[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
      H.R. 2432, PAPERWORK AND REGULATORY IMPROVEMENTS ACT OF 2003

=======================================================================

                                HEARING

                               before the

                     COMMITTEE ON GOVERNMENT REFORM
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                                   ON

                               H.R. 2432

TO AMEND THE PAPERWORK REDUCTION ACT AND TITLES 5 AND 31, UNITED STATES 
       CODE, TO REFORM FEDERAL PAPERWORK AND REGULATORY PROCESSES

                               __________

                             JULY 22, 2003

                               __________

                           Serial No. 108-68

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform

                                     __________

                        U.S. GOVERNMENT PRINTING OFFICE
90-015                         wASHINGTON  : 2003
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                     COMMITTEE ON GOVERNMENT REFORM


                     TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana                  HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California                 DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky                  DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia               JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia          CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee       LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma              C.A. ``DUTCH'' RUPPERSBERGER, 
NATHAN DEAL, Georgia                     Maryland
CANDICE S. MILLER, Michigan          ELEANOR HOLMES NORTON, District of 
TIM MURPHY, Pennsylvania                 Columbia
MICHAEL R. TURNER, Ohio              JIM COOPER, Tennessee
JOHN R. CARTER, Texas                CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota                 ------
MARSHA BLACKBURN, Tennessee          BERNARD SANDERS, Vermont 
                                         (Independent)

                       Peter Sirh, Staff Director
                 Melissa Wojciak, Deputy Staff Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
              Philip M. Schiliro, Minority Staff Director
















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 22, 2003....................................     1
Text of H.R. 2432................................................     6
Statement of:
    Graham, John D., Administrator, Office of Information and 
      Regulatory Affairs, Office of Management and Budget; and 
      Thomas M. Sullivan, Chief Counsel for Advocacy, Small 
      Business Administration....................................    16
    Smith, Fred L., Jr., president and founder, Competitive 
      Enterprise Institute; Wendy Lee Gramm, director, Regulatory 
      Studies Program, Mercatus Center, George Mason University, 
      and former Administrator, Office of Information and 
      Regulatory Affairs, OMB; John Sample, vice president of 
      sales and marketing, Peake Printers, Inc., Cheverly, MD, on 
      behalf of the National Association of Manufacturers; 
      Raymond Arth, president and CEO, Phoenix Products, Inc., 
      Avon Lake, OH, and first vice chairman, National Small 
      Business Association; and Lisa Heinzerling, professor of 
      law, Georgetown University Law Center......................    60
Letters, statements, etc., submitted for the record by:
    Arth, Raymond, president and CEO, Phoenix Products, Inc., 
      Avon Lake, OH, and first vice chairman, National Small 
      Business Association, prepared statement of................    99
    Clay, Hon. Wm. Lacy, a Representative in Congress from the 
      State of Missouri, prepared statement of...................   144
    Davis, Chairman Tom, a Representative in Congress from the 
      State of Virginia, prepared statement of...................   137
    Graham, John D., Administrator, Office of Information and 
      Regulatory Affairs, Office of Management and Budget, 
      prepared statement of......................................    19
    Gramm, Wendy Lee, director, Regulatory Studies Program, 
      Mercatus Center, George Mason University, and former 
      Administrator, Office of Information and Regulatory 
      Affairs, OMB, prepared statement of........................    75
    Heinzerling, Lisa, professor of law, Georgetown University 
      Law Center, prepared statement of..........................   108
    Ose, Hon. Doug, a Representative in Congress from the State 
      of California, prepared statement of.......................     4
    Sample, John, vice president of sales and marketing, Peake 
      Printers, Inc., Cheverly, MD, on behalf of the National 
      Association of Manufacturers, prepared statement of........    85
    Smith, Fred L., Jr., president and founder, Competitive 
      Enterprise Institute, prepared statement of................    63
    Sullivan, Thomas M., Chief Counsel for Advocacy, Small 
      Business Administration, prepared statement of.............    31
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California, prepared statement of.................   140

















      H.R. 2432, PAPERWORK AND REGULATORY IMPROVEMENTS ACT OF 2003

                              ----------                              


                         TUESDAY, JULY 22, 2003

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2 p.m., in room 
2154, Rayburn House Office Building, Hon. Tom Davis (chairman 
of the committee) presiding.
    Present: Representatives Tom Davis of Virginia, Ose, 
Platts, Schrock, Janklow, Blackburn, Waxman, Maloney, Tierney, 
Watson, Sanchez, and Ruppersberger.
    Staff present: Keith Ausbrook, chief counsel; Jim Moore, 
counsel; David Marin, director of communications; Scott Kopple, 
deputy director of communications; Drew Crockett, professional 
staff member; Teresa Austin, chief clerk; Joshua E. Gillespie, 
deputy clerk; Kristina Boyd and Alexandra Teitz, minority 
counsels; Earley Green, minority chief clerk; and Jean Gosa, 
minority assistant clerk.
    Mr. Ose [presiding]. Good afternoon. Welcome to today's 
full committee hearing of the Government Reform Committee. 
Chairman Davis is working on amendments on the floor, as will I 
be between now and the 5 p.m. hour. So, we'll probably be going 
back and forth. The vice chairman of my subcommittee has 
consented to help us keep in order the bit of business here and 
by the way we welcome him back from the Mayo Clinic. Mr. 
Janklow. Just a second. We're going to take care of a little 
housekeeping here.
    Mr. Janklow and Mr. Platts, this is a motion to rise on the 
floor. I suspect we're going to have a series of such motions 
every time we have intervening business. What I'd request is 
that one of you head that way to vote and get back here so you 
can take the Chair, then I can go vote. But, you've got to 
hustle. Mr. Platts, you'll take care of that? All right. Then, 
you can alternate back and forth. How's that? All right.
    As I said this is the hearing today of the full committee 
on Government Reform regarding H.R. 2432, the Paperwork and 
Regulatory Improvements Act of 2003. We have a number of 
witnesses with us, two panels in particular. As I move through 
the panels, you'll notice that we swear in all our witnesses. 
That's the standard in this committee. And we're going to 
maintain that standard. We're going to go to opening statements 
now. First I want to thank Chairman Davis for holding today's 
hearing on the bipartisan Paperwork and Regulatory Improvements 
Act that I authored as chairman of the Subcommittee on Energy 
Policy, Natural Resources and Regulatory Affairs. I am grateful 
for his becoming an original cosponsor along with my 
subcommittee's vice chairman, Bill Janklow.
    Let me turn to the bill itself. The bill includes 
legislative changes to one, increase the probability of results 
and paperwork reduction; two, assist Congress in its review of 
agency regulatory proposals; and three, improve regulatory 
accounting. The Office of Management and Budget, which I'm 
going to refer to as OMB from now on, estimates the Federal 
paperwork burden on the public of 8.2 billion hours. The IRS 
accounts for over 80 percent of that total. In 1980, the 
Congress passed the Paperwork Reduction Act, hereafter referred 
to as PRA.
    In 1995, 1998, 2000 and 2002, Congress enacted additional 
legislation with the objective of decreasing paperwork burden. 
Nonetheless, paperwork has increased in each of the last 7 
years with the largest increases coming in the last 2 years. 
And OMB continues to devote less than one full-time equivalent 
staff position to IRS paperwork reduction. To address this 
problem, section three of H.R. 2432 requires OMB to devote at 
least two full-time equivalents to IRS paperwork reduction. 
Section 4 removes recent unjustified statutory exemptions from 
various paperwork review and regulatory due process 
requirements. These include the Administrative Procedure Act's 
protection for affected parties to have notice and an 
opportunity to comment on agency regulatory proposals and the 
PRA's required review and approval by OMB.
    Section 5 makes permanent the authorization for the General 
Accounting Office to respond to requests from Congress for an 
independent evaluation of selective, economically significant 
rules proposed or issued by Federal agencies. To assume 
oversight responsibility for Federal regulations, Congress 
needs to be armed with an independent evaluation. With this 
analytic help, Congress will be better equipped to review final 
agency rules under the Congressional Review Act. More 
importantly, Congress will be better equipped to submit timely 
and knowledgeable comments on proposed rules during the public 
comment period.
    Section 6 requires certain changes to improve regulatory 
accounting. In 1996, Congress required OMB to submit its first 
regulatory accounting report. In 1998 and 2000, Congress 
enacted additional legislation to make OMB's regulatory 
accounting reports more useful. OMB is required to annually 
estimate the total annual costs and benefits for all Federal 
rules and paperwork in the aggregate by agency, by agency 
program and by major rule and to include an associated report 
on the impacts of Federal rules and paperwork on certain 
groups. OMB's six regulatory accounting reports have all failed 
to meet some of the statutorily required content requirements.
    Part of the reason for this failure is that OMB has not 
requested agency estimates for each agency bureau and program, 
as it does annually for its information collection budget--the 
paperwork budget--and for the President's budget--the fiscal 
budget. Section 6(a) of the proposed legislation extends this 
practice of required agency input for OMB's annual regulatory 
accounting statements.
    Section 6(b) requires OMB's regulatory accounting statement 
to cover the same 7-year time series as the President's fiscal 
budget.
    Section 6(c) requires integration into the fiscal budget. 
Currently, the economic impacts of Federal regulation receive 
much less scrutiny than programs in the fiscal budget. 
Requiring OMB presentation using the same time series as the 
fiscal budget and being fully integrated into the fiscal budget 
documents, Congress will be better able to simultaneously 
review both the on-budget and off-budget costs associated with 
each Federal agency imposing regulatory or paperwork burdens on 
the public.
    Last, section 6(d) establishes pilot projects for 
regulatory budgeting. These tests will determine if agencies 
can better manage regulatory burdens on the public. Agencies 
will identify regulatory alternatives and then prioritize them 
so that the worst societal problems can be addressed first.
    Last, I want to explain the overall logic behind this bill. 
I sought to make incremental improvements in the existing 
processes governing paperwork and regulations instead of 
fundamentally changing the role of Congress in its oversight of 
agency rules to implement laws. I believe that the public 
expects and deserves paperwork reduction results. In addition, 
I believe that the public has the right to know if it is 
getting its money's worth from Federal regulation.
    Given the vote situation on the floor, and the likely 
continuance of that, the other Members will be invited to make 
opening statements upon their return. This is going to be a 
little bit of a hobgoblin of a process, but we're going to work 
our way through it.
    [The prepared statement of Hon. Doug Ose and the text of 
H.R. 2432 follow:]



[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    Mr. Ose. I apologize for the length of my opening 
statement. It's frankly uncharacteristic for me to speak that 
long. But we're trying to build a record here. Now, as I said 
at the start, we routinely swear in our witnesses on this 
committee. Our first panel is comprised of Dr. John Graham, who 
is the Administrator of the Office of Information and 
Regulatory Affairs at the Office of Management and Budget. And 
Thomas M. Sullivan, the Chief Counsel for Advocacy at Small 
Business Administration.
    Gentlemen, if you'd please rise.
    [Witnesses sworn.]
    Mr. Ose. Let the record show that the witnesses answered in 
the affirmative. Now, we have received your testimony as we 
have of the witnesses that will follow. I've actually read it. 
I'm sure the other Members have read most of it, if not all of 
it. If you could limit your testimony to a 5-minute summary for 
the purpose of expediting our ability to move through our 
questions, it would be appreciated. Your entire written 
statement will be made part of the record and with that, Dr. 
Graham, I'm pleased to recognize you for 5 minutes.

    STATEMENTS OF JOHN D. GRAHAM, ADMINISTRATOR, OFFICE OF 
 INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND 
  BUDGET; AND THOMAS M. SULLIVAN, CHIEF COUNSEL FOR ADVOCACY, 
                 SMALL BUSINESS ADMINISTRATION

    Mr. Graham. Thank you very much, Chairman Ose. Delighted to 
be here this afternoon and thank you for the opportunity to 
testify. Our written statement provides the details of the 
administration provision on the draft bill. We're basically in 
a position of having to oppose it in its current form. But 
we're hoping to work with you to improve it and have something 
that we can support. I want to take my oral statement just a 
step back and say some broader things--thank you--to say some 
broader things, make some broader points about the need for 
regulatory reform and the various strategies that we might 
undertake collectively to make progress. The first point I want 
to make is, there's no magic bullet in this area that's going 
to be able to solve the problems of regulatory excess and 
regulatory problems. Instead, what we would like to do is 
suggest that we have to work multiple angles of this problem 
and I would like to describe four angles.
    One, stronger OMB review; two, sound science and checks on 
agency power; three, vigorous paperwork reviews; and four, 
stronger congressional authority and responsibility over 
regulation. Let me say a few words about each of these. 
Stronger OMB review. The challenge we face is 4,500 rules a 
year by Federal agencies. About 500 of them judged significant 
enough to justify OMB review and about 50 of those that have an 
economically significant impact on the economy. We collaborate 
with our partner Tom Sullivan at SBA advocacy and try to get 
the small business community involved early on. The limits of 
the OMB review process though, quite frankly, Mr. Chairman, are 
we are an end-of-the-pipeline check on a process that is often 
well down the pike before we have an opportunity to review 
these packages.
    And second, as the OIRA staffing is at a situation now, 
compared to 1980 of substantial reduction in overall staffing 
while we've had increases in statutory responsibilities. So we 
are not in an easy position to take on substantial additional 
responsibilities.
    Second point I would like to make is the strategy of trying 
to induce more sound science as a check on regulatory power. We 
have a new information quality law that we've been working 
quite diligently to implement with all the agencies. It 
provides the public an opportunity to request corrections of 
erroneous information that regulators are disseminating to the 
public. We're also trying to encourage independent external 
peer review. The problems here are the practices of the 
agencies are very uneven with regard to the peer review of 
their information, and there's limited options for the public 
when an agency shirks its responsibility to seek independent 
peer review of its work.
    The third basic strategy is vigorous paperwork reviews. 
This is the vision of the Paperwork Reduction Act, and although 
it was once the principle mission of OIRA to do paperwork 
reviews, it is now one of the five basic functions described in 
my testimony. This involves line-by-line review of forms and 
surveys by Federal agencies. There are 3,000 of these 
information collection requests every year submitted to OMB. We 
do our best to review them. The limits of this strategy are 
that these paperwork burdens are often mandated by law, or by 
regulations that are outside the purview of OMB. It's also very 
labor intensive. Beyond OMB, the current staffing level is 
unable--by a substantial margin--to do highly intensive reviews 
of every one of these paperwork requests.
    Mr. Ose. Dr. Graham, I'm getting boxed on time here. I'm 
going to have to call a temporary recess here of the committee. 
I have to get over to vote. Apparently there's another such 
vote immediately stacked behind this. Like I said, we're going 
to be running.
    Mr. Graham. You had forewarned us, Mr. Chairman.
    Mr. Ose. So we're recessed for a period of probably no less 
than 5 minutes, but probably no more than 10.
    [Recess.]
    Mr. Janklow [presiding]. If we could, we'll go ahead and 
get started. Apparently, we're going to have a series of votes. 
I don't know exactly when they'll be. So let's just try and go 
ahead and recognize one unfortunate circumstance dealing with 
these witnesses and others who come a great distance and 
prepare, so we'll try and go ahead and just get started. Mr. 
Graham, they told me that Mr. Sullivan had completed his 
opening testimony. Excuse me. I'm sorry. Mr. Graham, you were 
in the middle of your testimony and so let's just go ahead and 
pick it up from there if we can.
    Mr. Graham. I will do so. And the fourth strategy I was 
discussing to a regulatory reform was stronger congressional 
accountability in this area of regulation. This form of 
accountability can come in many ways. It could involve 
simplifying the Tax Code, which is one of the major sources of 
the large volume of paperwork that we heard about from the 
chairman this morning. It could involve passing the President's 
Clear Skies legislation, replacing the morass of existing 
regulatory programs with one comprehensive market-based cap and 
trade program. It might also involve new institutional capacity 
in the Congress to analyze regulations such as GAO or the 
Congress and the Budget Office.
    We fully support the idea of Congress looking harder at 
ways that it can assert its authority over the regulatory 
process and generate a more constructive approach to passing 
legislation in the first place and participating in regulatory 
evaluations as the implementation process unfolds. We did 
submit detailed written comments on H.R. 2432.
    As I mentioned in my opening remarks, we would have to 
oppose this particular bill in it's current form, but we're 
hoping to work with the committee to make improvements to the 
point where it's something we could support. And the written 
testimony does make rather detailed suggestions in a variety of 
areas.
    Let me conclude just by saying that we feel the most 
innovative feature of this bill is in the area of pilot tests 
of regulatory budgeting. We think that State and local 
governments as well as foreign governments are going to be 
watching very closely the U.S. experience if this provision is 
adopted. And I think in the long run, with--if we're looking at 
anything in this bill that could potentially have a major long-
run influence in the area of regulatory reform, I believe it's 
the provision on regulatory budgets. We have suggested that 
provision be scaled back a little bit, be made to look more 
modest so that we at OMB can make sure that we can accurately 
oversee the implementation of this provision, but we do think 
it is a very constructive and innovative step in the right 
direction. Thank you very much.
    [The prepared statement of Mr. Graham follows:]


