Trump’s Regulation Order: What It Means For Small Businesses

Date posted: March 14, 2017

 

Robb Mandelbaum  

 CONTRIBUTOR

Opinions expressed by Forbes Contributors are their own.

 The ink was hardly dry on President Donald Trump’s executive order pledging to repeal two existing regulations for every new one when the U.S. Chamber of Commerce announced that it was all in. “The U.S. Chamber applauds the president for fulfilling the campaign’s promise to take on the regulatory juggernaut that is limiting economic growth, choking small business, and putting people out of work,” Chamber president and C.E.O. Thomas J. Donohue said in a press release. “We look forward to working with the administration to identify the regulations doing the most harm and recommend solutions that drive growth and jobs.”

But though Trump signed the executive order ringed by small business owners, dedicated small business advocates were slightly more circumspect. “The implementing rules to be issued by the Office of Management and Budget should emphasize that the extraordinary costs and complexity of regulations falls hardest on America’s small and independent businesses,” said the National Federation of Independent Business, which noted that according to its own research, business owners say regulations “have been in their top three concerns for 96 consecutive months.”

Similarly, the National Small Business Association, which just two weeks ago released a survey claiming that start-up businesses spend $83,000 on regulatory costs alone, said, “We look forward to working with the Administration as the many remaining details and decisions are worked through, to ensure that reducing regulations on smaller businesses will be a top priority and that regulatory policy moving forward is maximally effective for small businesses.”

Only the liberal-leaning Small Business Majority, which in 2012 published its own research finding that regulations come in third among small business concerns, well behind weak demand, had qualms. “In all our conversations with small businesses, the most burdensome regulations are at the state and local level. We don’t hear a big hue and cry about federal regulations,” John Arensmeyer, the group’s president and C.E.O., said in an interview. “Regulations should be considered based on a specific policy objective, not as an abstraction. It’s a simplistic proposal that has no basis in reality.”

On that note, Arensmeyer may be on to something, and the other groups are right to be cautious. “This is more about messaging and less about reality,” said Seth Perretta, an expert tax lawyer who focuses on insurance and other benefits for industry groups and large companies.

As you no doubt have read, the executive order signed Monday declares that in most cases, “any new incremental costs associated with new regulations shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations” — and that the “total incremental cost of all new regulations, including repealed regulations, to be finalized this year shall be no greater than zero, unless otherwise required by law.” (“Costs” here appear to refer to the private sector’s burden of complying with regulations rather than the cost to the government of enforcing them.) There’s a wrinkle, though, beginning next year: the White House will set a budget for each agency’s incremental regulatory cost, an allowance that limits total amount of compliance burden that an agency can implement that year — and “the total incremental cost allowance may allow an increase or require a reduction in total regulatory cost.”

Ah — already there’s some wiggle room. “There are massive exceptions in here,” Perretta said. “The director of O.M.B. can drive a truck through this order.” He pointed first to variations on that phrase, “unless otherwise required by law.” “Most statutory provisions that affect the regulated community say one of two things. They say, ‘the secretary of the appropriate agency has the authority to promulgate regulations.’ Or they say, ‘the secretary shall promulgate regulations.’ ” It is the difference between “may” and “shall.” You can see immediately that if a regulation is required by statute, it cannot be one of the regulations that you can jettison immediately as part of the one-for-two rule.” The mandatory authority, as it’s called, accounts for about a fifth of regulations, Perretta estimated.

 

One big question is whether agencies can count a provision of a bigger rule as a rule itself. “If this is interpreted to include subparts of broader regulatory programs — this paragraph regulates a kind of engine that doesn’t exist anymore because the technology has been replaced — there’s no doubt that there are lots of individual provisions that could be removed,” said Sean Donahue, who represents the Environmental Defense Fund in clean air and climate change litigation, and who previously worked in the Justice Department’s environmental division. “But if they’re talking about entire broad rules, then it becomes more difficult.”

And the White House has given itself leeway not to comply with the order on those occasions when doing so might be inconvenient. Take, for example, the Affordable Care Act: repealing Obamacare would certainly create thousands of pages worth of irrelevant regulations. But what happens if Congress coalesces around a replacement or several? These new laws will also require new regulations, perhaps as many (or at least more than half as many) as the Affordable Care Act. “You can imagine that there is going to be a lot of pressure to not let this executive order stand in the way of implementing the Republican replacement legislation,” Perretta said.

But assume that the Trump administration is serious about following through on the order when it can. In those eighty percent of regulations issued under the permissive authority (“may”), “then absolutely the relevant secretary has the authority to rescind or revoke the regulation,” according to Perretta. But it will have to do so the same way it formulated the rule in the first place, a process that can take many years and is certain to invite lawsuits from advocates that can only slow it down.

“The fact that the president has said you have to sacrifice two rules for every new rule you’re adding is certainly not going to be an adequate reason for eliminating a particular rule,” said Donahue. “In fact, it may hurt. If the court thinks the primary reason the agency is eliminating the regulation is to improve its statistics under the executive order, that will undermine the rationale for eliminating the rule.”

Plaintiffs like Donahue’s may have an uphill climb here; courts traditionally have deferred to agencies in interpreting what a law requires them to do. But even if an agency does succeed in repealing a rule, it still is obliged to enforce the statute. “Regulations are typically issued to interpret a statutory requirement,” Perretta said, and the government can only ignore its own laws for a limited period. Eventually, “as long as the statute still requires the government to do something,” advocates can sue an agency for abdicating its responsibility. “The court would probably give the agency a period of time to get their act together, but if they continually refused to, the court would step in to act like the agency.”

Perretta suggested that government offices ultimately operate according to their own rhythm. “Agencies do two things: they put out regulations and they enforce laws.” What most likely will happen is that the bureaucrats the White House wants to rein in will find ways around the rule. “It’s going to create a perverse incentive for departments to underestimate the cost of any new regulation,” Perretta said. Or they’ll try to count provisions of a single rule as multiple rules.

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