[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
THE COST OF REGULATION TO SMALL BUSINESS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT, AND GOVERNMENT PROGRAMS
and
SUBCOMMITTEE ON REGULATORY REFORM AND
PAPERWORK REDUCTION
of the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
WASHINGTON, DC
__________
JUNE 6, 2002
__________
Serial No. 107-60
__________
Printed for the use of the Committee on Small Business
COMMITTEE ON SMALL BUSINESS
DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
ROSCOE G. BARTLETT, Maryland California
FRANK A. LoBIONDO, New Jersey DANNY K. DAVIS, Illinois
SUE W. KELLY, New York BILL PASCRELL, Jr., New Jersey
STEVE. CHABOT, Ohio DONNA M. CHRISTENSEN, Virgin
PATRICK J. TOOMEY, Pennsylvania Islands
JIM DeMINT, South Carolina ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota TOM UDALL, New Mexico
MICHAEL PENCE, Indiana STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York MARK UDALL, Colorado
TODD W. AKIN, Missouri JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania BRAD CARSON, Oklahoma
ANIBAL ACEVEDO-VILA, Puerto Rico
Doug Thomas, Staff Director
Phil Eskeland, Deputy Staff Director
Michael Day, Minority Staff Director
------
SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT, AND GOVERNMENT PROGRAMS
JIM DeMINT, South Carolina, Chairman
FRANK A. LOBIONDO, New Jersey JUANITA MILLENDER-McDONALD,
MICHAEL FERGUSON, New Jersey California
FELIX J. GRUCCI, Jr., New York DANNY K. DAVIS, Illinois
DARRELL E. ISSA, California STEPHANIE TUBBS JONES, Ohio
EDWARD L. SCHROCK, Virginia CHARLES A. GONZALEZ, Texas
SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas
DONNA M. CHRISTENSEN, Virgin
Islands
Nelson Crowther, Professional Staff
------
SUBCOMMITTEE ON REGULATORY REFORM AND OVERSIGHT
MIKE PENCE, Indiana, Chairman
LARRY COMBEST, Texas ROBERT BRADY, Pennsylvania
SUE KELLY, New York BILL PASCRELL, Jr., New Jersey
SAM GRAVES, Missouri CHARLES GONZALEZ, Texas
ROSCOE BARTLETT, Maryland DAVID D. PHELPS, Illinois
TODD AKIN, Missouri JAMES P. LANGEVIN, Rhode Island
PAT TOOMEY, Pennsylvania ANIBAL ACEVEDO-VILA, Puerto Rico
Rocario Palmieri, Professional Staff
C O N T E N T S
----------
Page
Hearing held on June 6, 2002..................................... 1
Witnesses
Graham, Hon. John, Administrator, OIRA, Office of Management &
Budget......................................................... 3
McIntosh, Hon. David, Former Member of Congress, Partner Mayer,
Brown, Rowe & Maw.............................................. 6
Hahn, Dr. Robert, Director, AEI--Brookings Joint Center for
Regulatory Studies............................................. 12
Langer, Andrew, Manager, Regulatory Affairs, National Federation
of Independent Business........................................ 14
Arth, Raymond, President of Phoenix Products, for the National
Small Business United.......................................... 16
Appendix
Opening statements:
DeMint, Hon. Jim............................................. 22
Pence, Hon. Mike............................................. 24
Prepared statements:
Graham, Hon. John............................................ 27
McIntosh, Hon. David......................................... 34
Hahn, Dr. Robert............................................. 63
Langer, Andrew............................................... 81
Arth, Raymond................................................ 89
Additional material:
Letter to Committee from Jonathon Zuck, President,
Association for Competitive Technology..................... 101
THE COST OF REGULATION TO SMALL BUSINESS
----------
THURSDAY, JUNE 6, 2002
House of Representatives, Subcommittee on
Regulatory Reform and Oversight, and
Subcommittee on Workforce, Empowerment, and
Government Programs, Committee on Small
Business,
Washington, DC.
The joint Subcommittees met, pursuant to call, at 2:00
p.m., in room 2360, Rayburn House Office Building, Hon. Mike
Pence (chairman of the subcommittee) presiding.
Chairman Pence. This hearing of the Subcommittee on
Regulatory Reform and Oversight of the Committee on Small
Business is convened.
Our hearing today addresses the cost of regulation to the
small business community. Countless efforts to reform and reign
in the regulatory state have met with increasing resistance
from the government bureaucracy. In 2000, the Code of Federal
Regulations required over 74,000 pages to record every
executive agency rule and, if laid down next to each other, the
volumes would literally extend 19 feet in length. From 1991 to
2000, the Code of Federal Regulations increased by 28 percent
and showed no signs of stopping in 2000 when 4,699 rules were
codified.
Last year a report put out by the Small Business
Administration's Office of Advocacy calculated the cost of
regulations to our economy at $843 billion per year, or $8,164
for every household. That number rivals our massive Federal
budget this year. Even more troubling than that were statistics
gathered on the impact of these regulations to small
businesses. Small businesses face a regulatory burden that is
60 percent higher per employee than large businesses. Dr. Crain
and Dr. Hopkins estimate in their report that the average small
business is burdened with almost $7,000 per employee in
regulatory compliance costs. The worst offender in the Federal
Government when it comes to disproportionate costs to small
businesses is the Environmental Protection Agency. Fully half
of the estimated regulatory burden for small businesses
identified in the report comes from environmental regulation.
One of the most powerful weapons in our arsenal dedicated
to beating back the regulatory state is the Regulatory
Flexibility Act; and often our chief warrior in this battle is
the Office of Information and Regulatory Affairs, or OIRA, in
the President's Office of Management and Budget. It is OIRA's
mission to hold agencies accountable to the laws that Congress
has passed and the executive orders of the President when it
comes to performing appropriate analysis and rulemakings.
We are very pleased to have Dr. John Graham, the
Administrator of OIRA, with us today to testify to his progress
in restoring the proper role of his office in the Federal
regulatory process. Dr. Graham will also be discussing the
Draft Report to Congress on the Costs and Benefits of Federal
Regulations which his office is statutorily required to
prepare. Both subcommittees have taken note of your reviews of
existing regulations to improve their net benefits, and we look
forward to your continued progress on reducing the cost of
regulations that are currently on the books.
We are also very fortunate and honored to be joined by
former Congressman David McIntosh, my predecessor in the Second
Congressional District of Indiana. I can say without question
that there are very few Members of this Chamber who could rival
his knowledge of regulatory issues or his integrity or who have
committed themselves and so much of their time and energy and
intellect to this issue. Clearly, your days as chairman of the
National Economic Growth, Natural Resources and Regulatory
Affairs Subcommittee and your work leading the Competitiveness
Council in the first Bush administration speak to the weight
with which your testimony is held by both of these
subcommittees.
