November 14, 2019

Estimating Regulatory Savings


KEY TAKEAWAYS

  • The White House Office of Management and Budget projects $18 billion in eventual regulatory cost savings from fiscal year 2019, though the final numbers are not in yet.
  • The White House has estimated approximately $50 billion in eventual savings from deregulation since President Trump took office.
  • Congressional Review Act resolutions enacted so far are expected to generate $40 billion in economic activity annually, according to the White House.

The Trump administration and Republicans in Congress have been reducing the economic burden of federal regulations for the better part of three years. On January 30, 2017, the administration imposed a 2-for-1 rule requiring that each new regulation be offset by eliminating two previous regulations. The White House has estimated around $50 billion in eventual savings from deregulation since President Trump took office.

Republicans in Congress have passed 16 Congressional Review Act resolutions vetoing specific regulations imposed by the Obama administration or the Consumer Financial Protection Bureau. The White House has estimated that those actions generate $40 billion in economic activity annually.

OMB’s Estimates of Trump Administration Regulatory Savings by Fiscal Year

Regulatory Savings

How OMB estimates deregulatory savings

Federal agencies usually estimate the costs and benefits of major regulatory actions. Major deregulatory actions have an estimate for savings, which would be “benefits” of the deregulatory action or “costs” of the original regulatory action. The White House Office of Management and Budget compiles the estimates for those actions, categorizing as “deregulatory” any actions that have total costs less than zero. OMB projects $18 billion in eventual regulatory cost savings from actions taken in fiscal year 2019, though the final numbers are not in yet.

OMB-Estimated FY2018 Regulatory Savings for Select Agencies

Regulatory Savings

Source: RegInfo.gov

For its aggregate estimates, OMB does not calculate the regulatory savings felt immediately in the economy, but rather an accounting estimate of the “present value of savings” expected to be realized in the future. The present value of savings is the future value of how much is saved reduced by a certain percentage to account for things like interest rates and the ordinary preference to have benefits now rather than later. Businesses might choose to invest more immediately knowing that they will not face those future costs, but there is not necessarily a one-to-one translation of regulatory savings to immediate benefit.

The categorization of rules as “deregulatory” also can get complicated. For example, in fiscal year 2018, OMB counted the rule “CY 2018 Updates to the Quality Payment Program” as a major deregulatory action. That rule contained various tweaks to federal incentives programs for doctors under Medicare, resulting in a $13.9 million reduction in paperwork costs. But it also created more than $1 billion in additional federal expenditures under Medicare quality incentives programs. The rule was considered major because it has “economically significant effects” – over $100 million in any one year – and “deregulatory” because it reduces the cost of complying with federal regulations by $13.9 million. Because the increased government outlays of more than $1 billion are between taxpayers and program beneficiaries, they are considered “transfer rules” and not “costs.”

Uncounted Regulatory costs

Beyond the difficulty of calculating savings for specific rules, OMB’s tabulations include only major rules with quantified costs and benefits. The agency generally calculates savings against a baseline of current law. This count omits:

  • Savings accrued from repeal of minor rules, for which costs and benefits are rarely calculated;

  • Costs avoided by abandoning potential Obama-era rules that were never finalized, which would not have had quantified costs and benefits and would not constitute an agency action requiring a cost-benefit analysis; and

  • Cost changes from variations in enforcement of existing regulations, which do not constitute an agency action requiring a cost-benefit analysis.

OMB’s methodology also is unable to account for a change in the expectation of regulation on the part of businesses. For example, if a business reacts to an election by assuming the winner will be more or less likely to regulate its industry, it may adjust its marginal investments. If businesses increase their investments because of a lower expectation of regulation, there would be economic benefits, but they would not show up in OMB’s calculation of savings from deregulation.

Outside organizations sometimes try to estimate regulatory burdens including these nebulous effects, but they generally rely on complicated modeling rather than direct measurement. The modeling assumptions and methodology behind such estimates can lead to tremendous variation in results. OMB’s tally of agency-estimated savings, while not perfect, can be a useful resource as long as its limitations are understood.