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    
    Mr. Janklow. Thank you very much. And I--at this time, I'll 
defer to Mr. Platts if he has any questions. I'll reserve my 
right to ask questions for a few minutes. Do you have any? OK. 
Mr. Graham, if I could, let's go to Mr. Sullivan at this point 
in time.
    Mr. Sullivan, if you would, would you please give us your 
testimony.
    Mr. Sullivan. Thank you, Congressman Janklow and members of 
the committee. Good afternoon. Thank you for the opportunity to 
appear before you this afternoon. The Office of Advocacy is an 
independent office within SBA, and therefore the comments 
expressed here do not necessarily reflect the position of the 
administration or the SBA. Before addressing advocacy-specific 
comments on H.R. 2342, I must give credit to John Graham's 
office. My office works with Dr. Graham and his desk officers 
every day, and I believe that small business has a great friend 
in that office. Despite a small staff, OIRA manages to do a 
difficult job very well and as their responsibilities grow, I 
would hope that they receive the tools that they need to get 
the job done.
    Now, to H.R. 2432. The Office of Advocacy supports the 
Paperwork and Regulatory Improvements Act of 2003. Increased 
attention to reducing the tax compliance burden makes sense. 
According to a study paid for by my office, the Crain-Hopkins 
Report, small business is disproportionately burdened by 
complying with Federal regulation. The study points out that 
small firms with fewer than 20 employees spend twice as much on 
figuring out and complying with the Tax Code than do their 
larger counterparts of over 500 employees. Advocacy strongly 
supports section 4 of your legislation, which repeals 
exemptions from notice and comment rulemaking procedures.
    And Advocacy strongly supports H.R. 2432's strengthening of 
regulatory accounting found in sections 5 and 6. In addition to 
paperwork, small businesses tell us that they often encounter 
regulations written with no apparent awareness of the costs 
that must be borne by the affected businesses. This happens 
despite laws requiring agencies to account for the cost and 
benefits of new rules. Unfortunately, Advocacy's and OMB's 
efforts have too often been hampered by incomplete agency 
estimates of the cost and benefits of regulations. The Office 
of Advocacy recommends that rules without identified and 
substantiated costs and benefits and a breakdown of impact on 
small entities should be returned to those agencies by OMB.
    So what happens when the Federal Government doesn't proceed 
with the benefit of small business input or the public allows a 
rule to proceed without gaining insight from small business 
impact analysis? The U.S. Environmental Protection Agency's 
treatment of small business in its requirement for reporting 
lead usage under Toxic Release Inventory [TRI] is a good 
example of well-intended policies gone bad. EPA recently 
started requiring small businesses that handle small amounts of 
lead to report their yearly use of the metal under TRI. EPA 
estimated that this requirement would take the average first-
time TRI filer about 1 week. That's small business hours, 50 
hours 1 week to prepare the report.
    In return for spending a week entirely devoted to filling 
out a new form, last month, EPA learned that close to half of 
the first time filers had no discharges of lead to the 
environment. The majority of the remaining filers reported very 
low amounts.
    Had EPA considered the impact on small business and allowed 
the public the luxury of a thorough cost and impact analysis, 
then resources by small business owners may have been better 
directed toward workplace safety or environmental precautions 
and not in filling out a form that small business speculated 
years ago would show no, or minimal, discharges, and more 
importantly, provide no environmental benefit. Advocacy 
believes that improved regulatory accounting will benefit small 
business by making the agency rulemaking process more 
considered, rational, and transparent. Such accounting will 
enable better review of rules by the public and Congress. Thank 
you for allowing me to present these views and I'd be happy to 
answer any questions.
    Mr. Janklow. Thank you very much.
    [The prepared statement of Mr. Sullivan follows:]