We are anxious to hear your thoughts on how the regulatory
reform initiatives which you helped put in place are working
and how we can be doing a better job still. Your outside
perspective is especially appreciated since it has allowed me
to follow you in representing the second district in the great
State of Indiana.
On a personal note, it is delightful to see you on that
side of the desk, though I am daily reminded how many people
wish you were still on this side.
In a time when our economy relies so greatly on small
businesses to keep our country moving, we cannot afford to
stifle that progress by continuing to pile on costly
regulations that disadvantage these groups. Half of our
national workforce is employed by small businesses and two-
thirds to three-quarters of net new jobs are created in the
small business sector. Now is the time to do everything in our
power to limit the reach of the regulatory state and lower the
cost of regulation to small businesses.
We very much look forward to your testimony and to that of
our second panel.
We will now have an opening statement from the chairman of
the Subcommittee on Workforce, Empowerment and Government
Programs who is co chairing and co hosting this Subcommittee
joint hearing, Mr. DeMint.
Chairman DeMint. Thank you, Chairman Pence. It is good to
have you folks here. David, it is great to have you back.
I appreciate the opportunity in helping to convene this
joint hearing to look at the cost of regulations on small
businesses and entrepreneurs. As a former small businessman
myself and a consultant to a number of other businesses, I am
very aware of the extraordinary burden of excessive Federal
regulations. At a recent field hearing in Spartansburg, I heard
from a number of constituents in business who are struggling to
comply with regulations, and it is clear that the burden is
more cumbersome on smaller firms who do not have the resources
to deal with it. This is very ironic that we do this, as
Chairman Pence says, as most of the net new jobs are coming
from these firms that we are smothering in regulations.
It is vitally important that we pay close attention to the
personal as well as the macroeconomic cost of regulations and
other strictures that government unnecessarily places on small
business owners. We on this Committee need to be an advocate
for clearing the way for entrepreneurs to be free to run their
businesses and not spend all of their time jumping through
bureaucratic hoops.
I am pleased to note that the regulations issued under
President Bush are down in number, although they still remain
very high. The 2001 Federal Register contains only 64,431
pages, more than a 13 percent decline. I am concerned that the
unelected are doing the bulk of lawmaking here in D.C. While
unaccountable regulatory agencies issued 4,132 rules last year,
Congress passed only 108 bills.
The five most active rule-producing agencies--the
Department of Transportation, Treasury, Interior and Commerce,
and the Environmental Protection Agency--account for 48 percent
of all rules under consideration.
I want to thank the witnesses again who are participating
in the hearing. I appreciate the work that has been done on the
papers entitled ``The Impact of Regulations on Small Firms''
and the ``Draft Report to Congress on the Costs and Benefits of
Federal Regulations.'' I look forward to hearing about both of
these.
Thank you very much. I yield back, Mr. Chairman.
Chairman Pence. Thank you, Chairman DeMint.
The Chair will entertain opening statements from any
colleagues who join us along the way.
Both of these witnesses on our first panel are very veteran
on Capitol Hill, but allow me to ask your forbearance in
respecting the 5-minute time limit, knowing that the entirety
of your prepared statement will most certainly be added to the
record if you are unable to get through all of it, but we will
also make the practice of hearing from both of our witnesses
before the panel is presented with questions by either chairmen
or any other members who join us in the course of the hearing.
Our first witness in this hearing on the cost of
regulations to small business is Dr. John Graham, who is the
Administrator of OIRA, the Office of Information and Regulatory
Affairs, in the President's Office of Management and Budget;
and Dr. Graham is recognized for 5 minutes.
STATEMENT OF THE HONORABLE JOHN D. GRAHAM, PH.D.,
ADMINISTRATOR, OIRA, OFFICE OF MANAGEMENT AND BUDGET
Mr. Graham. Thank you very much, Mr. Chairman--both
chairmen, actually, for the two subcommittees hosting the
hearing this afternoon.
Since this is my first opportunity to testify before you, I
thought I should say a few words about my background. I was
born and raised in Pittsburgh, Pennsylvania, a very proud
Steelers fan. Perhaps more importantly for the subject of this
hearing, I was raised during a period where that city
experienced substantial deindustrialization for a variety of
reasons, and I saw the impacts of the lack of business growth
and job growth as I was growing up as a young child in
Pittsburgh.
From there, I went to Wake Forest University and Duke
University and then back to Pittsburgh for my Ph.D. at
Carnegie-Mellon University. For the last 17 years, I have been
on the faculty at the Harvard School of Public Health where I
founded and ran the Harvard Center for Risk Analysis.
For the topic of the hearing today, the impact of
regulation on small business, I will start with an anecdote
about the education of John Graham with regard to what
regulation does to small businesses.
My first opportunity to testify before a congressional
hearing was on the Senate side in 1990 on a bill--on one of the
early bills to amend the Clean Air Act that ultimately led to
the 1990 amendments to the Clean Air Act. After I gave my
testimony, I stayed and listened to a second panel. There were
several witnesses from large Fortune 500 companies testifying
in favor of multi-billion dollar regulatory programs under the
Clean Air Act.
That evening I went to dinner with a colleague of mine, Dr.
Bob Crandall at the Brookings Institution, and asked him to
explain to me what I thought was the surprising testimony of
these Fortune 500 companies. I said, is this a case of
progressive businesses trying to clean up theenvironment? Bob
has a good cynical mind, and he reminded me that you have to keep in
mind that these large corporations, when we get into regulatory issues,
oftentimes see regulation as an opportunity to raise capital costs for
participants in an industry and to create entry barriers for new
companies into those businesses. So, oftentimes, we have to understand
that regulatory issues are not an issue of business versus other
interests in society; they are oftentimes big business versus little
business as part of the problem.
That leads to the key finding of the Crain/Hopkins Report
commissioned by the Small Business Administration. Firms with
less than 20 employees face 60 percent larger regulatory
burdens per employee than firms with greater than 500
employees. So I think it is important to realize that
regulation for--particularly for larger companies, in certain
circumstances they see that as a competitive advantage relative
to small companies.
There is, I think, an important piece of missing
information in my written testimony. While we have information
on the cost side of regulation by size of business, we have not
yet been able to collect information on the benefits of
regulation by size of business. In order to have a much more
concrete handle on what the overall impact of regulation is, it
would be useful to have that information on benefits as well as
costs.
I also wanted to make a point about the Unified Regulatory
Agenda of the Federal Government, which was released last
month. It lays out the pipeline of regulations expected over
the next year in the Federal Government. As the so-called
regulatory czar of the Federal Government, I would like to
believe that we are in control of all of this activity but, in
all candor, that is a little difficult to do.
There are some interesting pieces of information from this
agenda. First of all, the Agenda lists economically significant
rules that cost the economy more than $100 million. The
agencies that have most of those in the pipeline are one, EPA;
two, HHS; three, U.S. Department of Agriculture; four,
transportation; and five, the FCC.
