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Taking Action for America: Smarter Regulation

A nation’s regulatory system is one of the most telling indicators of its business environment. On the one hand, smart regulations that clarify the “rules of the road” and are in line with broad societal values over multiple election cycles can provide an environment of stability, inspire business confidence and accelerate investment. On the other hand, regulations that create uncertainty and reflect shortsighted political interests can impose unproductive cost burdens on businesses and consumers, undermine confidence, and delay investment. The key distinction, therefore, is not the quantity of regulations but the effectiveness and efficiency of regulations as well as the balance between their costs and intended benefits. 

In recent years, the overall regulatory burden on U.S. businesses has grown substantially. Some experts estimate that regulations cost the U.S. economy hundreds of billions of dollars each year. As a result, there are good reasons to believe that excessive regulation is hampering economic growth and recovery in the job market. An October 2011 Gallup poll of U.S. small business owners found that complying with government regulation is the most important problem facing small businesses today — more than either low consumer confidence or lack of consumer demand.

Several aspects of the rulemaking and regulatory process contribute to this negative impact on business activity and resulting drag on economic growth. A relatively small share of proposed regulations is adequately vetted to ensure that projected benefits justify costs. For those cases in which cost-benefit analysis is conducted, costs and benefits are often valued by multiple agencies working in isolation from each other using poor data and/or inadequate methodologies. In some cases, consideration of the economic impact of a regulation is explicitly forbidden, advancing some rules for which costs outweigh benefits.

The complex permitting system established by multiple and overlapping regulations imposes a time-consuming and highly unpredictable constraint on businesses seeking to expand operations or productively deploy capital. Delays in permit processing cost businesses and the government billions of dollars each year. Regulations may open the door to excessive litigation and preliminary injunctions, which stall key projects regardless of merit and drastically increase costs to businesses.

Policymakers can take a variety of actions to ensure that the nation’s regulatory system creates an environment that welcomes new investment, economic growth and job creation. Thorough cost-benefit analyses of proposed major regulations using sound scientific and analytical methodologies would ensure that costs are not overly burdensome on the business community or a damper on overall economic activity. Importantly, such analyses should also account for the deterrent effect that costly regulations have on domestic investment. Requiring agencies to disclose their cost estimates for new rules early in the process would increase transparency and significantly reduce uncertainty for businesses and investors. Finally, streamlining and simplifying the permitting process would substantially lower the anticipated and unanticipated costs of conducting and expanding operations in the United States, increasing capital investments, creating and preserving jobs, and augmenting the competitiveness of the U.S. economy as a whole.

 

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