[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Janklow. As I lead in the questions, I'd just like to 
make a comment. The information that was provided to me prior 
to the hearing by the chairman and Mr. Schrock indicates that 
in 1942, we passed laws dealing with paperwork. In 1980, we 
passed laws dealing with paperwork. In 1995 we passed laws 
dealing with paperwork. In 1998, in 2000, in 2002. This reminds 
me of the--back in my early days in the 60's when I was a legal 
aid lawyer I was involved in the war on poverty. By the late 
70's we decided poverty had lost the war. And this is the war 
on paperwork. The reality is this is a mess.
    Mr. Graham, when we had testimony before, when you came 
before our committee discussing stuff, and again, you testified 
before a subcommittee, I made notes: You had no answer on how 
to make agencies pay a price for noncompliance. I mean, you 
were asked about that. And generally, you really didn't have an 
answer. You said we needed to build units within agencies to 
address problems. You said you had no good answer as to how 
business can self-identify to use OMB software to gain 
information. You said you really didn't have an answer on 
efforts to consolidate agency requirements to provide one-stop-
shopping for business. How do you train agency points of 
contact? We didn't have an answer for that.
    The reality of the situation is our government is so large, 
the paperwork is so immense, our culture is such, what is it 
really going to take, Dr. Graham, to move this forward? Laws 
aren't going to really do it. We just pass laws and everybody 
half applies them or they ignore them. They claim all kinds of 
impediments on how they can't accomplish anything. What is it 
going to take, sir, to really move forward? Let's cut through 
all the bunk. If you were running it and desired, what would 
you do to really reduce paperwork?
    Mr. Graham. Well, let me start by saying that we at OMB 
don't pretend that we have all the answers to those questions 
that you just recited.
    Mr. Janklow. Do you have any?
    Mr. Graham. We may have lots of opinions, but I'm not sure 
we have actually that many definitive answers. But I think one 
of the key things that we have to keep in mind is the 
documented growth in paperwork burden that you're describing is 
partly a function of the growing appetite of the U.S. 
Government, both its Congress and its executive branch, to pass 
laws and to adopt regulations.
    So I think the answer to your question lies in the four 
categories that I described to you in my oral statement. We 
have to do a better job at OMB. We have to have more science 
and peer review check from the outside community on the power 
at agencies, we need to more vigorously enforce the Paperwork 
Reduction Act both within the agency and at OMB. And the fourth 
area, which I'd like to remind you of, we need greater 
congressional responsibility for how they handle themselves in 
the area of regulation.
    And all three of these have a role to play.
    Mr. Janklow. Let's take them in reverse order. Let's start 
with Congress.
    Mr. Graham. OK.
    Mr. Janklow. Do you, as a matter of practice every time 
Congress is in the process of passing laws, lay out before the 
Congress exactly how much more paperwork you perceive is going 
to be required from the legislation? As a matter of practice, 
OMB doesn't do that.
    Mr. Graham. I think it sounds in some ways like a very 
sensible idea. But to be quite candid with you, we have to 
scramble together to even get a qualitative, you know, set of 
sentences together to evaluate each of the various bills that 
Congress considers. This is a very busy Congress, and OMB does 
our best to get agencies together and formulate reviews, but I 
think you're asking something that's considerably beyond where 
we're currently capable of making a contribution.
    Mr. Janklow. OK. But sir, you're the point man for the 
administration on this; correct?
    Mr. Graham. Right.
    Mr. Janklow. And you have--it's not like OMB's sitting out 
there in a world all by itself. You have allies. They're called 
the Department of Transportation, the Department of Commerce, 
the Department of Energy. I don't need to go through the whole 
list. But they have legions of people out there that also 
monitor every single moment, every piece of Federal legislation 
that's being proposed or discussed. Why is it that we can't put 
in place something to remind Congress of its responsibility in 
this area, one, and two, why is it that we can't--where do we 
point to successes? Where have you had success, sir? How long 
has OMB been doing this?
    Mr. Graham. OMB has been active for--1980 was when we were 
created.
    Mr. Janklow. OK. So if my math is correct, that's about 23 
years ago; is that correct?
    Mr. Graham. Yes.
    Mr. Janklow. So in 23 years, what have we gotten done?
    Mr. Graham. Well, I think it sounds very depressing the way 
you frame the question. But I think a fair evaluation----
    Mr. Janklow. Why don't you frame the question for me?
    Mr. Graham. Right. I think the fair evaluation would be 
what would have been the growth in paperwork and regulatory--
what would it have been in the absence of OMB review, and I 
think you might want to ask some of the independent witnesses 
in this hearing.
    Mr. Janklow. They couldn't answer that. That would be a 
subjective speculation and guess, and I think you know if we 
were playing lawyer, no court would allow that into evidence. 
All right? What would it be. I'm dealing with what it is, OK? 
And I'm handicapped, sir, because I was an administrator for 
many years at the executive level at State governments, and if 
you knew how much people hate the government, if you really 
knew how much the people hate the government because of the 
paperwork and the penalties involved with it, are you capable 
of fixing it? Do you, sir, feel that you're capable of fixing 
it?
    Mr. Graham. Single-handedly, we are not capable of fixing 
it.
    Mr. Janklow. Are you capable of being--providing the 
leadership to bring about the solutions?
    Mr. Graham. We're part of the leadership, but it will take 
more than OMB leadership to solve the problem.
    Mr. Janklow. No, I mean you. Are you the right person in 
the right job?
    Mr. Graham. Absolutely, sir.
    Mr. Janklow. OK. If you're the right person in the right 
job, who do you need on the allied council with you to get this 
done? I'd like to get something done. I'm cosponsoring this 
legislation, but the reality is, sir, we can pass all the laws 
we want, but until we've captured the hearts and minds of 
people to make a difference, we won't make a difference. And we 
shouldn't have to pass any more legislation to make a 
difference. My time's up, but--I didn't know Mr. Ose was back 
here. I'm sorry, sir. Go ahead.
    Mr. Ose. Mr. Chairman, I was enjoying--I'll yield my time 
to you. You were on a roll. Proceed.
    Mr. Janklow. Well, if I could, Mr. Graham, and I don't want 
to single you out, but----
    Mr. Graham. Go right ahead.
    Mr. Janklow. OK. But the key thing is, if you were sitting 
where I'm sitting, what would you ask? Tell me the first 
question you would ask.
    Mr. Graham. Well, I probably would ask what is the most 
appropriate way for the Congress to get itself organized more 
effectively to know what it's doing regulationwise and 
paperworkwise when it passes laws. So I would look carefully at 
some of the provisions in the bill you have. I would ask 
questions like, is GAO the best equipped body to play the role 
that you're describing in that bill? Are there alternatives 
that could do that job more effectively? And those are the 
kinds of questions you're asking.
    Mr. Janklow. But isn't that process--what you're discussing 
is process. I'd like to switch over to the substantive side for 
a moment. One time years ago, back in the 1970's, as a 
candidate for office, I went and got all the forms required to 
be filled out by people applying for welfare in my State. And I 
got another list of all the forms from the State revenue 
department. I Scotch-taped them together and it was high drama 
as I rolled them down the Capitol steps, which were about as 
high as our U.S. Capitol and across the driveway and over 
through the grass, over and they went, one of them went all the 
way to the flags, the United States and the State flag.
    And it was--it graphically portrayed what a little old 
State like South Dakota had for paperwork. Why don't we do that 
with any agency that you pick? And see if it doesn't go from 
here to maybe Baltimore and back. You know, I'm serious, 
because people--until you get to the individuals in the agency, 
you can't train people to do paperwork reduction. That's 
nonsense. I mean, that really is nonsense. You just put out 
more rules that they're supposed to read and regulations about 
how to reduce paperwork. The reality is that isn't the way to 
do it. Why can't you pick one pilot agency? Why doesn't OMB go 
out and pick on some little Federal obscure agency and clean up 
the paperwork and then move forward? You know, Lord forbid, we 
won't start with the IRS, because you'd make headway. What's 
your objection to that?
    Mr. Graham. I'm happy to work with you. If you identify the 
one where there's unnecessary paperwork----
    Mr. Janklow. Excuse me, sir. I don't have your job. Your 
job is to identify them, not mine.
    Mr. Graham. Right. Well our role is to review, as those 
agencies, all of them submit information collection requests.
    Mr. Janklow. Who's the worst performer since you've been in 
the position?
    Mr. Graham. Well, in one of the previous hearings you may 
remember we actually rank ordered the various agencies on how 
many violations of the Paperwork Reduction Act there had been, 
and also what progress we've been making in reducing violations 
of the Paperwork Reduction Act, and I recall off the top of my 
head, the Department of Housing and Urban Development and the 
Veterans Administration were among those, and the U.S. 
Department of Agriculture, as I recall, were in that group.
    Mr. Janklow. Of violators?
    Mr. Graham. Yes.
    Mr. Janklow. What have you done about it? Do you have 
access to anybody in this government with power?
    Mr. Graham. I'd like to have more, sir.
    Mr. Janklow. What are you missing for access to people to 
solve the problem at the VA, at Agriculture and at Labor?
    Mr. Graham. Well, one of the things that has been done by 
the subcommittee is they have actually called some of the 
people from those agencies before the subcommittee, and quite 
frankly, that has helped me do my job at reinforcing the need 
for them to devote the staffing resources to eliminating the 
violations of paperwork.
    Mr. Janklow. OK. I just want to make sure I understand 
this. You're the point person for the administration and the 
paperwork reduction; is that correct?
    Mr. Graham. Correct.
    Mr. Janklow. And people within the administration are not 
cooperating with you to the extent you think is necessary to do 
paperwork reduction?
    Mr. Graham. It's a very complicated town, sir.
    Mr. Janklow. OK. And then you've had to get the assistance 
of another agency of the government, another leg, the executive 
branch, to call witnesses. That's been helpful to you to put 
witnesses that work in the administrative side with you in the 
executive branch on the spot to get things done?
    Mr. Graham. Oftentimes, we're looking for allies within the 
administration to assist us on these issues. Mr. Sullivan, to 
my left, though an independent officer of the Federal 
Government, is often extremely helpful.
    Mr. Janklow. Sir, I don't want to argue. My time is really 
up now.
    Mr. Graham. Sure you do.
    Mr. Janklow. But this is what drives me nuts. You reference 
an outside independent advocate for paperwork reduction, I'll 
just say advocacy for small business when the problem is within 
the executive branch, you folks don't have the ability to get 
it done. Is it leadership? Is it structure? Or is it ignorance? 
Or give me a fourth category.
    Mr. Graham. At least all of the above and the four items I 
mentioned actually in my oral statement.
    Mr. Janklow. And do you think legislation will fix those 
three plus what you mentioned in your statement.
    Mr. Graham. I think it's one modest piece of the solution.
    Mr. Janklow. Last question, sir. What authority do you 
think you need to enforce that you don't have?
    Mr. Graham. Authority? I have actually said if you have 
noticed in a number of my speeches that legal authority is 
actually not the primary barrier we have at the present time. 
Resources to do the job that Congress envisioned for us is a 
substantial problem that we have. And of course, that's why 
we're quite sensitive to the resource prescriptions that are in 
the draft legislation we're discussing.
    Mr. Janklow. Thank you. Mr. Ose.
    Mr. Ose. Mr. Chairman, I note on the clock on the floor, I 
have about 6 minutes, which means I have 2 minutes to ask 
questions.
    Mr. Janklow. Mr. Chairman, I'm not going to go over to 
those votes. I don't have the ability to run back and forth.
    Mr. Ose. I have asked Congresswoman Blackburn to go over 
and vote and come back and Mr. Schrock has joined us. I need to 
go vote and I'll be back. If you'd be kind enough to provide me 
time when I get here, that'll be great.
    Mr. Janklow. Sure. You own the Chair. Can I just go ahead? 
Mr. Sullivan, if you would, sir, how long have you been in your 
position?
    Mr. Sullivan. About a year-and-a-half, sir.
    Mr. Janklow. Forget the legislation for a moment. What does 
it take to really begin to fix the problem of paperwork? Or is 
it something we can't fix so it's kind of like emphysema, we 
just want to hold it in check.
    Mr. Sullivan. No, I think that we can fix it. I don't think 
that there's a silver bullet approach. I agree with Dr. Graham 
in the opening part of his oral statement when he said there 
isn't a magical one-part solution. But I think a lot of the 
burden reduction can be fixed. I think that it can be done. One 
way that it can be done differently is by examining what's 
working now, what can be done better. I think that the stick-
and-carrot approach is something that can work. Dr. Graham 
mentioned the stick or the hammer or whatever you want to call 
it. And that is certainly the responsibility that the 
administration has to be responsive to the oversight committees 
in Congress. And there is, actually, benefit when subcommittees 
and full committees do call heads of agencies and say, ``Dr. 
Graham's trying to get you to reduce paperwork. The committee's 
trying to get you to reduce paperwork. The folks who are paying 
your salaries, the small business men and women around the 
country are trying to get you to reduce paperwork.''
    Mr. Janklow. But the problem with that is sometimes you 
have to needlessly embarrass people and you know, there's no--I 
don't want to embarrass anybody and I don't think most people 
do. Put them on the spot, fingerpoint. But this is almost like 
an incurable disease.
    Mr. Sullivan. Well, actually, I think that's where we leap 
to the second part of it, and that is the carrot. And that 
actually has a tremendous benefit toward reducing regulatory 
burden. Dr. Graham, didn't mention some of the success stories 
that have been accomplished over the last few years. Maybe it's 
because there simply aren't enough of those examples. But one 
of those examples is reducing the paperwork requirement for 
small local gas stations to report to their local fire station 
that they have gas on the premises. This was a rule under the 
Emergency Planning and Community Right to Know Act that, with 
the leadership of the folks in charge, finally got taken off 
the books.
    Now, how do we, as a government, hold up that example and 
say we want to reward the public servants that actually come up 
with more ideas on reducing unnecessary paperwork? And that's 
from the carrot approach, I think where we get past the point 
of needlessly calling up individuals and embarrassing them.
    Mr. Janklow. Sir, would it make any sense if we had a--what 
if we were to put in place a system that--an agency like yours 
could assemble these types of things? Because the bureaucracy 
system ends. But an agency like yours could assemble them from 
let's say just small business and then lay them up on a platter 
and then, within a period of time, they cease to exist unless 
they are reimplemented. Why wouldn't a system like that work?
    Mr. Sullivan. Actually, Mr. Chairman, a system like that 
would work. There's another part of what Dr. Graham's office 
has been doing in addition to accounting for the costs and 
benefits of rules. Also hidden in those reports are 
recommendations for reform. In that component of Dr. Graham's 
offices, annual reports are the identification of specific 
rules on the books that can be reformed or sometimes, Mr. 
Chairman, eliminated and I think that, in that component, the 
flow-through between the government offices right now where you 
see the most likely chance of success in turning this around.
    Mr. Janklow. Well, why don't they just implement it. If 
they're rules, why don't they just implement it?
    Mr. Graham. This is the initiative that Mr. Sullivan's 
referring to. We asked, with the President's assistance, for 
nominations from anyone of the public, including small 
businesses, what existing regulations or paperwork requirements 
should be modified, eliminated, or, in some cases, 
strengthened? And we received over 300 nominations which, quite 
frankly, was very encouraging in the sense of the level of 
interest out there and is consistent with your understanding of 
the level of concern about this issue, but is overwhelming to 
us as a relatively small unit within OMB. We're now in the 
process of trying to persuade each of the Federal agencies that 
they should take up the ideas in here which make sense.
    Mr. Janklow. But what I don't understand, sir, is there's 
one elected official that runs the executive branch; is that 
correct?
    Mr. Graham. Indeed.
    Mr. Janklow. Everybody else works for him. If the word came 
down from high that you're going to do what Dr. Graham 
suggests, or you can appeal it to someone, let's say the OMB 
Director, what prevents--I mean, I don't understand how you can 
come to Congress and say the VA isn't doing this. The 
Agriculture Department isn't helping. The Labor Department 
isn't helping. I mean, these folks don't operate in a vacuum 
out there. Is it that there's not really a will to do it or is 
it more than that?
    Mr. Graham. Oh, I don't think there's any President who's 
been more committed to this effort than this President. I think 
you also know that it is a much more complicated problem than 
that.
    Mr. Janklow. Well, what if they were to tell the 
Agriculture Department if you don't want to comply with what's 
being suggested by Dr. Graham, then you'll have to appeal to 
our office, you know, to Andy Card or the Vice President or 
someone. My guess is they wouldn't hear from the Ag Secretary 
very often on the issue.
    Mr. Graham. Well, and then each one of these nominations 
involves a discussion with agencies and then they may formulate 
a position. They appeal it to their higher ups in their agency 
and then you have basically the problem of government working 
again. So I think it's clear that to try to reform, amend or 
rescind 300 Federal regulations, which is a very small fraction 
of the total, is itself a very substantial enterprise.
    Mr. Sullivan. With the chairman's permission, could I 
actually give an example of Presidential leadership that's 
actually led to the potential of paperwork reduction that John 
Graham has been involved in, and certainly involved with my 
office and home builders and other construction officials? 
There--right after the President announced the small business 
plan, he--before a women entrepreneurial conference in March 
2002--said that he is committed to removing regulatory barriers 
that stifle job growth. At that point under his, the 
President's direction, John and I sat down and looked over a 
number of rules, one of which the Environmental Protection 
Agency was looking at for controlling stormwater run-off from 
new home construction. And when small businesses came in, small 
home builders, and said to Dr. Graham and to me, ``Look, we 
already fill out a local or State permit that takes care of 
this exact situation that the Federal EPA is trying to regulate 
and create a new paperwork form for,'' with the President's 
leadership Governor Whitman, who was at that time the head of 
EPA, did in fact take the President's lead and reconsider and 
then say, ``maybe we don't need this new paperwork form that 
accomplishes the same thing that a State form already 
requires.'' So that one example should be held out as a carrot 
for other agencies to follow. But it did start most certainly 
with the executive direction from the President.
    Mr. Janklow. Thank you.
    Mr. Schrock.
    Mr. Schrock. Thank you, Mr. Chairman. I'm sorry I came in 
late. They were having a series of strange votes on the floor. 
I don't quite understand it, so we're probably going to be 
doing this well into the night. This is deja vu all over again. 
You know, I think somehow we've had these discussions in the 
last couple of days, and I wanted to see who the people were 
over in the Office of Advocacy, and I went over there yesterday 
and there are some really great people over there trying to fix 
things. And we've just got to help them fix it.
    The President signed the bill, but he is certainly not 
going to go stop in at all these agencies. Ed Schrock might. Ed 
Schrock is threatening to go visit these agencies and say, ``I 
want to see who your person is that does this sort of thing.'' 
They're not going to like it very well, but I don't like the 
fact that they haven't done it. Poor John Graham has taken over 
almost an impossible task. But the fact is, we've got to hold 
these people's feet to the fire.
    If when I was in the Navy they didn't do it, I gave them a 
bad fitness report and got them out of there. That was the way 
we took care of that. And if these people's feet can't be held 
to the fire, then we need to do something about it. I don't 
know where that big list of 71 phone numbers is today, but I'll 
bet you Ed Schrock, in 3 working days, could get every number 
and every person, a person to go along with that or maybe a 
series of people that are doing it.
    It just seems like if somebody really sat down and talked 
to the agencies, I'll bet if I called Secretary Mineta, for 
instance, I'll bet you he could find somebody for me in a 
heartbeat. He wouldn't like it that I called him. He'd probably 
wonder why his people didn't do it. But folks, this should be a 
very simple thing to do. But as we sit up here and argue this 
back and forth, as you heard Governor Janklow say, the 
businesspeople in the district I represent are dying down there 
because the regs keep flowing in and they keep having to fill 
out all this useless stuff.
    As we said the other day, you know, when I got the census 
report, my God, what was it, 27 pages long or something like 
that. They wanted to know what kind of peanut butter I ate. 
That's nonsense, you know, and that's what these poor people 
are doing. And then some agencies have to fill out a series of 
paperwork just to see if they have to fill out another series 
of paperwork. Meanwhile, that takes hours away from creating 
more jobs or doing the business themselves. And when a business 
owner has to call Washington and gets shuttled from here to 
there on different phone calls. I think one person who 
testified, Andrew Langer, testified that he did a test case and 
this took him 2 hours to get to the person he needed to talk 
to. Now what if a businessperson had to do that? That's a lot 
of money out of their pocket, folks. We've got to solve this.
    And Mr. Graham, if you want me to come down there with you, 
I'll come down there. I would love to go with you to some of 
these agencies just to get this stuff fixed. We've got to get 
this stuff fixed. I wasn't privileged to hear what y'all said 
earlier, but this is just gnawing at me big time. And it's just 
big government at its worst. And it's--I don't know. It seems 
simple to me. I think what I heard Governor Janklow say was it 
doesn't seem like a hard thing to do. Am I correct in what I 
heard you say?
    Mr. Janklow. It's not hard.
    Mr. Schrock. No, I don't think it's hard either. I mean 
we've just got to get this fixed. I don't know whether--you 
know, there are so many questions I could ask, but I think 
we've already asked them all. But at what point do we put 
people's feet to the fire and make them perform? Please help me 
understand that. That was a question.
    Mr. Graham. I was about to take you up on your offer to 
join me at some of these agencies.
    Mr. Schrock. Well, I--honest to goodness. Now, my staff 
won't like this very well. But I would like to do that. You 
know, I gave the story the other day and if you didn't hear it, 
I'm going to tell it again. I'm privileged to represent all the 
military in the Virginia Beach/Norfolk area. The commander-in-
chief of the Atlantic fleet, Admiral Bob Natter, once a week 
when his aide and his driver pick him up in the morning, he'll 
say, ``OK guys, what ship are we going to this morning?'' This 
is 6 a.m., 0600, and he pops in on a ship once a week and asks 
all kinds of questions.
    And take my word for it, those ships are ready, they have 
the answers and they're doing what they're supposed to be 
doing, and I think if we did that, I think that's part of our 
oversight role. We should be doing that, and I'd like to use 
that example and just pop in on some of these guys some day. 
I'm just mean enough to do it, and I think we have to do it to 
make these people accountable to the people they're supposed to 
be serving. These people are the servants of the people who are 
out there. But it seems like it's the other way around and that 
we've got to get over that mentality and we've got to get over 
it quick. And yes, if you want me to go with you, I'll get my 
schedule and get your schedule, and you and I will be the best 
friends in the world for about 2 or 3 months. I would do that. 
I honestly would do that. And I think there are other Members 
who have told me, ``When you go, let me know, I'd like to go 
with you. I really will.''
    Mr. Graham. You've got a deal.
    Mr. Schrock. I yield back.
    Mr. Janklow. The Chair recognizes the gentlelady from New 
York, Mrs. Maloney.
    Mrs. Maloney. Thank you, Governor Janklow and I have been 
here a number of sessions and every year we vote on a Paperwork 
Reduction Act. Every year. It's always on the floor. Paperwork 
Reduction Act. But it never seems like the paperwork gets less. 
I sometimes have nightmares that I'm drowning in paperwork. 
Anyway, exactly what is a regulatory budget? Could you explain 
it to me? You're going to analyze, if the regulation costs more 
than the benefit? How exactly does it work? What is a 
regulatory budget?
    Mr. Graham. Well, the analogy would be to the 
appropriations. We currently have for the on-budgets 
appropriation every year a limit that a Federal agency is 
allowed to spend.
    Mrs. Maloney. Yes.
    Mr. Graham. We have no such limit on what a Federal agency 
is required to compel the private sector to spend. So the 
question would be, why would we have limits on taxpayers 
spending but not limits on regulations that impose on consumers 
or workers or businesses spending of money? So the basic idea 
is, let's track both kinds of expenditures. I think it's a 
pretty sensible idea.
    Mrs. Maloney. Is there any work now tracking what the 
private sector spends on regulation?
    Mr. Graham. Yes. And we report to the Congress each year 
the best available information we have in this particular 
document.
    Mrs. Maloney. OK. And do we have the document today before 
us?
    Mr. Graham. I can get it for you.
    Mrs. Maloney. I'd like to see it. And does the 
administration support this bill? Is this an administration 
bill?
    Mr. Graham. As I mentioned in my opening remarks, in the 
current form we would have to oppose the bill but we're hoping 
to work with the committee to find a way that we can support 
it.
    Mrs. Maloney. And who would set the regulatory budgets? 
Would it come out of OMB or out of the various areas or who 
would set the regulatory budgets?
    Mr. Graham. Well in the academic literature where people 
have written about the concept of regulatory budget, in some 
models the Congress would set the regulatory budget. In some 
models, OMB would set the regulatory budget. And as I read the 
current draft of this bill, OMB would set several possible 
budget levels and see what the impact would be in terms of how 
much benefit we could get from regulation if we had different 
budget levels.
    Mrs. Maloney. In your research, which agency has the most 
regulatory provisions on the private sector, would you say?
    Mr. Graham. I think if you look at the total volume of 
regulations, certainly the big regulators in town are the 
Department of Labor, the Environmental Protection Agency, the 
U.S. Department of Agriculture, the Department of 
Transportation. Those four are certainly among the big ones.
    Mrs. Maloney. Which one do you think puts the most 
regulations, would you say? OK. Mr. Schrock said EPA, so we'll 
use that as an example. I think he threw quite a challenge at 
you and I think he's a former--what is he, an admiral, a 
captain. He was--he's important in the Navy. Trained killer. 
OK.
    Mr. Schrock. You've seen nothing yet. Believe me.
    Mrs. Maloney. OK. Well, I'm from New York, so EPA is not 
that active in New York. So tell me, so EPA would come up with 
a regulation that then makes a demand on the private sector and 
there's no control over what that demand means to the private 
sector. When these regulations come forward, do they not come 
from Congress? Where do they come from?
    Mr. Graham. The general authority to adopt those 
regulations would typically come from Congress.
    Mrs. Maloney. The authority interpreted----
    Mr. Graham. Generally.
    Mrs. Maloney [continuing]. Interpreted by the agency?
    Mr. Graham. Correct.
    Mrs. Maloney. And so, have any States gone forward with 
this model that you're talking about where you have a 
regulatory budget? See, to me, it's an interesting idea. But I 
don't know how you would quantify or analyze the exact costs. 
Do you see what I am saying, of what it means to the private 
sector. Obviously, when you have a lot of paperwork you have to 
respond to, it takes your time and your energy to respond to 
it. But actually, a lot of complaints I hear sometimes people 