However, there is a separate piece of information in this
agenda about rules in the pipeline that will have impacts on
small businesses. I think it is a very interesting list,
because it has a slightly different flavor to it. The top five
agencies are the FCC, HHS, Commerce, Transportation, and SEC.
If you take the independent agencies out, FCC and SEC, then you
add USDA and EPA. I think an important thing to keep in mind
there is the executive order we operate under at OIRA does not
currently have authority for regulatory review over these
independent agencies.
With regard to collaboration in terms of small business
issues, we have recently signed a memorandum of understanding
with the Advocacy Office at the Small Business Administration
Tom Sullivan and I will be working together to try to
coordinate our evaluation of rules for small business impact.
To make a long story short, we have committed that, on our end
of the bargain, we will look carefully at any regulation with
an impact on small business, and if they have not adequately
taken into account the impact on small business, we will return
that rule to the agency for reconsideration.
I have a more extensive set of remarks in my written
testimony, but I hope I have kept within the time limit. Thank
you.
Chairman Pence. Well, you have. Thank you, Dr. Graham, for
those insightful remarks; and we look forward to--both chairs
look forward to dialoguing with you about the issues that were
raised. We will enter your entire prepared statement into the
record, without objection.
[Mr. Graham's statement may be found in the appendix.]
Chairman Pence. Our second witness is a former Member of
the House of Representatives.
Congressman David McIntosh is a partner at Mayer, Brown,
Rowe and Maw. He served in this institution from 1995 to 2001,
where he chaired the National Economic Growth, Natural
Resources, and Regulatory Affairs Subcommittee of the
Government Reform and Oversight Committee. As I mentioned
earlier, he was the Executive Director of Vice President Dan
Quayle's Council on Competitiveness.
While a Member of Congress, he authored many signature
pieces of legislation, including, most notably, the
Congressional Review Act, which became law and was deployed
even by this Congress in its early days to address concerns
Members of the House and Senate had over onerous regulations in
the area of ergonomics. He has left an enormous footprint on
this institution in the area of regulatory reform in
particular, and we are honored to have him here.
The gentleman from Indiana is recognized for 5 minutes.
STATEMENT OF THE HONORABLE DAVID McINTOSH, FORMER MEMBER OF
CONGRESS, PARTNER MAYER, BROWN, ROWE & MAW, MUNCIE, INDIANA
Mr. McIntosh. Thank you, Mr. Chairman. Thank you both,
Chairman DeMint and Chairman Pence. It is an honor to be here
sitting in this seat before you.
I would say, Mr. Pence, there are four members of the
McIntosh family that are indeed glad that we have traded
places; and I want to commend you on the great job you are
doing and urge you to continue.
It is also an honor to be here with the OIRA administrator,
Dr. Graham; and I would second his initial insight about the
tension between big business and small business. In fact, over
and over again, it has come to my attention that that is what
is behind many of the regulatory initiatives.
In fact, when I worked with Vice President Quayle, a well-
intended lobbyist from one of the Nation's large businesses
came in and said, we like what you are doing in cutting back on
unnecessary regulation, but do not forget there are some
regulations that are good. And I said, which ones do you have
in mind? He said, well, there are some that we like because our
competitors cannot quite comply with them yet. A moment of
candor, and it gave me a great insight into what perhaps some
of the motivation was behind different programs.
So, John, I would wholeheartedly agree with you and keep
that perspective.
What I would like to do today is focus on a couple of main
points in my testimony, and then perhaps others can be explored
in response to your questions.
First, the Crain/Hopkins study I think is alarming in that
it shows that the costs are so high, $800 billion, that the
disproportionate impact on small businesses, a 50 percent
higher cost per employee, which effectively means every day
when they are deciding do I add another employee to my
business, they realize that it is going to cost them on the
order of $8,000. It is an inhibitor for job growth and for
recovery in our economy. I think it is alarming and something
that everyone in the administration and in Congress should take
to heart.
Looking at SBREFA and the way it has been functioning,
there are many good things in there in terms of furthering the
emphasis on cost-benefit and looking at the impact on small
business, but there are a few ways in which I think this
Congress could try to strengthen that act, and I wanted to
particularly draw your attention to those.
One of them is that the 605(b) certification process seems
to be greatly abused, where an agency does not have to go
through a review of what the costs are to small business if
they certify that the regulation will not significantly impact
the small business. I would suggest that Congress look at a
mechanism, perhaps similar to what it has set up in the
Paperwork Reduction Act, where a central office has to sign off
on that certification, perhaps OIRA, perhaps the SBA chief
counsel, before that certification can allow them to escape the
requirements for doing an impact analysis.
The second point is that the regulations should clearly
apply to standards that are not directly administered by an
agency but set the standard for regulations at the State level.
You think of the ozone and particulate standards that EPA
issued a few years ago. They claim they did not have to do a
small business impact, even though it would cost hundreds of
millions of dollars to small businesses, because, ultimately,
all it did was set a standard that then 50 State governments
had to implement in their clean air regulations. So by
extending the application of SBREFA to those type of
regulations, I think you would do a great service.
The third is to more explicitly include an estimate of cost
in the impact analysis. There I think OIRA has a tremendous
definition of what costs and benefits should be included in
their analysis, extend those definitions statutorily into what
should be done by the agencies to make it clear that they have
to identify cost as they do their analysis.
Then, finally, one of the things that I think would be
helpful is to direct the courts to give deference to the Small
Business Administration in determining cases on how SBREFA
should be applied to the agencies. Normally you have, under the
Chevron decision, a great deal of deference to the agency that
administers a program, but in this case, because the Small
Business Administration does not actually administer the
regulatory program, their view of what is required under SBREFA
is not granted that type of judicial deference. You have a very
good set of people there in the Small Business Administration
who are familiar with the type of problems that different
regulatory programs cause and direct the courts to give them
that deference.
The other parts of my testimony I would be delighted to
talk with you about in question and answers, and I do
appreciate you holding this hearing so that you can raise the
standard for people in government and outside of government.
Thank you.
Chairman Pence. Thank you. We will enter the balance of
your prepared remarks in the record for this hearing without
objection.
[Mr. McIntosh's statement may be found in the appendix.]
Chairman Pence. I want to defer to Chairman DeMint, since I
gave the first opening statement, if he wants to begin the
questioning.
Chairman DeMint. That is the kind of thing I guess that is
politically good to talk about, and ever since I have been here
we talk about the regulations and the cost, particularly on
small businesses. I have had a lot of hearings myself. I,
frankly, would like to know from you two if you had one
suggestion as far as what we could do, not just as a part of
this Committee, because this Committee needs the help of a
number of others and the leadership to actually make some
things happen, but what would you suggest we do to begin to
make a dent in what is obviously a bad situation for our
economy and our global competitiveness and the encouragement of
entrepreneurism and innovation? I am just looking for a few
little things I can sink my teeth into and maybe actually try
to get something done. So I will start with you, Dr. Graham.
