Three Federal Agency Proposals Exemplify Revived Commitment to Quantifying Costs and Benefits

redtapeAs part of the White House’s strategy to reform the administrative state, several federal agencies have proposed measures to improve the efficiency and transparency of the regulatory process. In recent months, the Environmental Protection Agency (EPA) and the Fish and Wildlife Service (FWS) have requested comments on cost-benefit analysis standards, while the Treasury Department and Internal Revenue Service (IRS) have proposed an economically significant rule that would require cost-benefit analysis.

Under previous administrations, agencies such as EPA and the Department of the Interior experimented with “social” harms and benefits, eschewing consideration of the economic effects of proposed and enacted regulations. The current administration has a justifiably low opinion of such amorphous measurements, and seeks to refocus regulators on quantifiable harms and benefits.

Washington Legal Foundation recently filed comments that urge EPA to conduct quantitative cost-benefit analyses of pollution standards, or to clearly justify the regulation when quantitative analysis is not feasible. Our comments were in response to an EPA advance notice of proposed rulemaking (ANPRM) asking for public input on whether and how it should promulgate regulations to provide a consistent and transparent means for weighing the costs and benefits of regulatory decisions. The ANPRM noted how a lack of guidance in measuring costs and benefits has led to disparate, inconsistent approaches to enacting pollution standards.

Because social harms and benefits have no objective value, environmental regulators can manipulate the cost-benefit process in such a way that every proposed rule is “worth it” economically. EPA’s ANPRM can be a first step toward eliminating this bureaucratic sleight of hand and establishing an agency-wide standard for all future regulations.

Similarly, FWS and the National Oceanic and Atmospheric Administration (NOAA) recently proposed regulatory changes that can inject economic reality into the endangered-species listing process. The proposals would more closely align listing regulations with the text of the Endangered Species Act (ESA). One proposal would eliminate current regulatory language that instructs FWS and NOAA to ignore economic impacts when determining how threatened plants and animals should be protected. The ESA requires the Secretary of the Interior to make determinations based “solely on the basis of the best scientific and commercial data available after conducting a review of the status of the species.” The proposed regulation follows this language, and would do away with FWS’s invented at-all-costs requirement.

The agencies will continue to base listing decisions on biological considerations, but acknowledge the importance of also providing economic impact statements in an effort to adequately inform the public of their regulatory processes. Just as EPA is attempting to be more transparent in its rulemaking efforts, FWS and NOAA propose to conduct regulatory impact analyses that inform the public as well as state, local, and tribal governments about the potential costs and benefits of implementation.

Should FWS begin considering the economic costs of future regulations, the agency can avoid overregulation and unnecessary litigation. For example, the pending U.S. Supreme Court case Weyerhaeuser Co. v. U.S. Fish and Wildlife Service is an archetypal example of regulation for its own sake. FWS designated over 1,500 acres of privately owned forest in Louisiana a “critical habitat” for the dusky gopher frog, hindering development plans at a cost of up to $34 million. The main problem? The frog does not live on this land and has not lived on this land for half a century.

One question the Court is deciding in this case is whether courts can review the agency’s designation of an area as a critical habitat because of the economic effects of the designation. If FWS considered economic costs—and common sense—in the future, cases such as Weyerhaeuser may be few and far between.

The administration’s interest in improving regulatory cost-benefit analysis is not limited to environmental rules. The Treasury Department and IRS also must now analyze each economically significant regulation they intend to promulgate. An economically significant regulation is one that may create a serious inconsistency or interfere with an action taken by another agency, raises novel legal or policy issues, or has an annual non-revenue effect on the economy of $100 million or more. Under Executive Order 12866, issued in 1993 by President Clinton, federal agencies are instructed to only promulgate necessary regulations, and agencies must assess all costs and benefits of the regulations, while also considering alternatives to regulation.

IRS has never considered itself bound by this requirement. Recently, however, Treasury and the Office of Management and Budget (OMB) published a Memorandum of Agreement that set forth a new process for reviewing tax regulations. The Memorandum followed Executive Order 13789, which directed Treasury and OMB to “review and, if appropriate, reconsider the scope and implementation of the existing exemption for certain tax regulations from the review process set forth in Executive Order 12866 and any successor order.” According to the Agreement, “Treasury and OMB share a commitment to reducing regulatory burdens and providing timely guidance to taxpayers.”

A just-released IRS regulation, among other things, would establish a new passthrough deduction to the Office of Information and Regulatory Affairs (OIRA). What is most significant, however, is that it will be the first IRS proposal that adheres to the President’s Executive Order and the Memorandum.

These three proposals, and others that will assuredly follow, indicate the administration’s commitment to transparency, predictability, and economic efficiency in the regulatory process. Objective, quantified analyses that focus on monetary costs and benefits of proposed rules will allow the public to better understand the regulations with which they must comply. It is possible to introduce regulations that positively impact the country while at the same time eliminating superfluous regulations that do little more than burden taxpayers.

As the former Administrator of OIRA has stated, “cost-benefit analysis can operate as a valuable check” on the “characteristic maladies of the modern administrative state,” countering those special interest groups that push regulations based on “behavioral biases, and (most generally and importantly) inadequate attention to likely consequences.” Cass R. Sunstein, Cost-Benefit Analysis and Arbitrariness Review, 41 Harv. Envtl. L. Rev. 1, 10 (2017).

Also published by Forbes.com on WLF’s contributor page.

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