can't even figure out what it is--they want to do what the 
government wants them to do, but they can't even figure out 
what it is.
    So, how would you come up with it? How in the world would 
you determine what the regulation costs the private sector? 
Because a lot of it is sort of almost out there in either, you 
know, we want you to be a good citizen and not pollute the air. 
So how in the world do you make sure that my apartment building 
is not polluting the air? Do you understand what I'm saying? 
How would you quantify it? It seems like a very difficult thing 
to do.
    Mr. Graham. On the cost side of the ledger?
    Mrs. Maloney. Yes.
    Mr. Graham. Right. Well, usually you would look at both the 
amount of labor, the extra employees that have to go in to 
either filling out paperwork or monitoring the operation of 
pollution control equipment or the capital resources, the extra 
equipment or technology that would be purchased in order to 
comply with the requirement.
    Mrs. Maloney. And then who would do this? Would this come 
out of OMB, it would come out with the regulation deal, or 
would it come out of the agency?
    Mr. Graham. Actually out of the agency.
    Mrs. Maloney. It would come out of the agency?
    Mr. Graham. Right.
    Mrs. Maloney. Well, how do the agencies feel about this? 
They like their regulations, so they're not going to want--do 
you understand what I'm saying?
    Mr. Graham. Right.
    Mrs. Maloney. They write their regulations so they're going 
to want to implement their regulations. So if you call upon 
them to monitor their regulations--you understand what I'm 
saying?
    Mr. Graham. Right, the analogy that's worth thinking about 
is if we gave the agencies power to set their own budgets, they 
might like that idea a lot. We don't allow that to happen. We 
have both an OMB and an appropriations process that places 
limits every year on how much of the taxpayer dollar they're 
allowed to spend. We have no such limit on what they're allowed 
to impose on small businesses, big businesses, anybody in the 
private sector, from spending. So the idea of the regulatory 
budget is, let's control the imposed unfunded mandates as well 
as those appropriations.
    Mrs. Maloney. Well, it's an interesting idea. Thank you.
    Mr. Janklow. Thank you, ma'am. The Chair recognizes the 
chairman, Mr. Ose.
    Mr. Ose. Thank you. I've caught my breath now. A couple of 
questions, if I may. Dr. Graham, half of your written statement 
that I read addresses your opposition to increasing OMB's 
staffing devoted to reducing tax paperwork. And you laid out 
three or four pages about that. One of them--one of the quotes 
were many of the more burdensome IRS information collections 
have been reviewed by IRS and OMB on a recurring basis, and the 
issues concerning them have been resolved in previous reviews.
    Now, in previous hearings, in response to written 
questions, I think according to the information I have, that my 
staff has put together, is that, in response to a question on a 
hearing stemming from April 24 you were asked about improving 
results at the IRS, your response was at the subcommittee's 
April 24 hearing. IRS Commissioner Rossotti testified that, 
``The potential for greater paperwork and burden reduction is 
enormous. The IRS has barely scratched the surface.'' Now, 
that's the guy on the spot, or at least was on the spot, at 
IRS. And yet, your testimony submitted here today is that 
you're very resistant to the idea of additional full-time 
equivalents being assigned to the IRS tax burden.
    Now, over here in front of Congresswoman Blackburn, there 
are three binders. Two binders include current tax forms 
required of small businesses, and one includes similar forms 
for individuals. My question is, I would surmise that within 
those three binders there are some information collection 
requests that are not necessary. But if we don't have adequate 
staff committed to reviewing that, how do we ever determine 
that?
    Mr. Graham. We don't.
    Mr. Ose. So we just walk away?
    Mr. Graham. No. I thought you said if we don't have 
adequate staff. What I understand the legislation to be without 
regard to what our overall staffing is at OMB, we will have at 
least two IRS desk officers. That is what I interpret the 
legislation to say. And we regard that as an obstruction of the 
ability of the President to manage the Executive Office of 
President.
    Mr. Ose. And yet the testimony in the past has been that 80 
percent of paperwork burden stems from the IRS information 
collections.
    Mr. Graham. Fair. But that 80 percent figure includes all 
of the paperwork imposed by the Tax Code, which we can't 
change, all of the paperwork imposed by IRS interpretive 
regulations, which, as I explain in our testimony, we can't 
change. And IRS's paperwork office itself is probably larger 
than the whole OMB operation on paperwork. It's not at all 
obvious that allocating an extra one or two desk officers to 
IRS is a very good use of OMB's resources relative to the 
comparative advantage of Treasury.
    Mr. Ose. How big is the Treasury or IRS's paperwork 
reduction office?
    Mr. Graham. I think I had asked and the answer I got from 
my staff was 12 to 15 FTEs devoted exclusively in the paperwork 
office.
    Mr. Ose. OK. So they have 12 to 15 dealing with 80 percent 
of the information collection requests that stem from the IRS 
Code. You've got 53.
    Mr. Graham. Twenty-two devoted to regulation and paperwork. 
And of those, it's weighted toward regulation.
    Mr. Ose. And we're suggesting that either 2 of those 22 or 
an additional 2, which would make the number 24 if we can find 
the resources, would be dedicated to assisting the IRS with 
reducing some of this paperwork.
    Mr. Graham. And you would ask those people not to work on 
legislative changes because they can't make those.
    Mr. Ose. They would be specialists; that's true.
    Mr. Graham. They can't work on IRS interpretive regulation, 
because that would violate our understanding with Treasury. 
They could only work on those IRS paperwork burdens that aren't 
in regulation and that aren't in the Tax Code. We're concerned 
they may not have an adequate amount of work to do.
    Mr. Ose. Explain to the committee why it is that someone 
whose job is to look at regulation and reduce the paperwork 
required from it can't look at regulation on the Internal 
Revenue Code.
    Mr. Graham. Because as you know, there's been a memorandum 
of understanding between Treasury and OMB for the last four 
administrations which has OMB deferring to Treasury on the 
development of regulations. This is unlike our relationships 
with any of the other major cabinet agencies and a good 
political scientist or historian would have to explain to you 
the full history of that. I do think we have a prior OIRA 
Administrator with us today who will be testifying later, and 
you might want to ask her to give you further background on the 
history of that.
    Mr. Ose. Trust me. It's on my list here.
    Mr. Graham. Good, I think it would be a good question.
    Mr. Ose. Mr. Sullivan, in your written statement you 
express support for section 3, and just for reference sake, 
section 3 is the provision in the proposed legislation that Dr. 
Graham and I were just talking about, mandating two people on 
the information collection request from the IRS. Your statement 
is that if dedicated OMB personnel can conduct a more thorough 
evaluation of IRS information collection requests, 
opportunities may be identified for paperwork simplification 
and the elimination of redundant information collections.
    Do you think that the American people in general, and small 
businesses specifically, that being your province, expect and 
deserve an increase in OMB's efforts to reduce the tax 
paperwork?
    Mr. Sullivan. Mr. Ose, my written statement did have one 
caveat on the support of that provision and that was the 
designation of existing resources--yes, I did point out the--or 
stressed the need for additional resources. This was not 
something that was so obvious to me before coming on board as 
the chief counsel for Advocacy. Having worked with Dr. Graham's 
office, I realized the sheer magnitude of the responsibility, 
and designating exactly what those folks should do could be 
counterproductive. But the idea that additional resources, 
whether that be in Dr. Graham's office, whether that be at IRS 
in a more responsive manner to these times of committees or 
elsewhere at the government focusing on burden reduction, would 
be something that small businesses would be supportive of.
    Mr. Ose. So your point is that you would support, in the 
example that Dr. Graham and I just talked about, a 23rd and a 
24th person, but not a reduction of the existing 22 to that?
    Mr. Sullivan. That's accurate. Dr. Graham also does point 
out that there does need to be some working within the language 
to clarify exactly what still is the purview of that type of 
person at OMB. I mean, the desire of the committee is the same 
as the desire of the small businesses who contact my office 
every day and look at the volume of paperwork that they are 
tasked with filing out to comply with the Tax Code. We want to 
minimize that. The question is, and what John Graham talked 
about is, ``Will the two people, however great they may be, in 
Dr. Graham's office, actually have the ability to get at those 
three volumes?''
    So additional attention to the burden--fantastic idea. 
Where those resources are remains unclear.
    Mr. Ose. If it please the Chair, I just need to expand on 
this. There seems to be a little bit of an equivocation here 
and I want to make sure I understand it correctly. Your 
testimony is that you would support the dedication of a 23rd 
and 24th person for examining IRS paperwork reduction in such a 
manner that would not reduce staffing or resources for the work 
that the other 22 are doing, is that correct? The written 
statement here says that you would support additional resources 
in the form of these two people being committed to IRS 
paperwork reduction.
    Mr. Sullivan. That is accurate.
    Mr. Ose. OK. All right. We just want to make sure we 
clarify. You would or you would not support taking any of the 
existing 22 and dedicating them to IRS tax paperwork reduction?
    Mr. Sullivan. I, actually, would not support the taking the 
existing staff and designating them to specific tasks. Given 
the magnitude of the compliance burden on EPA regulations, tax 
regulations etc., in order for Congress to designate what those 
staff do, I think brings us down an extremely slippery slope. 
But the idea that the additional--that the committee may be 
open to working with other parts of Congress that may be able 
to direct additional resources to Dr. Graham's office, I think 
that the committee is on track to meet the needs that small 
businesses have articulated to my office.
    Mr. Ose. So we've asked the question both ways and the 
answer is consistent that if additional resources are 
available, you'd support the creation of two additional slots 
for reviewing IRS tax paperwork load.
    Mr. Sullivan. That's accurate.
    Mr. Ose. OK. My time has expired. Thank you, Mr. Chairman.
    Mr. Janklow. Thank you. The Chair recognizes the lady from 
Tennessee, Mrs. Blackburn.
    Mrs. Blackburn. Thank you, Mr. Chairman. And thank you to 
you all for being here. You know, one of the things that I hear 
regularly from my constituents is that their taxes are too high 
and their paperwork is too heavy. And it really does not matter 
if we are talking to small business owners who are trying their 
best to comply with IRS regulations, with regulations at the 
local and State level, if it is educators that we are talking 
to about complying with the mandates that we place on them, 
everybody gripes about the paperwork.
    So it's frustrating when you go back and you read the 
history of the things that have been done in the past. And I 
certainly commend Mr. Ose and his subcommittee for the work 
they've done in this legislation. It is my hope that there will 
be some efforts, some serious efforts, on the part of the 
individuals that make up every agency and department in 
government, in the Federal Government, to actually comply and 
do something about this, because paperwork is a tremendous 
strain on our productivity. Compliance is a tremendous drain on 
our productivity.
    And I would like for each of you to respond to my question. 
I'd like to know what enforcement mechanisms you feel should be 
included in the bill so that the agencies which fail to meet 
the requirements would be assessed some type of penalty. I ask 
this because in our Government Efficiency Subcommittee, as we 
talk about compliance with GPRA, compliance with the 
President's Management Act, looking at the internal audit 
opinions, we have all of these mechanisms; but I learned a long 
time ago when I was rearing my family, if you are going to put 
some kind of stipulation in, some type of requirement, if that 
is not met there has got to be some kind of just penalty. So 
I'd like your response to that, please.
    Mr. Graham. Let me start by responding to the open part of 
your remarks because I think you're raising a very important 
point. As large and as huge as the paperwork burdens are, the 
actual overall cost of regulation and the compliance cost that 
you mentioned are a multiple larger economy-wide than the 
paperwork burdens. This is reflected in the comments we receive 
from the business community on how they would like this issue 
to be handled.
    We had over 1,700 commenters raise 300 nominations in the 
area of regulations, guidance documents, and paperwork 
requirements. And it's instructive that relatively few of the 
nominations were in paperwork. They were predominantly in 
regulation and guidance documents. And that's a signal to us 
that the real cost, the big chunk of the costs, are in the 
actual compliance with the regulation even though, as you say, 
the paperwork burden alone is quite substantial.
    I think the enforcement mechanism question you're asking is 
a very good one, and I think as we look forward, for example, 
on the pilot test on regulatory budgeting, if we were actually 
going to implement that in a legally binding way down the road, 
we would have to ask the same sort of questions we ask on the 
appropriations side: ``What happens to agencies when they 
actually exceed their appropriated expenditure?'' And I know at 
OMB that's a pretty serious proposition, but we need to ask the 
same question on the regulatory budget.
    Mrs. Blackburn. Mr. Sullivan.
    Mr. Sullivan. Dr. Graham is very humble with mentioning 
enforcement mechanisms. And I'll simply inform the committee 
that the ability for Dr. Graham to return an agency rule back 
to the agency for further consideration is a very powerful 
enforcement mechanism. And my recommendation, in answer to your 
question about what can we put in the law or put in process to 
make this work, would be to encourage Dr. Graham to finalize 
requirements that if a rule comes through his office for 
approval and it does not have the type of analysis that flushes 
out exactly how it's going to impact small business, then, Dr. 
Graham, return that rule for further consideration from the 
agency.
    I think that there is room within this legislation to build 
in that type of requirement that when agencies do report often 
on their regulatory budget, that they go into a level of detail 
that flushes out the possible burden on small business that 
their regulations may have.
    Mrs. Blackburn. Thank you. Mr. Chairman, I have one further 
question, if I may.
    Mr. Janklow [presiding]. You go right ahead.
    Mrs. Blackburn. Thank you. OK. Following along that same 
line, if you're trying to flush out some of that, how could 
this bill help address programs that are duplicated in other 
areas, and eliminate duplication and thereby eliminate some of 
the paperwork? Is there a mechanism where you could look at 
filling out one--let's take a small business owner. And if they 
are having to fill out some type of tax form, if that could be 
filled out once, and that information--if they share that 
information with the different levels or entities to which 
they're having to file, reporting, could the forms be drafted 
in such a way that they could be dual-use? How do you envision 
some way that this could be used to help address duplication?
    Mr. Graham. I think it's a good question. One example I'd 
like to give you from the perspective of a desk officer at OMB 
is suppose they get a request from the Occupational Safety and 
Health Administration to approve a new form that asks small 
businesses to submit information. How do we at OMB know that 
EPA or the Department of Agriculture isn't already asking those 
same questions?
    One possible solution to that problem is to have an 
electronic ability for the OIRA, the OMB desk officer, to 
immediately go into--electronically into a search engine of all 
the existing information collections that we at OMB have 
already approved and search for that same type of information. 
We don't have that capability right now but we're trying to 
develop it as part of the President's Management Agenda. And 
that's the Business One-Stop Initiative.
    There are skeptics of electronic solutions, but I hope you 
can see, from the perspective of our desk officers, how do they 
know when they're looking at OSHA's information collection, 
whether there are already two or three other Federal agencies 
who already have that? We review 3,000 information collections 
every year. I think we need an electronic angle on that 
problem.
    Mrs. Blackburn. I think that there needs to be a good bit 
of review on the technology end. When I was in the State Senate 
in Tennessee, we started into some comprehensive review there. 
I think that for many of us that sit on this committee, it's 
incredibly frustrating when we do not see chief technical 
officers in place in some spots where they should be, where 
there seems to be a tremendous amount of trial and error, which 
is a great expense to the taxpayers. And you know, having 
software and a program that would allow you to query forms 
would be tremendously helpful and should be interactive and 
should be user friendly for you all and for----
    Mr. Graham. And for the small business community itself.
    Mrs. Blackburn. And for our small business, our 
constituents who are using that service.
    Mr. Sullivan, anything to add to that?
    Mr. Sullivan. I think the Congresswoman certainly points 
out another oversight opportunity for this committee and its 
subcommittees. That is, when agencies go ahead and put out a 
new requirement, they should in fact check to see internally 
whether or not they already received that information. Some do, 
some don't. And Dr. Graham's office reviews that prior to 
finalizing a rule.
    I think that there are some examples where that is working. 
IRS has a national research program ongoing right now where it 
has an entire pilot in place that looks at what information 
they have from years and years of audits that they're going to 
be asking a whole other group of small businesses to report to 
them. Why not look internally at IRS to see what information 
they already have that they may not be using before asking for 
that same information again?
    And it gets back to my point to the chairman earlier, which 
is, what are we doing to hold that up as an example to reward 
other agencies to stand up and say, ``You know, we were going 
to put out this new form but it just so happens we already get 
all that information, and so we're going to consolidate all 
this stuff into one form.''
    And I don't think that those incentives right now exist. 
And I believe that the committee is on track to try and build 
those incentives into the regulatory accounting legislation.
    Mrs. Blackburn. Mr. Chairman, may I just ask one followup 
before you----
    Mr. Janklow. Go ahead.
    Mrs. Blackburn. To each of you, as we discuss this and look 
at paperwork and regulation reduction, should this be addressed 
by GPRA or some other outcome-based scrutiny mechanism?
    Mr. Graham. I think the degree of cost burden of regulation 
and the benefit of regulation should be two of the performance 
measures that are considered as part of GPRA. And I think that 
the entire pilot test of regulatory budgeting that is trying to 
be advanced in this legislation, if it were tweaked in a 
variety of ways could, I think, bring it more squarely into the 
GPRA evaluation process.
    Mr. Sullivan. I'd like to second John Graham's comments, 
with the addition that, when that type of analysis does come in 
and an agency is measured on its performance, accounting and 
analysis, that be broken down even further into their impact on 
small business.
    Mrs. Blackburn. Thank you. Thank you, Mr. Chairman, and the 
committee and the witnesses for your indulgence.
    Mr. Janklow. Thank you. I've just got one quick question. 
You know, OMB currently uses the information collection budget, 
the ICB. Section 6(d) of the proposed legislation establishes 
pilot projects for regulatory budgeting.
    Mr. Graham, back in March when you appeared before the 
subcommittee you said, ``I do think that there would be some 
significant advantages to such a pilot.'' What are they?
    Mr. Graham. The biggest one is that regulators currently 
have a big incentive to watch their own budget that they have 
been appropriated, but there's no limit on how much they can 
ask the private sector or State and local governments to spend 
because that doesn't count as part of their budget. So what a 
regulatory budget immediately does is, it asks them to consider 
that we're only able to do a certain number of these 
regulations because we have a private sector and State and 
local government limit on our regulation, so let's pick the 
most cost-effective ones. That's a huge advantage.
    Mr. Janklow. Is this something that could be done without 
legislation?
    Mr. Graham. As a legal matter, I guess I'm not sure of the 
answer to that question.
    Mr. Janklow. Mr. Sullivan, how would section (d) which 
deals with pilot projects for regulatory budgeting--do you 
think that would affect the--benefit small business?
    Mr. Sullivan. Yes. If the agencies break down the numbers 
and analysis to the level of detail to flush out their burdens 
on small business, yes, Mr. Chairman, it would help.
    Mr. Janklow. Thank you very much.
    Mr. Ose, you said you had some final questions.
    Mr. Ose. Thank you. Section 4 talks about some of the 
agencies or departments that are exempt from paperwork review 
and regulatory due process requirements. In both of your 
written statements, you express support for section 4, meaning 
that you supported removing the exemption from those agencies 
that were otherwise currently exempt. Apparently you think that 
the exemptions are bad public policy. Is that the reason for 
your statements on removing the exemptions on these agencies?
    Mr. Graham. Yes, that's our reason.
    Mr. Sullivan. That's my reason as well, Mr. Ose.
    Mr. Ose. Just one of the concerns I have, Dr. Graham, and I 
have talked about this in the past and I want to make sure that 
I get this on the record, is this issue of due process on these 
regulatory matters, whether it be guidance or something that's 
actually a rule. There's a huge difference in the two 
particular issues there. I have serious concerns that the 
current ad hoc rulemaking that might exist, that comes out in 
the form of guidance, really violates quite a bit of due 
process protections for people who might otherwise be 
interested.
    Do you share those concerns about due process and do they 
extend to these exemptions? Is that part of your concern, Dr. 
Graham?
    Mr. Graham. Yeah, I think that there is a good bit of due 
process built into the Paperwork Reduction Act, including 
public comment processes on additional information collections, 
that when you're exempted from that process then you have, I 
think, shortchanged the process a bit. So, yes, I would say 
that's part of the concern.
    Mr. Ose. Mr. Sullivan, do you agree with that?
    Mr. Sullivan. Yes, I would agree. In fact, this very 
situation played itself out in the House Small Business 
Committee last week when Mr. Pombo and myself talked with that 
committee about the implementation of the Endangered Species 
Act. And there you see a similar dynamic play out where the 
rules have to go through due process where ideally the ranchers 
would have an input in this outcome. The Fish and Wildlife 
Service has put out guidance that has the same effect on 
ranchers, but the ranchers have not had a chance to influence 
the outcome of that rule.
    And both Judge Manson, who heads the Fish and Wildlife 
Service, myself, and Mr. Pombo agree that this type of 
distinction between a rule and a guidance really doesn't matter 
to a small business. They've got to do it or else they get in 
trouble with the Federal Government. So as a public policy 
matter, neither should be subject to exemptions.
    Mr. Ose. OK. Mr. Sullivan, in section 5 we talk about the--
I want to ask this question very specifically. We talk about 
the 2000 law that authorized only a 3-year pilot project for 
the GAO to respond to congressional requests on selective 
agency rules. Now, the legislation before the committee in 
section 5 would make that funding permanent for full time 
analysis. Do you think that section 5 will help ensure that 
proposed agency rules implement congressional intent for laws 
enacted by Congress? In other words, the pilot project going 
from pilot to permanent, is that going to help us address our 
problem on paperwork?
    Mr. Sullivan. I think the pilot projects that we're 
discussing here about narrowly tailoring the regulatory 
accounting should be just that, a pilot; and then coming before 
the committee to examine how it works and then acting based on 
that experience, whether or not we want to make it permanent.
    Mr. Ose. I'm talking about the Congressional Office of 
Regulatory Analysis. If I recall, that was a 3-year pilot 
authorized and funded in 2000. Now we're talking about moving 
that responsibility to the GAO. And in your written statement 
you express support for that provision in the legislation. Yes 
or no? I'm into yeses and noes. Yes or no, do you support?
    Mr. Sullivan. I stand by my written statement, Mr. Ose, in 
supporting the provision and strengthening the regulatory 
accounting. Yes, sir.
    Mr. Ose. All right. Thank you.
    Mr. Graham. Mr. Chairman, if I could add a comment to your 
previous question about guidance. The way the regulatory budget 
pilot test is designed, costs of regulation would count within 
the agency's budget but it's not obvious that cost of guidance 
documents would count in the agency's budget.
    One of the reasons I think a pilot test is very important 
here is that you could have a perverse incentive where you 
basically encourage agencies to accomplish more of their 
activity through guidance and less through rulemaking. And 
that's something we would have to watch very closely as we work 
through that pilot test.
    Mr. Ose. I will tell you, Dr. Graham, one of the things 
that is on my priority list--and I don't think this is going to 
surprise you--is I'm after guidance. I mean, I just think 
guidance is a misuse and abrogation of due process. And I don't 
care which side of the question you're on, if you're getting 
guidance that hasn't been through due process, it's just 
trampling on your rights. You may lose the argument anyway if 
you go through due process but, absent due process guidance is, 
frankly, an abomination to me. So I just don't think that comes 
as any surprise to you.
    Mr. Graham. No. In fact, I've read the prior hearings 
you've held on that subject, sir.
    Mr. Ose. If it please the Chair, I have a number of 
questions I'd like to submit in writing to these witnesses.
    Mr. Janklow. Without objection so ordered.
    Mr. Ose. And then in the interest of time I want to move 
on. But in closing, I do want to state, and this isn't going to 
come as any surprise to Dr. Graham because we've had this 
discussion, I do want to state my disappointment about OIRA's 
current resistance to what I consider to be its principal 
statutory mission. Dr. Graham's statement is a little bit 
broader in terms of what OIRA's role is. Mine is a little 
narrower. He and I disagree on that issue of how far paperwork 
reduction predominates OIRA's agenda. I'm respectful of that, 
but I am disappointed by that disagreement. In my eyes, OIRA's 
principal responsibility is still paperwork reduction, and I 
haven't been satisfied. That's why we have these hearings on 
and on and on and over and over and over. And that is why 
section 3 of this bill in particular is important to me, 
because I do want to get at the 80 percent of the paperwork 
that gets generated by the Federal Government.
    So with that, Mr. Chairman, I'll yield back.
    Mr. Janklow. Thank you very much. And any other members of 
the committee can also submit questions, if they have any, 
within the appropriate period of time.
    At this time I'd like to thank you both for coming and 
testifying. We really appreciate the candor with which you----
    Mr. Graham. Thank you, sir.
    Mr. Janklow [continuing]. Both presented your testimony.
    At this time we'll move on to our second panel: Mr. Fred L. 
Smith, Jr., president and founder of the Competitive Enterprise 
Institute; Dr. Wendy Lee Gramm, the director of the Regulatory 
Studies Program, Mercatus Center, George Mason University, and 
the former Administrator of the Office of Information and 
Regulatory Affairs for OMB; Mr. John Sample, vice president of 
sales and marketing, Peake Printers, Inc., Cheverly, MD, on 
behalf of the National Association of Manufacturers; Raymond 
Arth, president and CEO, Phoenix Products, Inc., Avon Lake, OH, 
and he is the first vice chairman, National Small Business 
Association; and once again, Ms. Lisa Heinzerling who is a 
professor of law at the Georgetown University Law Center.
    Welcome to all of you. And at this time it's the policy of 
this committee that all witnesses have to be sworn before they 
testify. Please rise and raise your right hands.
    [Witnesses sworn.]
    Mr. Janklow. I'd like the record to show that all the 
witnesses have been sworn. In order to allow time for 
questions--and I think you can see from the previous panel, 
there's no shortage of questions the committee members have--
I'd ask that you please limit your remarks to 5 minutes. Your 
entire written statement will be made a part of the record.
    I'd like to recognize Mr. Fred Smith, president and founder 
of the Competitive Enterprise Institute. Mr. Smith, would you 
please go ahead and proceed?