Mr. Graham. Well, let me start on the analytic side of the
case for reform of regulation to protect small business. I
think there has been, for a number of years, a good analytic
case of the substantial costs of regulation on the small
business community and the disproportionate nature of that
cost. My own opinion is that the weakness in the analytic case
is that we do not have the parallel body of information on the
benefits side.
The reason why that is important is that many people who
believe that sometimes regulation is necessary fear that if we
were to take away regulatory protections, it could either harm
the consumer, the worker, or the environment or so forth. Until
we get a good analyticfoundation--like we have provided on the
cost side of the ledger--on the benefit side of the ledger, we are
always going to be vulnerable to people speculating about what is going
to happen if you remove these regulations. I think that there should be
no one in either party or of any ideology that should be against a good
collective and a good objective body of information of what we really
know about the benefits of these regulations that disproportionately
impact small businesses.
Mr. McIntosh. Let me add to that something that Dr. Graham
worked on prior to coming to government. Risk assessment should
be a key part of that benefit analysis, because it lets you in
many ways prioritize which type of regulations give you, in the
terms of health rather than cost, the greatest benefit,
something we tried to do when I was in Congress but were unable
to because of the political configuration of the Senate in the
Clinton administration. That is a large project but one well
worth fighting, because essentially what it does is it directs
this whole regulatory apparatus towards maximizing the benefits
out of it. They focus on those things that are most risky to
people. Believe it or not, that is not what the government does
currently, time after time.
I guess if there were a statutory provision that I would
recommend that focus be put on in terms of SBREFA, I think it
would be that certification process where you have a mandatory
check off by that centralized agency. The Paperwork Reduction
Act is probably the most successful of all of the different
congressionally created or administratively created review
processes, because the form is invalid if the agency does not
comply with it. Dr. Graham administers that program in OIRA.
Taking a look at it from a larger scheme, there are two
notions that I did not mention in my testimony but I think are
important to start the dialogue on. One is finding a way to
have more accountability by elected officials for regulatory
decisions.
The Congressional Review Act was a start in that direction,
but one way conceptually to really make that effective is to
change the presumption. The presumption in the Congressional
Review Act is, if Congress does nothing, the regulation goes
into effect. If you flip that and say until Congress ratifies
the decision by the agency, and you would obviously have to
limit it to major regulations or significant impact
regulations, that would change the whole dynamic.
Now, having sat in your seats, there is a lot of
consequences that go with that, and there will be a lot of your
colleagues who are perhaps happy not to have that type of
accountability. There is a record created if they vote yes or
no on a clean air regulation. But I think in our democratic
system that type of accountability will lead to a better
product by the Federal Government.
The second large conceptual issue that I would love to see
people work on is taking a look at the enforcement side and
asking ourselves, what has happened in the last 100 years as we
moved from an administrative state that did not have these
regulatory bodies into a regulatory state for much of the
Federal programs? Specifically, what has happened to the
procedural protections in the Bill of Rights when those rules
and regulations are enforced?
It would be my premise that many of those protections have
gone by the wayside. You still technically have the right to
have your day in court and the fifth amendment, the seventh
amendment, all of the different protections that go with that,
but the reality is the enforcement of most of these programs is
done by injunction, it is done by failure to give approval for
a new product, it is administered through processes and
remedies that the government has that are extrajudicial.
One thing Congress should look at is, how do we apply those
Bill of Rights or the concepts in the Bill of Rights to provide
protection to the innocent citizen or small businessman or
company when they are up against the leviathan of big
government implementing these regulatory programs? It would
protect against the petty bureaucrat who has a lot of power and
very little control and oversight, but it would also, I think,
force the government to do a better job in selecting how they
enforce these regulations in the same way we feel that the Bill
of Rights helps ultimately law enforcement do a better job of
focusing in on its efforts to apprehend criminals.
So those are two large conceptual areas that much work
would need to be done to lay the groundwork to support those.
But if you are of interest in those, I would be delighted to
further work with you on them.
Chairman DeMint. I hope to follow up, and I thank you.
I yield back, Mr. Chairman.
Chairman Pence. Dr. Graham, first, a very specific question
that has to do with the status of the executive order that the
President promised on March 19 of this year. What is the status
of that order from the perspective of your office?
Mr. Graham. Well, I can tell you what I know about the
status of it. The executive order process involves first the
Executive Office of the President getting comfortable with a
first draft and then sharing that with the agencies for
interagency review. Then we come back and try to resolve any
issues that are involved. So that is the three-step process.
We are launched now into the second step where there is a
draft, and it is undergoing interagency review. There will be
comments taken, and then there will be a final piece put
together.
But you can be assured that there are people working hard
on that, and we are definitely committed to an executive order
that in particular will strengthen the ability of the Advocacy
Office at the Small Business Administration to do their work
and assure that agencies comply with the Reg Flex Act.
Chairman Pence. Well, let me say from the standpoint of
this Subcommittee it would be our hope and, frankly, our
expectation that the executive order have the strongest
possible language to give the OIRA and SBA's Office of Advocacy
the tools they need to ensure that agencies comply with the Reg
Flex Act; and that, if that was not the case, that you might be
able to carry back to the deliberations that certainly this
Subcommittee and perhaps Mr. DeMint's Subcommittee and maybe
the full Small Business Committee would likely have a hearing
on that issue, if not more.
Let me go specifically to some of your prepared testimony
that I looked at last night. In today's remarks, you used the
phrase that OIRA is prepared to return any draft rules for
agency reconsideration if they have not taken into
consideration the impact of a draft rule on small business as
required under Reg Flex Act. How do you plan to decide--how
does your office, rather, plan to decide if an agency has taken
small business into consideration? What is the objective or
subjective standard for that reconsideration?
Mr. Graham. Excellent question.
I guess the first point I would make, to be candid, is that
the Office of Information and Regulatory Affairs is an
organization that has a career staff of about 50 employees, and
that compares to on the order of thousands upon thousands of
people in the various agencies. We have 4,000 regulations each
year--600 of them are significant, 50 to 100 of those are
economically significant. So the first point I want to make is
that, given all of the considerations that we look at when we
review a regulation, while the small business consideration is
extremely important, there are a variety of other
considerations that are mandated in the executive order. For
example, we look at overall cost-benefit on society--and that
is why we believe that the role of the Advocacy Office at the
Small Business Administration is, in fact, so critical.
Because we do not have the detailed staff understanding of
guidelines around what is an adequate analysis for small
business, we do not have the experience of dealing with
agencies specifically on small business issues that the
Advocacy Office has. We will be looking to Mr. Sullivan to give
us an objective opinion on each of these rules on whether or
not the agency has, in fact, treated the small business issue
fairly.
