revised total to 28 according to the Federal Register; the federal government has issued 3,068 pages of regulations in 2012.
The Commodity Futures Trading Commission (CFTC) produced the largest final rule of the week. The “Registration of Swap Dealers and Major Swap Participants” is estimated to cost $45 million and would impose 629 burden hours. The rule is effective March 19, 2012.
Click here to view the total estimated compliance costs from Dodd-Frank; since passage the legislation has produced (in proposed and enacted rules) more than 49 million new paperwork burden hours. Based on calculations from the Financial Services Roundtable, Dodd-Frank regulations would require 24,503 employees to file federal paperwork.
The Affordable Care Act also produced a rule from the Social Security Administration, which would not impose costs or paperwork burdens. The final rule adopts an interim regulation, published in 2010, regarding eligibility for Medicare prescription drug subsidies.
Since passage, the Affordable Care Act has imposed an estimated $9.2 billion in private-sector burdens, approximately $2.2 billion in costs to the states, and 30.3 million annual paperwork hours.
At the current pace, the total regulatory burden for 2012 (proposed or final) will exceed $76.5 billion. Since January 1, the federal government has imposed more than 23 million annual paperwork burden hours and $4.4 billion in compliance costs. Projecting a 2,000 hour work year, paperwork requirements alone would force 11,540 employees to comply with federal compliance burdens.
Click here for our comprehensive database of regulations and rulemakings promulgated in 2012.
| Attachment | Size |
|---|---|
| 2012 Regulation Database | 56.71 KB |
| Dodd-Frank Database | 85.22 KB |
| Tracking PPACA | 37.68 KB |
A Question of Process: SOPA vs. Net Neutrality
Major websites blacked themselves out. Twitter and Facebook feeds were inundated with links to fact sheets and petitions. And if you were one of the poor souls charged with answering congressional phone lines, you have my deepest sympathies. It all makes sense, though. Regulation, especially Internet regulation, is serious business.
Wednesday’s righteous, massive, and uniquely viral uproar over the “Stop Online Piracy Act” (SOPA) and its Senate companion, “Protect IP Act,” (PIPA) marked a fairly new development in the politics of the Internet. Serious and well-founded questions regarding the intended and unintended consequences of the two bills spurred a surprisingly broad campaign that ultimately drove multiple legislators to shift their positions. It was the democratic process at its core.
Interestingly enough, only a few short months ago, another measure seeking to regulate the Internet came on the books. Back in September 2011, the Federal Communications Commission published its final rule on “net neutrality.” The actual vote on the rule took place back in December 2010. With far less fanfare than this recent episode, three out of five unelected government officials made that decision. It was the bureaucratic process at its core.
Granted, SOPA and net neutrality deal with separate issues and concern disparate interests. Yet they both establish their own unprecedented regulatory apparatus over the Internet. Such decisions require significant input. SOPA received it; net neutrality did not. SOPA is still stuck, mortally wounded, in committee; net neutrality is the law of the land.
The contrast in process stands as a stark example of how major regulatory measures are enacted without serious public input or legislative oversight. The only attempt at legislative action on net neutrality was a failed Congressional Review Act (CRA) resolution of disapproval. It should be noted, the CRA is generally the only legislative recourse for bureaucratic rules and has been successfully invoked only once in its history.
Some argue that further legislative oversight of rulemaking will bring nefarious “special interests” into the fold. The recent SOPA episode saw “special,” corporate entities such as Google aligning with public interests to affect change. If anything, the sheltered government agency approach often favors narrowly interested parties that bring overwhelming resources and expertise to the table.
The past week demonstrated a major shift in political awareness surrounding the Internet. Hopefully it presages a major shift in our regulatory process.
Obama Burdens the Banks
The costliest regulation you’ve never heard of.
There are a number of pricey regulations that have received attention of late: net neutrality, new ozone standards, countless regulations stemming from the passage of the Dodd-Frank bill. These rules typically garner a mention in the Wall Street Journal, a formal Office of Information and Regulatory Affairs (OIRA) review, and, in some cases, a lengthy Regulatory Impact Analysis.
However, the costliest proposed regulation to come down the pike in some time has nearly escaped detection. Early last year the Treasury Department published its “Guidance on Reporting Interest Paid to Nonresident Aliens,” which would require banks to report to the Internal Revenue Service the interest paid to foreign depositors with a U.S. bank account. While the Treasury and the regulatory apparatus insist that the cost and inconvenience of adhering to this regulation is next to nothing, the rule may cost the U.S. banking system hundreds of billions of dollars in lost deposits, in turn costing our economy billions of dollars, while providing no discernible benefit to banks, depositors, taxpayers, or the U.S. economy.
The notion that banks should report the interest paid on accounts held by nonresident aliens is not a new one: The Bush administration proposed this rule in 2002 for residents of 15 European nations in order to help our allies deter tax fraud, and with the hope that they might do the same for us. Foreigners have never paid U.S. taxes on interest earned in U.S. banks and would continue being exempt under the proposed rule; the sole requirement would be that banks report the interest paid to these account-holders to the IRS.