   STATEMENTS OF FRED L. SMITH, JR., PRESIDENT AND FOUNDER, 
 COMPETITIVE ENTERPRISE INSTITUTE; WENDY LEE GRAMM, DIRECTOR, 
   REGULATORY STUDIES PROGRAM, MERCATUS CENTER, GEORGE MASON 
UNIVERSITY, AND FORMER ADMINISTRATOR, OFFICE OF INFORMATION AND 
 REGULATORY AFFAIRS, OMB; JOHN SAMPLE, VICE PRESIDENT OF SALES 
AND MARKETING, PEAKE PRINTERS, INC., CHEVERLY, MD, ON BEHALF OF 
   THE NATIONAL ASSOCIATION OF MANUFACTURERS; RAYMOND ARTH, 
 PRESIDENT AND CEO, PHOENIX PRODUCTS, INC., AVON LAKE, OH, AND 
 FIRST VICE CHAIRMAN, NATIONAL SMALL BUSINESS ASSOCIATION; AND 
 LISA HEINZERLING, PROFESSOR OF LAW, GEORGETOWN UNIVERSITY LAW 
                             CENTER

    Mr. Smith. Thank you very much. I'm Fred Smith. I head the 
Competitive Enterprises----
    Mr. Janklow. Could you hit your mic, sir?
    Mr. Smith. I head the Competitive Enterprise Institute and 
we focus in on regulatory issues. I'm very pleased that you're 
addressing this very, very critical issue and, for the record, 
I'd like to introduce the work of a colleague now at the CATO 
Institute, Wayne Crews' 10,000 Commandments. God only needed 
10, our regulatory state needs 10,000 in accounting.
    The goal of disciplining all the political interventions in 
the economy is a critical goal and something worthwhile doing. 
There will always be people who believe that the market has 
failed or is slow to address a critical problem or will 
inadequately supply some public goods. They may be right, they 
may be wrong, but good government requires that their 
objectives, the objectives of the various regulatory agencies, 
be compared and contrasted with those of other agencies to 
ensure that American taxpayers, consumers and businessmen, get 
their full value from government intervention.
    The demand for expanded government can be realized in 
several ways: via direct expenditures, via loan guarantees or 
other credit subsides, and via regulation. The latter of these 
is the most undisciplined element of government intervention 
and we have seen very weak leadership in this area forever and, 
unfortunately, even today. In past administrations there was at 
least one key individual at a higher level than Dr. Graham. Dr. 
Graham is a wonderful individual, but it would be useful if he 
had more support. The administration has had many things to do 
but I would hope we would see more leadership there from this 
administration. I would recommend that the Treasury, who we've 
already heard has a major role in the IRS regulation, be given 
that responsibility because we know John Snow has a tremendous 
background in regulatory reform.
    The regulatory costs that the OMB is trying to deal with is 
hard. OMB has more than 10 times as many employees involved in 
reviewing expenditures than there are reviewing regulations, 
even though regulations now are approximating half the total 
cost of expenditures of this country. They're growing and 
they're growing out of control.
    Regulations are essentially a state constitution 
responsibility. Consider two agencies, both of them with the 
same mission; one of them an expenditure agency, one of them a 
regulatory agency. Both of them are headed by enthusiasts who 
know they're doing good for America. They both go out and come 
back with wish lists. The expenditure agency's wish list 
doesn't become reality until it gets the approval of the 
constitutional authorities, the Congress of the United States 
authorizing, an appropriation committee, and the 
administration. In contrast, once the regulatory laws are 
passed, the regulatory agency's wish list can become reality 
once they jump through the appropriate hoops and hurdles. There 
is no accountability for regulations when they become reality. 
We pass broad-brush regulations that promise everything to 
everyone and the costs are incurred downstream with inadequate 
accountability.
    And this, incidentally, is not new. This happened at a much 
earlier point in American history on the expenditure side of 
the coin. I would recommend a phased-in regulatory approach, a 
regulatory budget. I would start with rules over $100 million 
in the first year, and then the second year lower to $90 
million and so on as we gain experience in how to do these. I 
would focus strictly on cost, not benefits. We may be able to 
say something about the cost of implementing spotted owl 
regulations. I doubt very much that anyone is going to be able 
to assign a value to the existence or nonexistence of a spotted 
owl. There's a lot to say there. I can do that in the 
testimony.
    This bill is an important step forward in starting this 
process. I agree that all the exemptions should be removed, 
that OIRA does need new staff. It's totally inadequately 
staffed for its responsibilities and I would focus, as I've 
said, on costs not benefits. The idea--benefits are esoteric, 
costs are real. And we can get real information from the 
businessmen and others who are affected by these.
    I'd like to finally commend this committee for taking on 
this issue. America is seeking to secure its future, to ensure 
that every action taken by government delivers full value to 
the American public, who as business men and women, taxpayers 
and consumers, bear the burden. We need every value in these 
periods. We need it always.
    Had the founders of this Nation realized how significant a 
role regulation would play in modern America, they would have 
required the type of action that your committee is exploring 
today. Unfortunately, while they were brilliant, they were not 
gods, they couldn't eliminate Leviathan's tendency to break its 
bonds. Meeting that challenge is the challenge of every 
generation. Our challenge is to find--to bring in the 
regulatory state, not to be pro-regulation or anti-regulation, 
but to ensure that regulations receive the same level of 
scrutiny that expenditures do, as John Graham mentioned 
earlier.
    Right now we have regulation without representation. That 
should be, and I believe is, Constitutional. It certainly 
should be addressed. Thank you.
    Mr. Janklow. Thank you very much. You hit it right on the 
mark.
    Mr. Smith. That helps.
    [The prepared statement of Mr. Smith follows:]



[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Janklow. Dr. Wendy Lee Gramm. Dr. Gramm is the director 
of the Regulatory Studies Program at Mercatus Center at George 
Mason University, and she's the former Administrator of the 
Office of Information and Regulatory Affairs at OMB so she 
brings particular insight to this hearing.
    Ms. Gramm. Mr. Chairman and members, thank you for the 
opportunity to testify today on a very important bill. I have 
long argued that the cost of complying with regulations is a 
tax, since individuals who must use their resources to comply 
with a regulation are doing so in pursuit of a public goal 
specified by a government agency or by legislation. Rather than 
government levying taxes or borrowing and then using those tax 
revenues to fund a project, in the case of regulation, 
government simply requires private citizens and businesses to 
bear the cost of the government program directly through 
mandates. Regulatory taxes that the government imposes on 
businesses and individuals are off-budget expenditures of the 
government. Individuals pay these expenditures out of their 
pockets because the government requires them to do so, but 
these expenditures are not reflected in the budget of the 
United States, at least not so far. I call these hidden taxes.
    Indeed, there is relatively little information on the size 
of these regulatory taxes or the regulatory budgets of 
programs. We do not collect or use information on the size of 
this regulatory budget the way we collect and use information 
on the fiscal budget. This lack of information hinders the 
ability of Congress and citizens to hold agencies and 
policymakers accountable for the effectiveness of various 
programs and how programs compare with other methods of 
achieving the same goal, or indeed with other ways of using 
their scarce dollars.
    My testimony outlines various measures of the size of the 
regulatory budget, and you are aware of these measures. I would 
like to note that just this morning, the Mercatus Center at 
George Mason University, my organization, and the Weidenbaum 
Center at Washington University in St. Louis have released the 
latest report of the on-budget costs of regulations. This 
report, which tracks the size of the fiscal budget and staffing 
devoted to the writing, administering, and enforcing of Federal 
regulations, has been published since 1977 by the Weidenbaum 
Center. Recently this report has become a joint project of the 
Weidenbaum Center and the Mercatus Center, and I'm pleased to 
have this latest report, just released, available for today's 
hearing.
    This important series provides one view about the growth of 
regulations, but it is just one part of the picture. It is high 
time that we track the other part of the picture, the part that 
is much larger, according to the best estimates available, and 
that is the off-budget costs of regulations and the size of the 
regulatory tax burden on American citizens.
    I strongly support H.R. 2432 because it takes important 
steps in bringing accountability and transparency to the 
regulatory process. My testimony makes clear that I support all 
sections of H.R. 2432 because it begins to make the treatment 
of regulatory programs similar to other programs of government.
    However, I'd like to emphasize just a few issues. First, 
there should not be exemptions from the Paperwork Reduction Act 
and the time-tested Administrative Procedures Act. There is 
flexibility enough in the acts themselves. I do not understand 
why one would want to take protections away from farmers. These 
exemptions set a bad precedent and should be repealed.
    Second, I testified in favor of a Congressional Office of 
Regulatory Analysis and have been very disappointed that it has 
not yet been funded. It is high time for Congress to put its 
money where its mouth is. Fund it and make it permanent.
    Finally, I strongly support section 6 and believe that 
section 6(d), which establishes pilot projects for regulatory 
budgeting, is perhaps the most important provision of the whole 
bill. It would begin to do what I have long advocated: bring 
the off-budget cost of government on budget, expose the hidden 
taxes of regulations that Americans are paying each year, and 
hold agencies and Congress, where appropriate, accountable for 
the taxes they impose on citizens and businesses.
    You will hear many complaints about this, but if I'm not 
mistaken, when agencies were first required to create and 
submit their fiscal budgets to the Bureau of the Budget--I 
think it was way back in 1919--there was much complaining and 
belly aching, but it was done. And now the same should be done 
in the regulatory arena.
    Thank you very much.
    Mr. Janklow. Thank you very much, Dr. Gramm.
    [The prepared statement of Ms. Gramm follows:]




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    Mr. Janklow. And now we go to Mr. John Sample. Mr. Sample 
is the vice president of sales and marketing, and I believe 
it's Peake Printers.
    Mr. Sample. Peake Printers, sir.
    Mr. Janklow. Peake Printers, Inc., at Cheverly, MD. He's 
here to testify today on behalf of the National Association of 
Manufacturers. Mr. Sample.
    Mr. Sample. Mr. Chairman, and members of the committee, 
thank you for the opportunity to testify on behalf of the 
National Association of Manufacturers.
    Mr. Janklow. Sir, could you hit your mic? I have my hearing 
device in so I could hear you, but I'm the only one.
    Mr. Sample. Thank you for the opportunity to testify on 
behalf of the National Association of Manufacturers in favor of 
H.R. 2432. First let me give you a little background on the 
National Association of Manufacturers, and then on my own 
company. The National Association of Manufacturers is the 
Nation's largest industrial trade association. The NAM 
represents 14,000 members, including 10,000 small and mid-sized 
companies and 350 member associations serving manufacturers and 
employees in every industrial sector in all 50 States.
    I serve as the vice president of sales and marketing for 
Peake Printers, a commercial printing company located nearby in 
Cheverly, MD. Our 100 production employees print, bind, and 
distribute brochures, magazines, annual reports, and other 
principal collateral for corporate clients, trade associations, 
educational institutions, and the U.S. Government.
    The printing industry has been hit hard by the sluggish 
economy of late. At Peake, our reality is that we need to 
produce more work with less people than ever before just to 
maintain the status quo. Everyone within our company must wear 
multiple hats.
    A perfect example of this is that a guy with the title of 
vice president of sales and marketing is sitting in front of 
you today talking about paperwork and regulatory improvement. 
Not a traditional sales role. We clearly understand and value 
the important role of regulation and the reporting that is 
associated with it. That being said, we would surely see a 
tangible benefit from any reduction or simplification to the 
paperwork that we complete monthly, semiannually, and annually.
    The National Association of Manufacturers supports passage 
and enactment of most of H.R. 2432 and urges the Committee on 
Government Reform to make a favorable recommendation to the 
full House of Representatives after amending section 3.
    The Paperwork and Regulatory Improvement Act of 2003 makes 
minor changes to the current system and the NAM hopes that it 
will not be controversial as it winds its way through the 
legislative process. Although the changes proposed in H.R. 2432 
may be minor, even small improvements in regulatory policy can 
have a large effect. For example, in 2001 the U.S. Small 
Business Administration released, ``The Impact of Regulatory 
Costs on Small Firms,'' a report from noted economists Mark 
Crain and Thomas Hopkins. The widely cited study found that the 
total regulatory burden in 2000, which was the last year for 
which data was available, was $843 billion, with businesses 
shouldering $497 billion of that total burden.
    The study also reaffirmed the findings of previous reports 
that the business regulatory burden falls disproportionately on 
smaller companies as they fight to remain competitive. 
Specifically, the regulatory costs per employee of businesses 
with fewer than 20 employees is $6,975, some 60 percent higher 
than the cost per worker of $4,463 for firms with more than 500 
employees.
    The NAM supports H.R. 2432 as an opportunity to improve the 
regulatory process and the ability to analyze its effects 
without decreasing the benefits of regulation. The NAM 
recommends, however, that section 3 be changed before passage 
to simply authorize additional staff for OIRA without a 
statutory mandate as to responsibility. Unless a compelling 
case can be made, the NAM opposes exemptions to the Paperwork 
Reduction Act in the OIRA review of agency regulations, 
notwithstanding the fact that nearly every agency thinks that 
its activities should be exempt.
    The NAM was a fervent supporter of the Truth in Regulating 
Act prior to its passage in the 106th Congress. The NAM 
continues to believe that giving the General Accounting Office 
the ability to review major rules upon request will allow 
Congress to have more and better information in reviewing the 
implementation of legislation.
    The NAM supports the pilot program for regulatory 
budgeting. The pilot program will help determine whether the 
regulatory budgeting program for the Federal Government as a 
whole makes sense. The NAM agrees with the agencies included in 
the text of H.R. 2432 for the pilot project, since the 
Department of Labor, the Department of Transportation, and the 
Environmental Protection Agency are the three top sources of 
rulemaking.
    The primary goal of a regulatory program should be 
voluntary compliance. This goal is more easily reached when 
affected entities believe that the system is fair, that the 
regulation makes sense and is cost effective, and that the ease 
of compliance is considered while regulation is being 
promulgated.
    Thank you, Mr. Chairman and members of the committee, for 
the opportunity to appear before you today.
    Mr. Janklow. Thank you very much, Mr. Sample.
    [The prepared statement of Mr. Sample follows:]



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    Mr. Janklow. And now we go to Mr. Raymond Arth. Mr. Arth is 
the president and CEO of Phoenix Products, Inc., from Avon 
Lake, OH. He is the first vice chairman of the National Small 
Business Association. Mr. Arth.
    Mr. Arth. Thank you, Mr. Chairman, and members of the 
committee. I appreciate having the opportunity today to be 
testifying on behalf of the National Small Business 
Association, which you may have known formerly as National 
Small Business United. I came to manufacturing by way of 
accounting, having earned a degree in that field and practiced 
as a CPA for several years before starting Phoenix Products. 
And so I believe that over the last 25-plus years as a small 
business owner, I've had a little different perspective on 
regulation and paperwork than a lot of my peers who didn't have 
the technical background that I brought to my business. And in 
the 25 years plus that I've been in business, I've just had to 
stand back and watch as paperwork has grown and as we've taken 
steps to try to get control of it.
    There was the Paperwork Reduction Act in 1980, amended in 
1995, providing specific annual reduction targets for paperwork 
reduction. The paperwork burden continued to grow. As a 
delegate to the White House Conference on Small Business, I was 
involved in the efforts supporting the enactment of the Small 
Business Regulatory Enforcement Fairness Act. Unfortunately, 
most of the agencies have chosen to ignore SBREFA and, despite 
a lot of input and time spent by small business volunteers 
working on the regulatory fairness boards and the small 
business advocacy review panels, we haven't really been able to 
have much impact on the continuing growth of regulation and 
paperwork.
    Nonetheless--and you've heard all the numbers here--the one 
I find most staggering is 8 billion hours; $230 billion is a 
big number too, but 8 billion hours to comply with regulations 
is pretty astounding. And, as you heard from Mr. Sample, the 
burden falls disproportionately on small businesses. The reason 
for that should be obvious. First of all, by the very nature of 
a small business, we can't afford the large staffs of 
professional people to deal with the tax and regulatory 
filings. We need to rely on outside accountants, attorneys, 
H.R. specialists and so forth. So to begin with we need to 
spend more money because we don't have the people in house.
    One result of this, just to give you an example, is the 
growth of the payroll preparation industry. Every business has 
to pay their employees but it has become so complex and so 
risky that most of us let an outside firm do the work for us. 
There are eight potential deposit due dates per month for 
payroll tax remittance, depending on the amount of payroll 
dollars--more specifically, the taxes withheld by the employer; 
eight chances a month to make a mistake. And believe me, if 
you're late with that deposit there are substantial penalties 
to be paid. We need to have emergency action plans, etc. It 
becomes a staggering burden.
    NSBA supports the Paperwork and Regulatory Improvements Act 
of 2003 as we have supported prior efforts to get a handle on 
the regulatory and paperwork burden. Specifically we do feel 
that section 3, as it targets the Internal Revenue Service, 
deserves support because it has been identified as the major 
source of paperwork burden. We also believe that the section 5 
pilot program should be made permanent. It's our understanding 
that because it was a pilot program, there was never a full-
time staff committed to providing the support that section 5 
would provide.
    In closing, I'd like to make a couple points. And this was 
made once, earlier. Paperwork is not the problem, it's a 
symptom of the problem; and that is the tendency to 
overregulate. You folks and your counterparts at the State and 
local level want to regulate everything we do in our lives. As 
you may know, near and dear to my heart in the plumbing 
industry, you've even regulated how many gallons of water we 
can use every time we flush our toilets. So paperwork comes out 
of regulation.
    Second, paperwork is what you do after you've spent the 
money to comply with a regulation in the first place. It 
consumes about 27 cents of every compliance dollar. And so we 
need to look at whether or not that money is being well spent.
    Finally, let me put the regulatory cost burden into a 
little different perspective. The paperwork burden cost is $230 
billion a year. That's about the same size as the GDP of 
Denmark or Turkey. Total compliance costs are $843 billion. 
That's twice Mexico, greater than Canada, who is our largest 
trading partner, greater than South Korea, Spain, or even India 
and Indonesia combined. The burden is falling on small 
businesses like mine. And I have to ask you folks, how can we 
continue to maintain our economic leadership if we're going to 
devote nation-sized chunks of our output to compliance and 
paperwork with regulations?
    Thank you very much.
    Mr. Janklow. Thank you very much.
    [The prepared statement of Mr. Arth follows:]