Now what we have pledged to do in the memorandum of
understanding is, if Mr. Sullivan's office indicates that there
has not been an adequate regulatory flexibility analysis and if
we believe that judgment is a reasonable one, then basically we
do not need to get to a lot of other issues. My boss, Mitch
Daniels, has told me that, at that point, the rule goes right
back to the agency.
Chairman Pence. Okay. One question for Mr. McIntosh. I am
very intrigued by some of the proposals that came up in your
testimony with Chairman DeMint. But, specifically, in your
written testimony you spoke about a new role for OIRA and SBA's
Office of Advocacy in agency reg-flex certifications. Can you
expand on that, what the impact of that would be and what
specifically you were alluding to?
Mr. McIntosh. The practical impact would be to take the
process that Dr. Graham just described and make it mandatory,
that some combination of those two offices would have to
grant--and the way they do it in the Paperwork Reduction Act is
they give a number that is put on the form that shows it has
been cleared by OIRA, but some indication to the world that
that impact analysis has been signed off on. Perhaps because of
staffing constraints, maybe the Small Business Advocacy Office
is the best of the two, or let the President decide. There are
ways, multiple ways Congress could choose to do that.
But essentially what it does is give private rights to the
regulated community. If those regulations have not had the
impact analysis done adequately, then the regulation would not
be enforceable against those small business entities. A
powerful tool, because what it does is it dramatically
increases the seriousness with which the agencies have to do
that review.
One other thing. Data collection that you all could
consider along the way would be--my recollection was that GAO
did a study in the Clinton administration that was referred to
the Subcommittee I chaired on compliance with SBREFA, and you
might consider asking GAO to update that study to see--and
that, I think, would help Dr. Graham also in identifying if
there are some agencies that have a tendency to ignore the
requirement for the small business impact.
Chairman Pence. I am told that Chairman DeMint for this
panel did not have any additional questions, so I will maybe
offer one generic question to both of our witnesses before we
dismiss and go to the next panel. It might have to do with what
Congressman McIntosh was just alluding to, and that is the data
issue. How do you think we can improve the data that is
available on the impact on small businesses that you have? Are
there recommendations that these subcommittees could consider
and proposals Congress could consider?
I will recognize Dr. Graham first.
Mr. Graham. Well, I cannot give you a comprehensive answer
to that question, but I think I can give you a very interesting
example of the problem we face with data.
The National Highway Traffic Safety Administration, the
organization that regulates car safety and tire safety, is now
in a major proposed rulemaking on improving the quality of
tires. In their proposed rulemaking, they have apparently
determined that there are no small businesses affected by the
particular proposed rule dealing with tire safety. We have had
both letters and visits from companies--people who are in the
tire business, who profess to me that they are executives in
small businesses, who look, as far as we can tell, like they
are small businesses. Yet we have an official Federal Register
notice out there by the Federal agency stating there areno such
businesses in the United States of America.
It is fascinating to me to think through the question; how
are we going to get agencies at least to the point that they
are aware that there are small businesses in some of these
industries that they are proposing rather substantial
regulations to affect?
Now, I think those businesses did submit comments through
the public comment process to NHTSA. We are certainly hopeful
that they will take seriously their concerns. But obviously we
have a data problem when we have agencies declaring that there
are no small businesses within a particular industry, when, in
fact, we are having visits from businesses who are well aware
of these regulations and concerned about them.
Mr. McIntosh. Let me mention one other idea that has been
worked on in the past and I think would help in the acquisition
of data. That would be a move toward a regulatory budget that
would be in the same time frame and the same process to the
spending budgets that the agencies put forward, again, with OMB
in the same role they are as with the budget, having a lot of
insight and control over what the agencies do to make sure they
comply with the President's policy directives. There is a lot
of work that would need to be done, but the requirement of a
budget would then force agencies to provide data about what are
the costs and benefits of their various regulatory programs.
Chairman Pence. On behalf of both subcommittees, allow me
to thank this panel for your very thought-provoking commentary.
With that, you are dismissed; and we will invite our next panel
to take their seat at the table.
Mr. Graham. Thank you to both of you.
Mr. McIntosh. Thank you very much.
Chairman Pence. We will now entertain testimony from the
second panel in this hearing on the cost of regulations to
small business convened by the Subcommittee on Regulatory
Reform and Oversight and the Subcommittee on Workforce,
Empowerment, and Government Programs of the Committee on Small
Business.
We welcome our new panel. We thank you for your willingness
to participate in the process; and, as was mentioned to the
previous panel, you will be recognized for 5 minutes. We ask
you to respect the light board in front of you and conclude
your remarks at the appropriate time. Knowing that all of your
prepared remarks will be entered into the full record of this
hearing, so you need not feel hurried or rushed but rather
might take the minutes that you have to amplify points that
might be of particular interest to the two Chairs represented
here.
Next, the subcommittees will hear from Dr. Robert Hahn. Dr.
Hahn serves as the Director of the AEI-Brookings Joint Center
for Regulatory Studies, as well as a research associate at
Harvard University. Dr. Hahn has his Ph.D. in economics from
the California Institute of Technology and previously served as
a senior staff economist in the President's Council of Economic
Advisors. He has written extensively on the topic of regulation
and is regularly consulted by government agencies for his
expertise and acumen.
Dr. Hahn, we are grateful for your participation in this
panel and for traveling to this joint hearing. You are
recognized for 5 minutes.
STATEMENT OF DR. ROBERT HAHN, DIRECTOR, AEI-BROOKINGS JOINT
CENTER FOR REGULATORY STUDIES
Mr. Hahn. Thank you, Chairman Pence and Chairman DeMint. It
is a pleasure to be here. I think looking at the impact of
regulations on small business is a very important topic, and I
think Dr. Graham and former Congressman McIntosh made several
points that I would agree with, and I am not going to dwell on
them.
My general view of the impact of regulation on small
business is related to a quotation I think that was due to
Oscar Wilde where he said, ``I have been rich and I have been
poor and rich is better,'' and for those reasons, you might
imagine why small business sometimes gets the short end of the
stick.
One of the issues that you raised, Chairman Pence--and Dr.
Graham, who was formerly my colleague at Carnegie-Mellon, I
know is intensely interested in--is how you get better
information into this process? I simply want to state for the
record that I think the general quality of information is
fairly poor in the regulatory process, and the Joint Center has
several researchers who did a study that I cite in my
testimony, which talks about the fact that many of the
regulatory analyses that we reviewed over the last several
years did not even seriously consider regulatory alternatives
or costs and benefits. So it is hard to make a strong claim
that the quality of information that we are getting generally
is very good.