The Treasury estimates that the costs to comply with the regulation would be minimal, with banks needing no more than 15 minutes to comply, summing to a grand total (when multiplied by the roughly 8,000 banks and other depository institutions affected) of 2,000 hours of employee time, or somewhere just south of $100,000 per annum. The de minimis projected cost means that the regulation is not subject to the detailed cost-benefit analysis required for regulations costing more than $100 million.
If a few hours of filling out paperwork were the only cost incurred, then the lack of attention would be appropriate. But a much bigger problem—for banks and the economy—than the compliance costs is the threat of a massive capital flight. The United States is a very popular place for foreigners to park their savings, for a variety of reasons.
For starters, we offer a stable government that can be trusted to keep its hands off deposits—something that appeals greatly to residents of Venezuela, Argentina, Ecuador, and any number of other unstable countries. Second, the United States still offers at least a semifunctional financial market: Bank deposits are federally insured, inflation rates have been low and stable for decades, and there’s a reasonable expectation (though far from a guarantee) of avoiding a financial crisis on these shores.
As a result, a staggeringly large amount of savings from abroad is currently held in U.S banks. While the Treasury asserts that “deposits held by nonresident alien individuals are a very small percentage of the [total] deposits held by U.S. financial institutions,” that very small percentage amounts to more than $3.7 trillion, according to a 2011 Bureau of Economic Analysis report, hardly a pittance.
The massive amount of foreign savings here is a boon to the U.S. economy. Banks lend against these deposits, mainly to companies here in the United States. Jay Cochran, an economist at George Mason University, studied the impact that the more limited 2002 reporting requirements would have had on the banking system, estimating that it would have resulted in nearly $100 billion in deposits leaving the U.S. banking system. A reporting regulation that covers all foreign accounts would likely result in two to three times more capital flight.
The impact would be harmful not just for the banks but for the broader economy. The decline in profits in the banking sector alone from a roughly quarter-trillion-dollar capital flight would be in the range of $5-10 billion—which makes a mockery of the notion that the costs of the regulation are under $100,000.
The losses would be felt especially in Miami and Los Angeles, where deposits from Latin America are concentrated. The Florida Office of Financial Regulation surveyed 16 banks chartered in that state and found that an average of 41 percent of their deposits were from nonresident aliens, with one bank reporting the number at 92 percent. Our fractional-reserve banking system means that one dollar of deposits supports multiples of that in loans; a withdrawal of $200-300 billion in deposits would diminish lending in the ballpark of $1.5 to $2 trillion.
Economists across the political spectrum have agitated for a change to our antiquated international tax system, which keeps an estimated $1.5 trillion in corporate profits parked in banks overseas rather than invested in the United States, arguing that such a change would provide a potent stimulus to the financial sector and the larger economy. Requiring the reporting of nonresident interest income to the IRS would undo most of the -anticipated benefits of any such change to international tax laws.
Not surprisingly, mandatory reporting of nonresident alien interest has a disproportionate impact on banks in states with large immigrant populations, and the Florida and Texas congressional delegations are apoplectic over the administration’s proposal. Senator Marco Rubio of Florida—joined by his Democratic counterpart, Bill Nelson, and 18 other senators—introduced legislation (S. 1506) that would rescind the regulation. In the House of Representatives, every member of the Florida delegation, including Democratic National Committee chair Debbie Wasserman Schultz, opposes the administration proposal.
The lack of discernible benefits has left the administration with few supporters of this regulation. The left-wing Citizens for Tax Justice provides the most full-throated response, claiming in congressional testimony that the regulation would help to root out tax evaders and “[bring] much-needed revenue into the Treasury.” It cites no data or research to that effect, however.
Since the administration shows no signs of pulling back on this regulation, it leaves its opponents looking to the courts and Congress for relief. Neither is promising. Successful challenges to regulation outside a courtroom are rare, and Congress has successfully employed the Congressional Review Act, Congress’s only tool to rescind regulations, just once since its inception.
But the administration has proven susceptible to political pressure aimed at halting onerous regulations. The Department of Labor’s proposed regulation to redefine (and expand) fiduciary standards created a financial industry uproar about compliance costs and a host of unintended (and unacknowledged) consequences. This resulted in the administration withdrawing the rule for further study so as to lessen its potential employment impacts.
The Department of Education’s “gainful employment” rule targeting for-profit colleges also experienced significant political and outside pressure that resulted in a drastic scaling back of the rule’s impact, saving thousands of jobs.
And the administration very publicly rebuked EPA’s attempt to lower the threshold for ozone standards, with outside protests prompting the only formal “Return Letter” from OIRA administrator Cass Sunstein.
On its face the reporting requirement for nonresident alien interest seems trivial, at least according to the administration. In fact, it would create a significant drag on the economy at a time when we can least afford it. Lending will shrink, bank industry profits will fall by billions, and a number of banks may fail as a result.
Perhaps political prudence will convince an administration now in reelection mode what sound policy analysis should have made clear to it previously: The proposed regulation is simply indefensible.
This article originally appeared in the Weekly Standard.