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    Mr. Janklow. Welcome back, Professor Lisa Heinzerling. 
Professor Heinzerling is with Georgetown University Law Center, 
and welcome back for your comments, ma'am.
    Ms. Heinzerling. Thank you. Thanks for inviting me here 
today. I'm going to focus my comments on section 6, on 
regulatory accounting, which several witnesses have already 
labeled the most important part of this bill.
    This provision would require OMB and several Federal 
agencies to develop so-called pilot projects in regulatory 
budgeting. The bill is exceedingly vague in its details. It 
does not specify whether the regulatory budgets are to serve as 
binding constraints on the agencies as advisory guidelines or 
merely as informational tools. The bill does not define the 
programs to which the new regulatory budgets are to be applied. 
Perhaps most egregiously, the bill does not even specify how 
regulatory budgets are to be set. The bill in reality is merely 
an outline of an idea, sketched in language broad and vague 
enough that it amounts to a deregulatory blank check to OMB.
    Beyond the bill's vagueness, I see four large problems with 
the concept of regulatory accounting. First, agency programs 
already have regulatory budgets. They're called statutes. They 
are the directives under which the agencies shape private 
behavior. It is incorrect to say, as Dr. Graham said earlier, 
that there is no limit on the amount agencies can require 
private parties to spend. The limits are embodied in the 
statutes passed by this Congress. If it seems like the 
regulatory budgets were set by OMB at a level below the level 
called for under current statutory directives, then the 
regulatory budget would become an opaque way of condoning 
noncompliance with existing law.
    If Congress wants to change existing law, if it wants to 
weaken, for example the Clean Air Act, then it has far more 
open and honest ways of doing so than the regulatory budget. It 
can simply change the law it thinks too onerous for industry. 
This bill does not offer this kind of transparency. If, as Dr. 
Graham suggested, regulatory burdens are hidden taxes, then 
this bill amounts to a hidden tax cut.
    Second, the regulatory budget does not act like a budget at 
all. Unlike the Federal budget, the regulatory budget is not 
set by establishing a certain maximum amount an entity is 
actually allowed to spend under law. Instead, the regulatory 
budget will presumably be set by referring to advance estimates 
of the costs of certain levels of regulatory compliance. These 
advance estimates are notoriously unreliable. Retrospective 
analyses of cost estimates often show them to have been greatly 
overstated.
    Third, this bill seems to suggest that the regulatory 
budget should be set without regard to the regulatory benefits 
a Federal program produces. Indeed, Mr. Smith suggested that we 
shouldn't look at regulatory benefits at all. This approach 
makes no sense. It could result in placing arbitrary and 
artificial limits on spending for programs that produce large-
scale benefits for society, that indeed produce benefits out of 
all proportion to their costs. One program like this is the 
Clean Air Act which, oddly enough, is often targeted by OMB for 
special scrutiny in its cost/benefit reviews.
    Finally, requirement of regulatory budgeting adds burdens 
to already overstrapped agencies, burdens that, ironically 
enough for purposes of today's hearing, take the form of 
increased paperwork. Perhaps this portion of H.R. 2432 should 
be renamed the Paperwork Production Act.
    Thank you.
    [The prepared statement of Ms. Heinzerling follows:]