What we tried to do in this joint testimony--and I should
say that it is joint testimony with my co-director, Bob Litan
of the Brookings Institution, who sends his regrets for not
being able to be here today--is to develop a set of
recommendations that we think would engender bipartisan
support. They are probably not as far as we would go
individually as economists, but, nonetheless, we recognize or
at least we think there is not a very strong sentiment for
changing the world radically with respect to regulation and its
reform right now. So we think some incremental steps in the
direction of reform would be welcome.
We go a little bit further in our comment on the OMB draft
report, which I also left on the table over there and would be
happy to e-mail to you if you would like to see it.
So let me just briefly turn to the recommendations. We can
talk about them, and feel free to stop me if you have
questions.
The first one, though it might seem unobjectionable, is not
happening as quickly as we might like. That is for the agencies
to get the regulatory information out there before the
decisions are actually made. Specifically, we say that Congress
should require that agencies make each regulatory impact
analysis and supporting documents--and I think that is
important--available on the Internet before a proposed or final
regulation can be considered in the regulatory review process.
Why? Because we think one very important aspect of improving
Federal regulation is increasing transparency in the regulatory
process. We have the Internet out there. Why not make better
use of it?
Dr. Graham has done a great service to the public by
putting more and better information on the OMB website. I think
some of the other agencies are moving in that direction. I
would like to see them move faster, and I would also like to
see that include independent agencies.
Our second recommendation may sound surprising. All we
would ask is that in the regulatory impact analysis that
agencies are required to do for regulations that would impose
burdens on the economy exceeding $100 million annually, that
they include a simple executive summary with what we call a
standardized regulatory impact summary. I include an example of
the regulatory impact summary at the end of the testimony. It
contains questions such as; Did you consider cost? Did you
consider benefits and so forth? What is your bottom line?
So, if you are not interested in reading 300 pages of
gobbledygook you can see what the bottom line is very quickly,
or your staff can cut to the chase fairly quickly.
Our third recommendation, which is something I feel most
strongly about, is that the Congress consider establishing what
we call Congressional Office of Regulatory Assessment. The
essential idea is to be a counterpart to OIRA. Why? To keep it
honest. We have the same process going on now with the
Congressional Budget Office and the Office of Management and
Budget. We already have legislation on the books, I believe, in
the Truth in Regulating Act that puts this function at GAO.
Both Professor Litan and I think it would be a really good
investment to appropriate the $5.2 million annually for the
pilot project at GAO that is in that legislation. We think that
OMB is constrained in what it can say about certain regulations
because it is part of the White House and the executive
apparatus. Having an agency that is outside of OMB providing an
independent assessment is a good thing. So that is our bottom
line there.
I see that I am out of time. I will stop there; and if you
want to talk about any of my other recommendations, we can do
that. Thank you very much for giving me an opportunity to talk.
Chairman Pence. Thank you very much, Dr. Hahn. I am sure
that Chairman DeMint and I will both have questions to follow
up on your prepared remarks and your comments today.
[Mr. Hahn and Mr. Litan's statement may be found in the
appendix.]
Chairman Pence. The subcommittees will now hear from Andrew
Langer, who is manager of Regulatory Affairs at the NFIB. Mr.
Langer previously served at the Competitive Enterprise
Institute and Defenders of Property Rights and is recognized
for 5 minutes with appreciation.
STATEMENT OF ANDREW LANGER, MANAGER, REGULATORY AFFAIRS,
NATIONAL FEDERATION OF INDEPENDENT BUSINESS
Mr. Langer. Thank you, Chairman Pence and Chairman DeMint.
It is my pleasure to be here before you today representing the
National Federation of Independent Business.
A reasonable government regulation, especially on onerous
paperwork burdens, continues to be a top concern. Regulatory
costs per employee are obviously, as we have said, highest for
small firms; and our members consistently rank those costs as
one of the most important issues that NFIB should be working
on. Thus, I am very pleased to be here to offer my perspective
on behalf of the regulatory state on small business.
Our members view regulation as a serious problem. Most
small business owners are unhappy with the difficulties
regulation creates and the time it takes them away from their
business, rather than any limitation on freedom those
regulations might impose; and they identify Federal regulation
as the biggest culprit in creating those difficulties.
The volume of regulation, obviously, is enormous. We all
know just how long the CFR--how far the CFR is, how long it
extends, 19 running feet; and that is only codified rules and
not the other myriad documents that small business owners must
follow.
But most important, of course, is the direct costs. As we
have said, a couple of people have said repeatedly here, for
businesses with fewer than 20 employees, which accounts for
roughly 90 percent of all small businesses, the cost of
regulation per employee is nearly $7,000. Health, safety and
environmental regulations are a huge chunk of this, of course,
and the Crain/Hopkins study confirmed that.
But, unfortunately, it is difficult for our members to
point to a single regulatory scheme which poses problems. To
them, regulation is death by 1,000 pinpricks, the sheer volume
of requirements coming at them from every direction.
NFIB continues to examine the impact that multiple agencies
and duplicative regulatory regimes have when dealing with a
single regulated entity. To us, a prime candidate for further
examination is the soon-to-be-implemented reporting requirement
for lead under the toxicsrelease inventory. This new standard
alone will, by EPA's own estimates, cost a small business owner 60
hours to prepare their necessary paperwork, and if errors should be
found by EPA in that paperwork, an owner will spend an additional full
business week correcting that problem instead of engaging in their
business. Clearly, this is problematic, especially for a regulation
which may not ought to have been implemented in the first place.
On the other hand, it is the paperwork associated with tax
preparation that our members cite as their biggest regulatory
headache. What began in 1913 as a two-page form backed up by 14
pages of law has now become a 17,000-page maze that requires
703 different forms. The Tax Code's 5.5 million words have
created a nightmare of complexity that zaps the economy's
strength by punishing work, saving, investment, risk taking and
entrepreneurship, the backbone of our economy.
We believe Congress can make great inroads into relieving
tax-related paperwork by, for instance, increasing section 179
expensing limits, addressing the alternative minimum tax,
establishing a standard home office deduction, and clarifying
the definition of what it means to be an independent
contractor.
But NFIB wants to make certain that both subcommittees are
aware of the efforts being made by this administration to shape
policies which are small-business-friendly. As you know,
President Bush himself made a commitment on this when he
outlined his proposals on behalf of small business, and the IRS
continues to address small business owners' greatest headaches
with tax paperwork by, for instance, clarifying the rules on
cash versus accrual accounting methods.
We are also pleased with how SBREFA requirements are being
met by this administration but believe that, as always, more
can be done. OIRA and SBA have continued to be particularly
helpful. Not only has the Office of Advocacy board been working
closely with OIRA in improving regulations themselves, but both
are making great strides in reducing the overall burden by
making what remains easier to understand. OIRA's efforts can
only serve to benefit the small business community; and the use
of such tools as prompt letters, return letters and especially
comparative risk analysis will only help improve the regulatory
state.