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    Mr. Janklow. Thank you all very much. Every one of you did 
a marvelous job of staying within the guidelines and also being 
very, very substantive and thorough in your comments.
    If I may, I have a couple of questions. Professor 
Heinzerling, do you feel there's a paperwork problem at all in 
the Federal Government? If so, to what extent?
    Ms. Heinzerling. My testimony has been concerned 
predominantly with the regulatory accounting or budgeting 
process of section 6 of this bill. As I understand it from 
learning from Dr. Graham's testimony, much of the paperwork 
burden imposed on businesses and individuals today is a result 
of IRS requirements that are either imposed by Congress or by 
the IRS itself. And so it seems to me that there's probably a 
lot of paperwork and it also seems to me that he was right to 
suggest that the problem is one that is shared by Congress and 
the executive branch together.
    Mr. Janklow. But my question is, do you think there's a 
problem? And I assume from your answer, the answer is no.
    Ms. Heinzerling. No, I didn't say no. I'm not an expert in 
the paperwork requirements that you're talking about or in the 
tax requirements that Dr. Graham was talking about. Certainly 
from hearing the testimony this afternoon, there seems to be a 
lot of paperwork requirements and it strikes me that some of 
the suggestions he made make some sense.
    Mr. Janklow. Mr. Smith, if I could, I notice you grabbed 
your pen and started writing when she commented that she 
disagreed with you on the benefit side of it as opposed to the 
cost. You want to comment on that?
    Mr. Smith. Sure. I think she's quite right.
    Ms. Heinzerling. ``She'' is me.
    Mr. Smith. I'm sorry. Lisa. Lisa made the point, quite 
rightly, that there clearly could be benefits to regulations, 
benefits that might far outweigh the costs. I think no one 
doubts that's possible. The problem is, that's also true with 
expenditures. We do not basically try to do a cost/benefit 
analysis of an expenditure in OMB. OMB doesn't say, ``Well, we 
think a carrier is worth a billion dollars or a bridge is worth 
this amount, or an educational program.''
    We expect the agencies to understand that they have a 
mission to perform: national defense, education, or national 
transportation infrastructure. They are to take the limited 
budget they have been assigned to try to find out which 
programs they think are optimally designed to meet those goals 
that they have as advocacy agencies. Of course it's agreements 
between Congress, the administration and the particular agency, 
but we do not go around and try to second-guess the people who 
have been assigned the expertise to advance transportation and 
so forth.
    Only in this area of regulations do we expect a handful of 
people at OMB to be gods, to know exactly what the benefits are 
of saving or not saving a spotted owl. That is something I 
think EPA can decide whether or not, or Interior, whether its 
budget should be used for that or to be used for other areas 
that they think are more important.
    Mr. Janklow. If I could ask you one more question, 
Professor Heinzerling, when you look at the scheme or, I should 
say, at the paperwork that's required within the government, do 
you see any utility at all in our regulatory side as we talked 
about, section 6? Would there be any utility at all in finding 
out what the cost is to comply with paperwork, or is it 
relevant if you're carrying out the social mission that you're 
trying to do with respect to statutes or regulations?
    Ms. Heinzerling. It seems perfectly sensible to think about 
how much regulations can cost. In that regard let me say, I was 
surprised when a major regulation of the Department of Labor 
which imposed new reporting requirements on labor unions passed 
through OMB's review in a single day, and without extensive 
review of the costs of that rule. So it makes some sense. 
There's some evidence that there are reporting requirements out 
there that have not been analyzed.
    Mr. Janklow. Would you agree the same should apply with 
respect to business, sole proprietors, big business, little 
business, would apply to the costing with respect to the labor 
unions? Aren't we really talking about a philosophy as opposed 
to targeting individuals? I mean, were you really that 
surprised?
    Ms. Heinzerling. Well, let me say that I have long said, 
I've said here I think in this room, that I think that OMB 
targets its ire to regulations of industries and individuals 
and private entities that it politically favors and that 
therefore it's passing this labor rule through in a day didn't 
surprise me. I wish it had.
    Mr. Janklow. All of you, all the rest of you appear to 
broadly support the bill, at least your testimony is that. Let 
me ask you if I can, Dr. Gramm, do you support--unequivocally 
support section 6?
    Ms. Gramm. I do, sir.
    Mr. Janklow. Without any hesitation.
    Ms. Gramm. Without hesitation.
    Mr. Janklow. Do you agree with the complaints that were put 
forward by Professor Heinzerling.
    Ms. Gramm. I do not agree with them.
    Mr. Janklow. Why?
    Ms. Gramm. For example, while agencies have statutes, they 
also have statutes with regard to the regular fiscal programs. 
And they still have to have a budget. Agencies frankly, if 
given the ability, would spend a lot more on their programs 
than we have available to spend.
    So I agree with John Graham before, and with most of my 
colleagues here, that there really shouldn't be a difference 
between how you treat a fiscal program or how you treat a 
regulatory program. There are just different ways in which 
government gets resources from individuals and reallocates them 
to uses that they would not otherwise do by themselves. I think 
those things should be tracked just like we track our fiscal 
taxes.
    Mr. Janklow. Mr. Sample, and also you, Mr. Arth, both of 
you heard the criticisms of Dr.--excuse me, Professor 
Heinzerling with respect to section 6. Does that cause you to 
pause at all in terms of your support for that particular 
section?
    Mr. Sample. No, it does not.
    Mr. Janklow. It doesn't?
    Mr. Arth. No, because--and I also would support this--it 
seems to be trying to bring awareness of what the total cost 
is, not just the dollars that I send to Washington in the form 
of taxes, but the amount of money I'm going to have to spend to 
comply with the agency's regulation.
    Mr. Janklow. Yes, sir.
    Mr. Smith. Just one point. I think obviously the goal is to 
establish a pilot program to begin to flush out the details, to 
gain the expertise in doing regulatory budgeting. I think there 
is a question as to whether picking a specific agency and then 
trying to do a particular--a total budget for that agency might 
be better or worse than picking major rules, in whatever agency 
they occur, and then gaining the expertise for those large 
rules, because those will be where the major gains might be 
expected to occur.
    Mr. Janklow. Professor Heinzerling, I was intrigued with a 
comment that you made criticizing what could be called a hidden 
tax decrease. Did you really mean it when you said it that way?
    Ms. Heinzerling. Yeah.
    Mr. Janklow. You did.
    Ms. Heinzerling. I've seen a lot of different forms of 
regulatory reform in the past few years. This strikes me as 
another way in which Congress is proposing to reform regulation 
without changing the underlying statutes which happen to be 
very politically popular. If you take an axe to the Clean Air 
Act directly, I think you'll take a lot of flak. If you call it 
regulatory budgeting, make it obscure enough, give it to OMB to 
implement, then a lot of people are not going to know about it. 
I think it's hidden.
    Mr. Janklow. Ma'am, you keep coming back when you call it a 
tax cut--that's what I was intrigued by--but, too, you keep 
coming back to the same little group of suggestions. The Clean 
Air Act, environmental statutes, etc. Let's switch over for 
just a moment to the other side of the equation, the types of 
things that you're dealing with with respect to the paperwork 
that--you heard Mr. Sullivan's testimony here today--you were 
here--with respect to that kind of environment that small 
business has to exist in, filling out form after form after 
form after form, not the socially popular ones, but the ones 
that are put forth by the bureaucracy.
    Ms. Heinzerling. Well, then make this bill about that. This 
bill is not about that. Section 6 is not about what you're 
talking about. It's about the Environmental Protection Agency, 
the Department of Labor, and the Department of Transportation.
    Mr. Ose. I know what it's about. Please don't put words in 
my mouth. I don't mind your testifying from your perspective 
but don't put words in my mouth.
    Ms. Heinzerling. I don't think I put words in your mouth 
but I'm suggesting----
    Mr. Janklow. I'll recognize the chairman from California, 
Mr. Ose.
    Mr. Ose. I just wanted to make sure that I didn't have 
words put into my mouth, that's all. I'm happy to listen to 
Professor Heinzerling, the rest of her comment.
    Ms. Heinzerling. I'd be happy to hear how section 6 is 
about paperwork and the other matters that we've discussed this 
afternoon and is not about the EPA, the Department of Labor and 
the Department of Transportation, which are the agencies 
specifically discussed in that section. Section 6, as I read it 
and maybe I've missed something, is not about paperwork.
    Mr. Smith. Could I follow just briefly on to what she 
just----
    Ms. Heinzerling. That would be me again.
    Mr. Smith. I'm sorry. Professor Heinzerling. I wanted to 
try to explain why I think she's obscuring something very 
important here. There's a presumption--I was at the 
Environmental Protection Administration for 5 years, and I 
watched that legislation that governs much of EPA and our 
environmental laws being created. And to assume that these are 
crisp, precise guidelines for action is to deny every study 
that's ever been done at EPA. The regulatory policies are 
passed to be--they promise all things to all people. Absolutely 
no economic consequences, if you happen to be a business 
person. Absolutely pristine environment, if you happen to come 
from the environmental side.
    Congress has been able to evade its responsibilities in the 
regulatory area by essentially promising all things to all 
people. The dirty work, the hard decisions, are made by the 
regulatory agencies later on. Regulatory laws can't be costed 
out, so they're passed, they're free. It's the regulations that 
have real consequences to real people and those are totally 
out--it's not our responsibility, the Congress can say, it's 
those horrible regulators, and they can say they're horribly 
green or horribly pro-business. It doesn't really matter. 
Regulations are the children of Congress and Congress should 
assume parental responsibility again.
    Mr. Arth. Mr. Chairman, if I may. There is a principle in 
economics, I think it might even be a law of diminishing 
returns. And I think it applies in this discussion. And we can 
talk about the Clean Air Act----
    Mr. Janklow. Sir, if it's not a law we can make it one.
    Mr. Arth. We could talk about the Clean Air, the Safe 
Drinking Water Amendments of 1996. As our technology--well, 
first of all I think it's safe to say that the air in 
Cleveland, OH is cleaner today than it has been at any point in 
my life. Part of that is because half our steel industry is 
gone and the portion that remains is much cleaner today than 
probably any other steel plant anywhere outside of the United 
States. I think it's probably fair that per unit of GDP, we 
have the cleanest economy on the planet. We could always make 
it better. We could always make the air a little cleaner. We 
could always make the water a little more pure. We have the 
technological ability to measure in parts per billion. And so 
we have regulated 11 parts per billion of lead leaching from a 
faucet into drinking water.
    We can always go another step, but every incremental step 
has enormous cost for the benefits that society and people will 
realize. And we need to quantify what those costs are if we 
want to continue to make products here, if we want to continue 
to have an economy that works. And that's what I see here--
trying to bring some method to putting a price tag on what that 
next incremental little improvement is going to be. Thank you.
    Ms. Heinzerling. If I may. Many of these improvements are 
not incremental. They're not little by anybody's standards. 
There was a study done some time ago about the effects of fully 
implementing the equivalent of the new source review program as 
it used to exist under the Clean Air Act before the 
administration changed it. That rule, that program, would have 
saved, it was estimated, thousands of lives every year if fully 
implemented. We're not talking about tiny little incremental 
changes, we're talking about changes that affect thousands of 
people's lives every year.
    Mr. Smith. That's, of course, why we need a budget approach 
that makes sense rather than one that creates fictions by 
advocacy agencies.
    Let me quote from my testimony. Randal Ludder, who was an 
economist at the American Enterprise Institute, discussing this 
benefit analysis, ``It is hard to understand why anyone should 
expect self-examinations to be objective and informative, 
interpreted by EPA. Investors want businesses to be audited by 
analysts without financial conflicts of interest. Scientists 
reject research that cannot be replicated independently. 
Consumers flock to independent testing organizations rather 
than rely exclusively on sellers' claims. Only in the public 
sector . . .''--and Professor Heinzerling's discussion of the 
Environmental Protection Administration's self-created 
aggrandizement statements--``. . . where bureaucracies are 
protected from the discipline of market forces, do we rely on 
self-evaluations of performance.'' EPA, of course, thinks it's 
a valuable agency. We wouldn't expect otherwise but they should 
be accountable for the costs they spend. Let them decide on 
whether they want to spend the money on a clean air program, a 
clean water program or hundreds of other things. They have no 
priority-setting mechanisms. They have no mechanisms to stop. 
They just want to spend more and more money. There is no 
stopping rule. There never will be as long as they're spending 
other people's money.
    Mr. Janklow. And on that point, the Chair recognizes the 
chairman of the committee, excuse me. The Chair recognizes the 
ranking member--the chairman of the committee, Mr. Ose.
    Mr. Waxman. I would like to be recognized.
    Mr. Janklow. I'll recognize the ranking member, Mr. Waxman. 
I'm sorry.
    Mr. Waxman. I thank you very much, Mr. Chairman.
    Professor Heinzerling, Dr. Gramm and others have said there 
should not be any difference between how a fiscal budget is 
treated and how a so-called regulatory budget is treated. Could 
you please respond to that argument?
    Ms. Heinzerling. Yes. Unlike the fiscal budget, which is 
based on actual monetary outlays that agencies make, the 
regulatory budget, I presume, will be based on estimates of 
regulatory costs that are made in advance of regulation.
    As I have stated in my testimony, these estimates are 
notoriously unreliable. They are often inflated. They're 
provided by industry itself. We talk about incentives to give 
information that is less than accurate, there is an incentive 
here to exaggerate the cost of regulation in order to avoid it. 
Often, there's technological innovation that occurs when 
regulation is imposed and so the costs go down. And so the idea 
is, that in one sense, there is a fundamental difference 
between these kinds of budgets. One is based on actual costs, 
and one is based on estimated costs, and those estimates turn 
out to be very unreliable in many cases. As well in this case--
--
    Mr. Waxman. Well, my experience has always been that the 
costs are overestimated, and the benefits are underestimated 
when you try to quantify them, and, of course, how do you 
quantify a life that is prolonged or the health that is 
continued?
    Ms. Heinzerling. Exactly. And we have recently seen the 
difficulties of this with the fracas over the senior death 
discount at OMB and EPA which involves----
    Mr. Waxman. That's a good point. Let me ask Mr. Smith 
because he's a strong supporter of this regulatory budget 
requirement in H.R. 2432. The regulatory budget, this would 
require regulatory budgets to present the varying levels of 
costs and benefits that would result from different budgeted 
amounts; who would set these regulatory budgets?
    Mr. Smith. One would expect that it would be the--my 
proposal was that Congress would get involved in that act. The 
administration or the agency would. But remember, costs are 
vague figures. Benefits are totally fictions of imagination. 
But it's not exceptional--it's not----
    Mr. Waxman. Do you believe that?
    Mr. Smith. Oh, I certainly do.
    Mr. Waxman. Excuse me. It's my time.
    Mr. Smith. Yes, of course. You're the Congressman.
    Mr. Waxman. And I'm not going to debate you. I'm going to 
ask you questions, and I'd like you to respond.
    Now, in your testimony you indicated regulatory budget 
limits should not be set with the aim of maximizing net social 
benefits; is that right?
    Mr. Smith. That's exactly right. Because nobody's smart 
enough to know that.
    Mr. Waxman. What criteria would be used to set regulatory 
budgets under these pilot projects? How would the 
administration determine that $1 billion would be the right 
limit for one agency, while $5 billion would be the right limit 
for another agency?
    Mr. Smith. Congressman, that's what you've been elected to 
decide about, whether or not the Army or the Navy or the Air 
Force or the Department of Education can be decided. It's your 
responsibility to set those numbers, and it's your decision as 
to whether the agency has spent that budget in ways that you, 
and the other Members of Congress, believe are appropriate.
    Mr. Waxman. Should a regulatory budget be set at a level 
above or below the current estimated costs of an agency's 
regulations?
    Mr. Smith. That, again, is not a decision for the--you have 
been elected and the others in Congress have been elected to 
make those decisions. Should the Navy get more? Or should EPA 
get more? Those are good questions and different people will, 
of course, differ on that. But remember, costs are also highly 
imprecise. When you look at the cost of a capital budget----
    Mr. Waxman. I guess that's Ms. Heinzerling's point. Costs 
are imprecise and benefits are imprecise. These provisions in 
the bill are troublingly vague, but the intent is clear. The 
aim is to limit new regulations and force agencies to weaken 
existing regulations. Given the serious and widespread problems 
that still need to be addressed, from water pollution to 
corporate accounting, this requirement, I think, takes us in 
the wrong direction. There's no indication in H.R. 2432 as to 
how these regulatory budgets would be enforced and how they 
would interact with preexisting statutory directives. Would you 
expect OMB to enforce the budget limits and if so, should OMB 
refuse to prove additional regulations once an agency is at its 
budget limit?
    Mr. Smith. What I had suggested was a slight refinement of 
this legislation; as soon as a large regulation starts coming 
down the pike, that the appropriate congressional committees be 
notified of that fact, that they be kept informed at every step 
of the process of that regulation through the thing. And then 
yourself and others in Congress would be asked for your advice 
and consent. Right now, there is no legislation or requirements 
that Congress take responsibility for its paternity. I think it 
should, but that's going to take legislation.
    Mr. Waxman. Now, what would happen if an agency were under 
a statutory or court ordered deadline to promulgate a 
regulation? What would happen if a regulatory budget limit 
drove agencies to issue weak regulations that failed to meet 
the underlying budget, underlying statutory requirements?
    Mr. Smith. Well, as you're aware, we are a rule of law as 
well as a rule of legislative responsibility. But, by informing 
Congress at the earliest stage in a timely way, Congress would 
have the opportunity to make its input known along the proces, 
not waiting until the very end of the process when both time 
and legal suits might well force an untimely and inappropriate 
action.
    What we need to do is to recognize in Congress that there 
are many things EPA should do and that many of us think they 
are good to do. Some of us think they are less wise than 
others, but setting priorities is a critical responsibility of 
the agency and Congress. And right now, neither have any reason 
to set meaningful priorities.
    Mr. Waxman. Well, I'm concerned that the regulatory 
budgeting provisions in this bill would be read to trump 
agencies' statutory directives to issue regulations necessary 
to protect the public and the environment.
    Basically, you're saying that the level of environmental or 
public health protection should be constrained by some 
arbitrary limit, no matter what the benefits of additional 
regulation might be, and I don't think the American public 
agrees with you on that. I don't think benefits are a fiction 
of the imagination. I've been around too long where I've seen 
regulations produce enormous benefits but the industry groups 
underestimated what the benefits would be and overstated what 
the costs would be. And, therefore, I don't think these things 
can be as clearly quantifiable. And, as I gather, that's Ms. 
Heinzerling's point as well.
    Ms. Heinzerling. Yes, I've spent several years actually 
thinking about that precise question. That's exactly right.
    Mr. Smith. Congressman, may I say one last thing on that 
last point. I agree with many of the things you said. 
Certainly, imprecision is an element here but EPA, some years 
ago, did an assessment. It looked at everything that the 
political process and the interest groups' pressures on it 
believed it should spend. It went from the highest spending 
level down to the least, and then, as an environmental agency, 
it looked at every area that it thought would have the greatest 
environmental benefits, the greatest human health benefits, the 
greatest environmental benefits, and they created another list. 
There were two lists, what it was actually spending money on, 
based on the political pressures it faced, and what it thought 
it should be spending money on based on it's environmental 
professionals. Those two lists were almost the reverse of each 
other. We will have a better environmental agency by giving it 
the restraints that force it to think through priority-setting, 
rather than be buffeted by whatever the political pressures of 
the moment are.
    Mr. Waxman. Sounds to me like the political pressures could 
then be brought to bear on this priority-setting and budgetary 
imaginative system that's being created here which has, in many 
ways, no reality to what, in fact, is going to be the cost and 
the benefits. So it just gives some groups that don't want 
environmental protections or public health protections an 
opportunity to try to stop them based on a whole fictitious 
world that would be created.
    I see my time is up, Mr. Chairman, so I'll let you move on.
    Mr. Janklow. Thank you very much, sir. The Chair recognizes 
the gentleman from California, Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman. If I may, if I could just 
ask clarification from the Chair, it seems to me that as we 
discuss regulatory obligations that get placed on businesses or 
individuals, there is a clear belief that the numbers, the 
costs, that there's very little accurate information. I mean, 
Dr. Gramm testifies to that here in the bottom of page 1. But, 
it also seems to me that's not much different than the fiscal 
issues we deal with on an annual basis in appropriations. Those 
are prospective numbers that really are just kind of like ball 
park things. We're ball parking that, you know, ``Defense is 
going to cost this much.'' And then we're ball parking that the 
Department of Interior is going to need this much money. And 
we're ball parking that the Department of Labor is going to 
need that much amount. And so, I just want to clarify for 
everybody that the concept behind the bill, as proposed, is 
that it mirrors the appropriations process, putting it in the 
lap of those elected by the people of this country to work out 
the burdens that get placed on those people on an annual basis.
    Now, you know, if the majority rests on one side, or the 
majority rests on the other, maybe the burden's higher or 
lower. But, the fact of the matter is, conceptually, it 
virtually mirrors the appropriations process. That's not 
anything new, it's what we do. It's what we're doing on the 
floor of the House today with the Commerce/Justice/State 
Appropriations bill. It's what we are going to do tomorrow with 
Foreign Ops or VA/HUD or whatever it is that comes down the 
pike.
    Now, having said that, I do want to get to some specific 
questions about the proposed legislation. Mr. Smith, Dr. Gramm, 
current law requires OMB to include in its annual regulatory 
accounting statement data separately for each agency and for 
each agency regulatory program. OMB's most recent draft, sixth 
report dated February 3, is missing data on many agencies and 
most agency regulatory programs. And I would refer you to this 
chart over here, where the red areas denote the lack of 
information that is otherwise currently required. Now, we've 
heard a lot of discussion about section 6. Section 6(a) 
requires systematic agency input that would eliminate the red 
up there. Now, as one vehicle to improve OMB's annual 
regulatory accounting reports, do you support or oppose a 
requirement for agency estimates of aggregate and new 
regulatory burdens OMB receives in response to its annual OMB 
bulletins to agencies for aggregate and new paperwork burden? 
In other words, do you believe that OMB's annual regulatory 
accounting reports need a requirement for agencies to report 
aggregate and new regulatory burden? I don't care where we 
start.
    Mr. Smith. I'll let her go first.
    Mr. Ose. All right. Dr. Gramm.
    Ms. Gramm. I believe that all agencies should make those 
reports and I also believe very strongly, and we have urged OMB 
to do this on their own, that they need to provide their own 
independent analysis of those estimates as well, because the 
agency estimates just are not, in many cases, reliable.
    Mr. Smith. I would agree with that. I would also suggest 
that, as she said earlier, that it would be very useful for 
Congress to urge that, I would think in the Congressional 
Budget Office, that a capability of evaluating regulatory costs 
also be included. And if I could just followup on the point you 
raised in the beginning of yours, I think the analogy between 
expenditure programs and regulatory programs is ideal. 
Congressman Schrock earlier mentioned he had been with the 
Defense Department. It's not easy to determine what the 
eventual costs are going to be of a new fighter system, a new 
carrier fleet, or indeed of a war itself. We make rough and 
ready estimates and we come back when we realize we have made 
mistakes and it is then up to Congress to decide whether to 
continue the program or whether to rethink that program, in 
light of its change in costs. It is for Congress to assimilate 
whether it thinks it's worth while to do it or not.
    Mr. Ose. Mr. Sample, do you have any input on this?
    Mr. Sample. I am certainly not an expert in the policy 
area, but I do know that every month we pay an employee 50 
hours a week of overtime to fill out----
    Mr. Ose. Fifty or 15?
    Mr. Sample. Fifty.
    Mr. Ose. Fifty hours of overtime per week?
    Mr. Sample. Of overtime per month--I'm sorry--to complete 
the regulatory paperwork that's necessary.
    Mr. Ose. All right. Mr. Arth any input on?
    Mr. Arth. I don't think I have anything to add at this 