But one of our concerns is that OIRA, an organization that
really does ``get it,'' may not have the manpower necessary to
take on the Herculean task of a regulatory state that continues
to grow. And I would ask--we would ask that among the
recommendations that your Committee ultimately makes is to help
OIRA by giving them the tools necessary to deal with what is
absolutely an essential job.
We also appreciate the SBA administrator's efforts and
those of his team. The Office of Advocacy is at the forefront
of groups fighting on behalf of small business owners
everywhere; and we are grateful that the Ombudsman Office, one
that really has not gone recognized in this hearing, has made a
strong commitment to ensuring that our members and other
members of the community are not trampled by agency
overreaching.
Thank you all for the opportunity to testify, and I look
forward to any questions that you might have.
Chairman Pence. Thank you, Mr. Langer.
[Mr. Langer's statement may be found in the appendix.]
Chairman Pence. Our last witness comes not from the halls
of government or the academic world but brings with him the
bona fides of the trenches of small business America. We may
well have saved the best for last.
The Chair recognizes the small business owner from Avon
Lake, Ohio, Mr. Raymond Arth. Mr. Arth is President of Phoenix
Products, a Cleveland-based faucet maker. Mr. Arth also serves
as a member of the National Small Business United Board of
Trustees and is currently chairman of their Legislative Affairs
Council.
We are grateful in the midst of your busy schedule that you
would travel to our Nation's Capital and bring your particular
expertise to this conversation today. And you, Mr. Arth, are
recognized for 5 minutes.
STATEMENT OF RAYMOND ARTH, PRESIDENT OF PHOENIX PRODUCTS, AVON
LAKE, OHIO, FOR THE NATIONAL SMALL BUSINESS UNITED
Mr. Arth. Thank you, Chairman Pence and Chairman DeMint.
Chairman Pence, you have already done my introduction for
me, so we will see if we can get this done in a little less
than 5 minutes.
As a small business owner and as a representative of
National Small Business United, I can tell you that we support
many of the points that have already been made, and I will try
to avoid repeating information that has already been given.
The Crain-Hopkins report has had a lot of attention. I will
tell you as a small business owner that the numbers feel right.
There are people in my company and activities that we do that I
can point to and say, this has nothing to do with running my
business; this has to do with keeping me out of jail, avoiding
penalties, avoiding fines, and so forth. And, unfortunately, a
lot of those activities aren't necessarily making my workplace
safer, making my benefits more fair to the employees, and
things like that.
I think the numbers have a certain feel that, as I say, it
kind of feels right to me. And to cite one number, they
mentioned that the cost for manufacturers, which would be me,
is about 3.4 percent of revenues. That is greater than my
historical net before taxes earnings over 25 years in business.
That is millions of dollars that my company has spent that
didn't go into new products, improving processes, creating new
jobs. And while not all regulations are bad, a lot of the hoops
we have to jump through, as I say, don't make the world any
safer, don't make our products any safer, and doesn't improve
the workplace to a great degree.
I also would like to emphasize a point that was made
earlier in testimony about the impact that regulations have on
job creation. Three years ago it was a stated goal at our
company to increase our output without increasing employment.
We had 98 employees at that time. We did not want to pierce the
100-employee threshold because a new round of regulations kick
in at that point. Unfortunately, fate and the economy have
intervened, and today we are now down below about 60 employees.
But, again, recognizing the costs associated, we don't run out
and add bodies, we try to find other ways to get production
done and other ways to run the business without adding to the
cost of payroll and full-time employees.
I would like to focus the balance of my comments here on
that portion of my testimony that referred to a tax study that
was recently completed and issued by NSBU. It was conducted for
them by the Prosperity Institute, and the point of that study
was to really focus on the way that the Income Tax Code
deliberately or inadvertently discriminates against small
business. The report has been circulated; I have a copy here
that I could leave as part of the testimony, if that's
appropriate, and it would be available at the NSBU Website,
www.nsbu.org.
But essentially what they have done is looked at the way
the Internal Revenue Code tilts the game in favor of bigger
companies, in favor of C corporations versus sole
proprietorships, kind of perverse situations where we want to
encourage small businesses to offer fringe benefits, but we tie
the hands of the small business owner in terms of the
deductibility of their own costs for the benefits they offer to
their employees; rules for qualifying plans that make it
difficult to offer qualified benefits in the smallest
companies; situations where you need at least seven employees
before you would be able to meet the matching tests to have a
qualified life insurance program, for example; all sorts of
top-heavy testing that is required of small business owners.
I sponsor a 401(k) plan. I match my employees'
contributions. That match almost literally comes out of my left
pocket, which is the one I think of as the business, as opposed
to the right pocket; yet my contributions to the plan are a
function of my employees' contributions. There is no
counterpart in the large corporate world where the owners, the
leaders of those companies, have their hands tied, have their
benefits restricted the way we do in small business.
And perhaps what is most frustrating about all of that is
that it is hard to understand some of these rules, some of
these regulations unless you assume that the people who enacted
them believe that as a small business owner I am dishonest, I
am unethical, I am ignorant, maybe I am stupid, because
otherwise a lot of these things just don't make sense. It takes
quite a toll as well.
That said, I think I will wrap up my comments and be glad
to answer any questions. Thank you.
[Mr. Arth's statement may be found in the appendix.]
Chairman DeMint. Mr. Langer, you mentioned the Tax Code,
and that is probably the biggest regulatory problem of small
business, and certainly I have experienced that. Does NFIB
support a particular type of tax reform? And I hope you would
support the current sunset, the Tax Code proposal that we are
trying to get back on the floor.
Mr. Langer. Well, we are working on a number of different
things. To be honest, tax issues aren't my specialty. I came on
board NFIB just under 2 months ago to deal with general
regulatory issues. And so I would be happy to share with you
and bring with you NFIB's experts on that subject, if you would
like.
Chairman DeMint. Good. I look forward to that.
Mr. Langer. And certainly NFIB's position is definitely
reflected in my testimony on those issues.
Chairman DeMint. Mr. Chairman, I don't have any additional
questions. Thank you.
Chairman Pence. Thank you, Chairman.
A couple of questions. Dr. Hahn, we are told on our
Subcommittee that the problem with our current regulatory
structure is that agencies not only use, as you said today,
inadequate data, but they also use bad analysis to show that
benefits outweigh costs. And in a meeting in my office not long
ago with someone you would have heard of in the administration,
that was in full display, that there just seems to be bad
information that is followed by bad analysis.
Now, today you are saying that the Agency's own regulatory
impact analyses, which are designed to prove their case, don't
even pass the costs/benefit test. Is that your assertion today,
or am I misreading your testimony and your comments?
Mr. Hahn. I think you are reading them correctly, but I
wouldn't call it an assertion in the sense that I think that I
have data to support that statement.
Let me respond to your comment a little bit more broadly.
Now, Justice Stephen Breyer, who I consider one of the wisest
and most intelligent people on the planet, wrote a book some
years ago called Breaking the Vicious Circle. He was concerned
with the fact that we had regulations--and I might not be
getting this exactly right, but we had a Superfund regulation
that he had to look at when he was on the Court. The essence of
the regulation was that you had to make the dirt around a
Superfund site clean enough so that if a kid ate it 300 days in
the year, it wouldn't kill him by the time he was 70. And
Justice Breyer probably scratched his head and said, well,what
is wrong here? What is wrong with this picture? And part of what was
wrong was fundamentally the way we structure our regulatory agencies
today.
Each of our agencies is given a single mission: EPA, the
environment; NHTSA, traffic safety; and you could go down the
list, Consumer Products Safety, and so forth.
So, how did they further their own agenda? Well, they
furthered their own agenda by trying to promote regulations in
their domain. And so Justice Breyer labeled this phenomenon
``tunnel vision''. But a less polite way of looking at tunnel
vision was the example you just gave, where there are
incentives that people face in these agencies to develop
regulations that look good when a disinterested observer like
myself might say they don't pass a benefit/cost test.
I have seen such biases several times when I was working at
the Council of Economic Advisers, where I really underwent a
rude awakening, because I thought--when I used to teach cost/
benefit analysis at Carnegie Mellon, I used to teach and say
these are the principles; and I came down here, and noticed all
the fudge factors being written in, and the way benefits and
costs were counted were not kosher, so to speak.
It is a very real problem. OIRA, to some extent, puts some
constraints on that process. The reason I strongly endorsed the
Congressional Office of Regulatory Analysis or its counterpart
at the GAO is because I think it would also serve as a
constraint--putting agencies on notice that, if they do bad
quality regulatory analysis, you folks are going to hear about
it and respond accordingly.
Chairman Pence. Thank you.
Mr. Langer, your comments were memorable, particularly your
reference to regulation as death by a thousand pinpricks. Good
description.
Mr. Langer. Thank you.
Chairman Pence. What do you think we can do to get agencies
to look beyond themselves, as Dr. Hahn just suggested, and see
their regulations in a larger context, to understand that they
are not the only agency that is regulating small business, and
do the cost/benefit analysis in--whatever the opposite of a
vacuum is. Many of them, as Dr. Hahn just implied, regulate as
though they were operating in a vacuum. And how do we get on a
practical level?
Mr. Langer. Well, I think some of the best guidance can be
had from the Office of Advocacy at SBA. You know, I think that
using that office to act as a liaison, creating working groups
between various agencies on regulations might be the best
possible way to do it. If you get the agencies working together
to see that their regs aren't alone, then we might be able to
get some traction on this.
I think also that OIRA needs to be expanded. I briefly
touched on that in my comments. It is very clear from OIRA's
draft report to Congress that, well, they are only starting now
to increase their staff levels. Their staffs have been
decreasing for some time. I think it is very clear that in
order to make greater headway--I mean, the fact is OIRA has
gotten roughly 1,000 comments on their draft report to
Congress, I think a little bit more, and it is going to take
them quite a while to wade through those in addition to
everything else that they are doing. I think giving OIRA
additional resources and allowing them to have additional staff
will allow them to get a better handle on these sorts of
regulatory problems.
So I think with OIRA and the Office of Advocacy, the two of
them really have to work together on this, and that is pretty
much it.
Chairman Pence. One last question for Mr. Arth, who I think
wins the prize for the most eloquent statement of the day, Mr.
Chairman, when he said, ``A lot of these just don't make
sense.'' I thought that really summed up what we struggle with.
And although on that side of the table is a guy who is out
there making a company work, it may seem as though people on
this side of the table don't appreciate that reality, but many
of us do, and I appreciated your candor.
A quick yes/no answer from your standpoint. Would you like
to see the IRS subject to the Regulatory Flexibility Act? An
awful lot of your comments related to the impact of the
Internal Revenue Service on your business and IRS as a
regulatory agency. Do I imply from your comments that that is a
strong affirmative?
Mr. Arth. Yes. You asked for a quick yes/no. I will say
yes, absolutely.
Chairman Pence. Let me--duly noted.
Let me ask you a question about kind of where we started in
the last panel. And, forgive me, Mr. Arth, I don't know if you
were in the room when we began.
Mr. Arth. Yes, I was.
Chairman Pence. But Dr. Graham early on and Congressman
McIntosh talked about anticompetitive practices. From your
standpoint in the faucet business, is it your impression--and
also from your position as chair of the Legislative Affairs
Council for National Small Business United--is it your sense
that the source of the regulatory momentum in this country is
in Washington, D.C., or do you suspect that it comes more from
your larger competitors?
Mr. Arth. No. Quite frankly, I think that really the source
is more here in Washington, D.C., but once we start down that
path, I would say my competitors will look for opportunities to
spin it to their advantage. And if you have a moment, I can
give you a quick example.
Chairman Pence. Sure.
Mr. Arth. The 1996 safe drinking water amendments enacted
required a new regime for chemical leaching with a heavy
emphasis on lead leaching from brass castings into drinking
water. The scientific basis for this whole thing is very
questionable. I have talked to the chief engineers of Delta and
Moen and others, and none of them are really convinced we have
made the world any safer for our children or anyone who draws a
glass of water out of our products, but their costs of
compliance and my costs of compliance are virtually identical.
I am talking probably close to a couple hundred thousand
dollars over the last couple years for me to get lead letters,
get product listings and all of the different things that are
required, whether I am selling 2 million faucets a year or I am
selling 2 million faucets a week. And so it clearly does put me
at a competitive disadvantage just because the economies of
scale really work to their benefit.
It was an industry consensus standard. The faucet
manufacturers were there, but, of course, it was the big guys
who have the engineering staff and the depth of resources to
staff those committees. And I won't accuse anyone of nefarious
motivations, but I have seen firsthand how all of us complying,
the impact is certainly very different.
Chairman Pence. Well, let me say that is a wonderful
stepping-off point, and maybe we could enlist Chairman DeMint,
that our Subcommittee is currently taking a very hard look at
the EPA lead rules and may well convene hearings in the near
term to examine the impact of those regulations on small
business, Mr. Arth. So you can add your name to the people that
have encouraged us to do just that.
Mr. Arth. Very good.
Chairman Pence. But thank you for your candid remarks.
And with that, Chairman DeMint, did you have any further
questions or follow-up, closing remarks?
I would just simply like to thank this very distinguished
panel, Mr. Langer, Mr. Arth, and Dr. Hahn, very insightful
remarks. And we are adjourned.
[Whereupon, at 3:20 p.m., the joint subcommittee was
adjourned.]
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