point, no sir.
    Mr. Ose. Professor Heinzerling.
    Ms. Heinzerling. I'm opposed to this requirement. Agencies 
already produce this information for major rules. OMB itself 
has said that for rules in the aggregate, the information is 
all but useless, and this is another example of paperwork 
production, rather than paperwork reduction. So I oppose this 
section.
    Mr. Ose. So you're OK with the areas on the chart?
    Ms. Heinzerling. You know what, my eyesight isn't--if that 
means that I oppose this section, then----
    Mr. Ose. I apologize for that.
    Ms. Heinzerling. Yes.
    Mr. Ose. All right, I'm going to go back. We'll go from 
right to left this time. In July 1999, the House passed the 
bipartisan Regulatory Right to Know Act, which called for OMB's 
annual regulatory accounting report to use the same 7-year time 
series as statutorily-required for the President's fiscal 
budget. That is past year, current year, the budget year, and 
then the following 4 out years. To increase utility to Congress 
in its decisionmaking, what is your view of section 6(b) which 
requires that on-budget and off-budget costs be presented for 
the same 7-year time series so that those of us in Congress can 
evaluate them simultaneously? Professor Heinzerling.
    Ms. Heinzerling. If you are going to have this bill, I 
think the bill is not a good idea. And so I'm not that 
impressed one way or another by the timing of the measures that 
I think are not good ideas.
    Mr. Ose. OK. So if the President puts forward a budget, you 
don't care whether it's correlated to the regulatory estimates 
or not. From a chronological standpoint?
    Ms. Heinzerling. It seems fine. Even if it's correlated it 
still seems like a bad idea.
    Mr. Ose. OK. Mr. Arth.
    Mr. Arth. As I see all of section 6, we're really working 
at trying to identify, to the best of our ability, those 
currently unconsidered compliance costs. And it seems to me if 
we're going to take that step, it certainly makes sense to use 
the same time window that we are using when we are forecasting 
what the actual cash-dollar outlays originating in Washington 
will be to try to assess what the total impact on the economy 
is going to be. So I just think it makes sense if I'm 
understanding this whole section appropriately.
    Mr. Ose. Mr. Sample.
    Mr. Sample. If I understand it correctly as well, I agree 
with Mr. Arth.
    Mr. Ose. Dr. Gramm.
    Ms. Gramm. I support 6(b).
    Mr. Ose. You do support 6(b)?
    Ms. Gramm. Yes, I do.
    Mr. Ose. Mr. Smith.
    Mr. Smith. Yeah, and I think, in general, the goal is that 
every part of the budget allocation or the budget assessment 
process should be applied equally to both expenditures and to 
regulatory burdens from the very beginning. Estimating in 
advance attempts to create a budget in conjunction with the 
relevant agencies and so on. I think the equivalence of those 
two is critical if we are going to ensure that we're spending 
money, the taxpayers' money, in wise ways.
    Mr. Ose. Right. If it please the Chair, I see my time has 
expired and the gentleman from Virginia, one of my mentors, is 
here so I need to yield back.
    Mr. Janklow. The Chair recognizes our mentor from Virginia.
    Chairman Tom Davis. Thank you very much, Mr. Chairman. You 
look pretty good in that chairman's chair. Don't get any ideas. 
I appreciate everybody being here. I apologize for not being 
here earlier. We were on the floor with some matters that 
concerned the committee.
    Let me ask this question, and I'll start over there on my 
right and your left with Professor Heinzerling. Obviously, 
there are regulations that save money, and I understand in 
reading your testimony the argument for that. There's some 
regulation that I think we would probably all agree is stupid. 
It's hard in a statute to try to ferret out which is which. 
But, at a minimum, I'll ask each of you, don't you think the 
government ought to be able to tell the public what it's going 
to cost each year for regulations in some way, just in the 
interest of disclosure; to make the case for the regulation, 
it's going to cost this? ``We think it'll get you here,'' but 
have some kind of cost benefit beside it. Wouldn't that enhance 
the transparency and the political accountability for 
regulations in the same way that Congress is ultimately 
accountable for government expenditures? And wouldn't that 
concept budget make Congress more accountable for making 
judgments about the costs and benefits of regulations if we 
conclude this cost. And let me start over with you.
    Ms. Heinzerling. No, I don't believe it would, with 
respect, sir. The aggregate estimates of cost benefits of 
Federal regulations that are provided by OMB every year are, as 
I have said, in OMB's own language, almost useless as a means 
of regulating individual programs. The cost estimates are 
wildly inflated in many cases. The benefit estimates are way 
too low in many cases. In many cases, as Fred Smith himself has 
said, we just don't know what those benefits are.
    Chairman Tom Davis. I understand your position on that, but 
doesn't that really go to how this is measured as opposed to 
the concept? If there were a satisfactory way of measuring the 
costs, would you feel differently? Granted, the track records 
may be bad.
    Ms. Heinzerling. There would still be the extremely 
difficult problem of measuring benefits and I think I'll wait 
my lifetime until those benefits can be quantified and 
monetized in any kind of reliable way. And, in fact, what 
happens instead is, OMB is forced to rely on data that comes 
from mainly the 1970's and 1980's. For example, for 
environmental programs, the data are way out of date. They're 
unreliable, and so no, I don't think the report provides a good 
way of evaluating Federal regulation.
    Chairman Tom Davis. Well, how are we to know or the public 
to know what the hidden costs are? I mean, shouldn't that be 
part of our decision to promulgate some regulation or pass some 
rule, reporting in fact what the costs are?
    Ms. Heinzerling. Well, you can look at any of the 
regulatory impact analyses that are required by Executive Order 
12866 and find out what those costs are. If you're talking 
about more minor regulations, then those costs might be harder 
to find but any major regulation you can just go and look it up 
on the docket of the agency.
    Chairman Tom Davis. You think those cost analyses are more 
accurate?
    Ms. Heinzerling. No, I'm just saying that if you're 
wondering where to find them, that's where to find them.
    Chairman Tom Davis. Right. OK. Thank you.
    Mr. Arth. I think, clearly, we have to start trying to 
identify the costs, and I'll concede that estimates are 
probably wrong. The time estimated to complete paperwork that 
you find in your tax booklet, I think, is also wrong and, 
typically, it understates the amount of time that an individual 
would take to complete it, especially someone who's not 
familiar with the Tax Code or the regulation in question. The 
problem we have is that too many citizens seem to believe 
they're getting all sorts of things for free. If the government 
passes a law and business has to clean up the air or clean up 
the water, that's free. The fact that it may result in higher 
product prices when they go to the store, when it results in 
their not being able to buy the product made in this country 
anymore because manufacturers can build it for a fraction of 
the cost in another country, and they're out of a job or their 
kids are out of job, I mean the costs of regulations ripple 
through the whole economy. And right now, a substantial part of 
the business that goes on here, a substantial part of the cost, 
is just being ignored. And I think that's a big part of what 
this is trying to address.
    Mr. Sample. As a businessperson, we are used to looking at 
cost and benefit analyses, and I think it would certainly be a 
good first step.
    Mr. Ose. Would the chairman yield for a minute?
    Chairman Tom Davis. I would be happy to.
    Mr. Ose. On that particular point, what is the quality of 
the information you use in making your evaluation? We've heard 
a lot of concerns about the quality of information that we 
might have in evaluating costs and benefits. How do you go 
about ascertaining the quality of the information you would use 
in making your determination? Do you just wing it?
    Mr. Sample. I would have to say, yes.
    Mr. Ose. OK. Thank you.
    Chairman Tom Davis. OK.
    Ms. Gramm. I believe that transparency is one of the big 
benefits of this bill. I would not hold out that much hope that 
this is going to be the silver bullet, as John Graham pointed 
out. The point is that if the measurements are not good, if 
they're overstated one way or the other, or if they're just 
inadequate, well, then having that at least reported will start 
the debate, and then you can debate about the quality of those 
estimates.
    I have another question though. If the estimates are really 
overstated, if the agencies are putting forth their regulatory 
budget with regulatory costs that are overstated, seems to me 
that would be good for them. Then they get a big budget right? 
As a matter of fact, I really do think that if you recall--and 
I was going to say this when Congressman Waxman was here, 
except my colleague wouldn't let me get a word in edgewise--but 
when Medicare was first started, and the first estimates of 
Medicare were made back in 1977, of course there were huge 
underestimates of the cost of that program. But that is the 
process that you go through in terms of analysis. There was a 
debate about what those costs were, because I know people who 
were involved in that debate. And then over time, those costs, 
of course, changed depending on what actually happened. And I 
think that's what the idea is here with the starting of this 
regulatory budget. With regard to the transparency and with 
laws, I would even go one step further, and it's not in the 
purview of this bill, but one of the things that I have long 
advocated is that I wish that whenever a bill came up for 
passage or reauthorization, someone would just add an 
authorizing amendment that says that the regulatory costs 
imposed on the private sector, on State and local governments, 
Indian tribes and so on--``To enact this bill shall not exceed 
X amount of dollars,'' and when those costs exceed that amount 
of dollars, you have to come back to Congress for a further 
discussion. I believe that if that's put on a bill it would 
again foster a discussion of what the potential costs of the 
bill are.
    And with regard to benefits, I think that we spend a lot of 
time talking about the benefits on this panel but I would also 
go back to the Medicare argument. I think that when you talk 
about fiscal programs like Medicare when it started, we talk a 
lot about costs but I think everybody understood and talked 
about the benefits as well, and I think the same can be done 
for regulatory issues. You're talking about how you allocate 
the scarce resources of our economy, and that's why this bill 
is so important. Thank you.
    Mr. Smith. OMB does not play the same role on the cost side 
of expenditure programs as it does on the benefits side. The 
administration decides how much money it wishes to spend on 
educational programs, defense programs and so on. OMB is very 
important in that process, but that's a political decision, the 
type of program the administration wants to puts forward. OMB 
then insures that the agency's estimates of how much it is 
spending remain within those budgets.
    Are there games played with budgets by cost busters? There 
certainly are. Whether you put it on capital, whether you 
stretch it out over time, what interest rate you use and so on; 
and those questions have been asked since the beginning of the 
expenditure budget process back around 1901 or 1910. Have we 
gotten better it? Are we great at it? No. We make big mistakes 
as we've heard earlier but at least we have some ability to 
know that we're getting into trouble when we overspend on a 
defense program or any other program.
    In the regulatory area, we've developed none of that 
expertise because we haven't started that process. We need to 
start that process. A pilot program is the right term because 
we're going to make lots of mistakes as we learn how to do this 
but we're never going to learn how to account for the overall 
consequences of an overregulated or an interrelated economy 
unless we begin to make explicit the hidden taxes that 
regulations now represent.
    Mr. Janklow. If I could, I'd like to ask Professor 
Heinzerling just for a moment. I've gone back and reread 
section 6, where it talks about regulatory budgeting. One of 
the complaints I believe you testified to a little while ago 
was, that this is probably a rather transparent attempt, if I 
can take license with language, to gut some of the provisions 
of law that we have in place like the Clean Air Act, etc. Am I 
paraphrasing you correctly, Professor Heinzerling?
    Ms. Heinzerling. Yes, that is my understanding of how this 
bill would operate.
    Mr. Janklow. OK. Could you tell me: what is it in the 
Department of Transportation that you think, if we passed this, 
we would be gutting?
    Ms. Heinzerling. Well, I don't know. That's part of the 
problem I have with this bill; it's very vague. It doesn't 
define programs, it doesn't specify which programs it's talking 
about and, it doesn't give any guidance to OMB about what a 
program means and what programs are included.
    Mr. Janklow. I was asking you if you had any facts?
    Ms. Heinzerling. And so I don't know which program----
    Mr. Janklow. OK. Do you know which programs in the 
Department of Labor, the sponsors or the supporters of this 
bill would be targeting? You were very specific about the Clean 
Air Act and one other which I can't remember. So what I'm 
wondering is, was that a speculative statement by you or is it 
based on any factual information that you have?
    Ms. Heinzerling. Well, if I may, the bill is so vague, I 
don't know exactly which programs it will cover. And it gives 
complete authority, apparently, to OMB, in consultation with 
the agencies, to figure out which programs to cover. That seems 
to me to be one problem. The second problem is if you think as 
examples----
    Mr. Janklow. Excuse me. Don't you think it would cover the 
entire agency? The way I read it, it would cover the entire 
agency.
    Ms. Heinzerling. Well, let's look at the language.
    Mr. Janklow. OK.
    Ms. Heinzerling. I think the language refers to programs.
    Mr. Janklow. Well, why don't you, let's go to line 13 of 
page 9 for starters. ``The designated agencies shall reflect a 
representative range;'' and then it includes three specific 
ones. Then if you go down to line 18, it talks about pilot 
projects in the designated agencies. So what it does is, it 
lays out the three designated agencies and then says, ``let's 
them pick some more.'' It doesn't say you can do part of an 
agency. If I can, ma'am, if you go to line 24, it then says, 
``The Director of [OMB] shall include, as an alternative budget 
presentation in the budget submitted under section 1105 [for 
fiscal year 2007], the regulatory budgets of the designated 
[agencies] for that fiscal year.'' So, what they're telling us 
is, it'll be the whole agency. So it doesn't sound to me, or 
doesn't appear to me as I read it, are you reading it in such a 
way that they would pick and choose from EPA, which would be 
subjected to a regulatory budget and which wouldn't?
    Ms. Heinzerling. Certainly, I don't want to put any words 
in anybody's mouth, but then given----
    Mr. Janklow. I know you don't.
    Ms. Heinzerling [continuing]. But then given your 
interpretation I do wonder what lines 19 through 23 are doing 
in the bill, which say such, ``budgets shall present, for one 
or more of the regulatory programs of the agency, the varying 
levels of costs and benefits to the public that would result 
from different budgeted amounts.''
    Mr. Janklow. Well, doesn't that refer to the additional 
agencies that are being selected and not the three that are 
delineated about which you complained, Environmental 
Protection, Transportation and Labor?
    Ms. Heinzerling. But it refers to programs there. So for 
those agencies, are you suggesting that language would for 
those agencies apply to programs alone?
    Mr. Janklow. Professor, let's just read it. Let's go back 
to line 13 and read the sentence. ``The designated [agencies] 
shall reflect a representative range of Federal regulatory 
programs, and shall include at least the Department of Labor, 
[the] Department of Transportation, and the Environmental 
Protection Agency.''
    Ms. Heinzerling. If that's what it means is, that we're 
talking about budgeted amounts for entire agencies and not for 
agency programs, then I think it's even more troubling than I 
thought it was when I thought it applied only to programs.
    Mr. Janklow. And why is that, ma'am, that it's more 
troubling?
    Ms. Heinzerling. Because I'm wondering, then it becomes 
particularly problematic that the bill doesn't give any 
guidance about exactly how these budgets are to be set. And so 
the entire----
    Mr. Janklow. The existing law doesn't give any--does the 
existing law set forth anything now?
    Ms. Heinzerling. Yes. If you read the statutes that 
Congress has passed they're actually quite specific about what 
requirements are to be imposed on private entities and they 
provide lots of guidance.
    Mr. Janklow. What private entities? I'm talking about the 
government agencies that are funded under the current budgetary 
process.
    Ms. Heinzerling. And what is your question about then?
    Mr. Janklow. My question is, isn't the existing 
governmental process--what are the rules that are in place now 
that you think are--proscribe how an agency prepares the 
budget?
    Ms. Heinzerling. Oh, prepares its own budget?
    Mr. Janklow. Sure.
    Ms. Heinzerling. I see. Yes. If this were a statute that 
said that Congress--if Congress were going to say, ``we think 
that EPA should not require more than $1 billion in private 
expenditures in any given year,'' that would be a very 
different bill from this bill. And as Fred Smith suggested, 
that would require a minor refinement. I think that would 
require a major overhaul of this bill.
    Mr. Janklow. But I'm not aware that's in this bill. What 
I'm trying to do is get to the focus specifically of this bill 
and your specific objections. And I understand some of them may 
be philosophical. I appreciate that. I understand some of the 
support from some of the proponents may be philosophical and, 
professor I appreciate that. But what I'd like to get to, 
specifically is, if the Director of OMB submits to the Congress 
a budget, an alternative budget presentation that is a 
regulatory budget consistent with this law, at that point in 
time, doesn't it become transparent and doesn't the Congress, 
both the House and the Senate, as well as all the individuals 
in America that care or don't care, become involved in the 
process before it becomes law?
    Ms. Heinzerling. So you're suggesting that what the bill 
does is, it requires OMB to present to the Congress a 
particular proposal for regulatory budget?
    Mr. Janklow. No. Let's just read what it says, I'm not 
suggesting anything. ``The Director of [OMB] shall include, as 
an alternative budget presentation in the budget submitted 
under Section 1105 for fiscal year 2007, the regulatory 
budget[s] of the designated agencies for that fiscal year.'' 
That's what I'm suggesting. At that point in time, with all of 
the exaggerated claims of expenses and all of the exaggerated 
claims of benefits--which goes on all the time anyhow I mean, 
that's the process in America--with all of these exaggerations, 
won't they then be subject to the scrutiny of the 
appropriations process, both the House and the Senate, the 
majority, the minority, and the public? Am I wrong in what I'm 
saying?
    Ms. Heinzerling. I think so, yes.
    Mr. Janklow. All right. Tell me why.
    Ms. Heinzerling. Well, because a lot of the information 
that would be required here, we already have.
    Mr. Janklow. Well, that doesn't make me wrong, that it's 
open to scrutiny.
    Ms. Heinzerling. Well, I thought you were asking would we 
be better off.
    Mr. Janklow. No, I didn't say that. I said, am I wrong; 
tell me why. You said, yes, and I said, tell me why.
    Ms. Heinzerling. And you're wrong--I'm suggesting that 
you're wrong specifically about whether it would be more 
transparent to have a number like $100 billion for the EPA as a 
regulatory budget.
    Mr. Janklow. Professor, you're a professor of law aren't 
you?
    Ms. Heinzerling. Yes, I am.
    Mr. Janklow. If someone exaggerates before the jury, they 
usually pay for it, don't they? What would be the difference 
between that, if they're caught, and an agency exaggerating 
before the Congress or the American people and getting caught? 
Is there a difference?
    Ms. Heinzerling. If you're asking about exaggerating the 
cost estimates, they've been exaggerated for decades and 
nobody's caught that.
    Mr. Janklow. Yes, that's a good point. On all sides, in all 
arguments, and not just under a regulatory budgeting system. I 
agree with that. Thank you. Do you have anymore questions, Mr. 
Ose?
    Mr. Ose. Yes I do, Mr. Chairman.
    Mr. Janklow. Go ahead, sir.
    Mr. Ose. Thank you. I want to continue on with some 
questions I have about section 6. Let's see. It went that way, 
and then I came back.
    So we're going to start here with Mr. Smith. Current law 
requires that OMB submit its annual regulatory accounting 
statement and associated report on impacts with the President's 
budget. This year, for the first time, OMB met the statutory 
deadline for submission but did not include these documents in 
any of the five fiscal budget documents. Instead, OMB published 
them separately in the Federal Register. Now, my interest is in 
making sure that when a document drops on my desk, I've got all 
of the little ingredients of that thing, instead of having to 
go hunt around for them, and what have you.
    What is your view of section 6(c) of the legislation that 
requires that the off-budget regulatory cost-benefit 
information be presented with--and I say with in the ordinary 
sense of the word, as in ``the water in this pitcher is with 
the pitcher; it's right there.''--the on-budget cost 
performance information in the President's fiscal budget 
documents? Mr. Smith.
    Mr. Smith. I think that's a very good idea, although, I can 
have some sympathy with why Dr. Gramm or OMB, generally, might 
not do so. There's a difference when you think about the three 
categories of government intervention that I mentioned: 
expenditures, which clearly are presented to the Congress of 
the United States, credit allocations, which are presented to 
the Congress of the United States as part of the agencies' 
budgeting process, and regulatory costs, which you have 
suggested are required, would be required to be submitted and 
haven't yet been done. So, the problem with the first two is, 
Congress votes on those. They vote on what the expenditures are 
going to be. They vote for or against authorization, for how 
much credit authority an agency will have. At the moment, there 
is no accountability to Congress, these are just information 
requirements, and I can imagine that an agency stressed in many 
ways might place more emphasis on information that will have 
consequences than an agency that is just educational. I think 
the whole goal of this, in time, is to bring regulatory 
expenditures under the same degree of congressional approval or 
disapproval that we have for expenditure decisions and credit 
decisions.
    Mr. Ose. Dr. Gramm, do you believe that the off-budget 
regulatory cost-benefit information should be or should not be 
presented with the on-budget cost-performance information in 
the President's fiscal budget documents?
    Ms. Gramm. I believe it should be provided with the fiscal 
budget documents for all the reasons I stated earlier, but with 
another one: I think it would get the attention of the OMB 
Director and the higher-ups in the executive branch and get 
them to pay more attention to this issue.
    Mr. Ose. OK. Mr. Sample.
    Mr. Ose. Any thoughts?
    Mr. Sample. I'm certainly not an expert in this area, but 
it seems to make a great deal of sense to me.
    Mr. Ose. OK. Mr. Arth.
    Mr. Arth. I agree.
    Mr. Ose. Professor Heinzerling.
    Ms. Heinzerling. As I said previously, I think the timing 
is a matter of less consequence than the substance of the bill, 
which I oppose.
    Mr. Ose. But you don't have any comments on this particular 
section that are unique to this section?
    Ms. Heinzerling. No.
    Mr. Ose. All right. In his written statement for the 
Government Reform Subcommittee on Government Efficiency and 
Financial Management's March 11, 2003 Regulatory Cost 
Accounting hearing, former OMB and OIRA Deputy Administrator, 
Jim Tozzi, said, ``There's little need to develop a regulatory 
cost accounting system if, ultimately, it is not going to be 
used to implement a regulatory budget.'' Section 6(d) of the 
legislation establishes pilots projects for regulatory 
budgeting. Conceptually, such a test could evaluate if the 
agencies are able to rank risks and prioritize, then make 
choices between new or revised regulatory programs and among 
alternative approaches, the purpose being to maximize benefits 
for the greatest number and to minimize costs to the regulated 
budget. I'm going to move right to left. My question is, do you 
support section 6(d)'s pilot projects for regulatory budgeting? 
Professor Heinzerling.
    Ms. Heinzerling. No, I do not for the reasons I've already 
stated.
    Mr. Ose. Mr. Arth.
    Mr. Arth. Yes, I do, and again pretty much for the reasons 
I've previously stated in this whole section.
    Mr. Ose. Mr. Sample.
    Mr. Sample. Yes, I do.
    Mr. Ose. Dr. Gramm.
    Ms. Gramm. I support section 6(d).
    Mr. Ose. Mr. Smith.
    Mr. Smith. I think pilots are a good idea. We're going to 
learn a lot from this, hopefully.
    Mr. Ose. Excuse me for a minute. Now, I want to look at Dr. 
Gramm's statement for the record, the written statement. I'm 
trying to understand, in reading the different statements, Dr. 
Gramm, you make the point on page 1 that there's relatively 
little accurate information on the size of these regulatory 
taxes or the regulatory budget of the United States, and I can 
take that to mean we don't know if it's properly quantified too 
high, properly quantified too low, properly quantified exactly 
right. We just don't know.
    Ms. Gramm. We just don't know. That's right.
    Mr. Ose. OK. Now, you go on in page 2 to cite an OMB report 
of total regulatory cost estimates of $38 to $48 billion a 
year.
    Ms. Gramm. But that doesn't cover all regulations, and it 
only covers----
    Mr. Ose. Is that a 20-year window?
    Ms. Gramm. That's right. That's right.
    Mr. Ose. OK. Now, your point had been that the regulations 
that might underlie a lot of the burden on individuals and 
businesses precede that 10-year window?
    Ms. Gramm. Yes.
    Mr. Ose. All right.
    Ms. Gramm. Or are not covered otherwise. Just because 
they're not economically significant regulations for example.
    Mr. Ose. They don't hit that $100 million threshold?
    Ms. Gramm. They don't hit the threshold.
    Mr. Ose. OK. And that would explain the difference between 
SBA's higher estimate of $843 billion per year?
    Ms. Gramm. Yes.
    Mr. Ose. OK. Now, Professor Heinzerling----
    Ms. Gramm. And, don't forget, the estimates, even the small 
number of estimates that OMB presents in the report, are 
estimates made by the agencies--in analyzing some of those 
regulations, we have found vast, vast inaccuracies.
    Mr. Ose. Could be too high, could be too low?
    Ms. Gramm. Yes.
    Mr. Ose. OK. Professor Heinzerling, in your testimony on 
page 5, under benefits you have a number, it looks like the 
citation is the EPA. You have a number of $22 trillion in net 
benefits in the first 20 years of the Clean Air Act's 
operation. I think that's right, page 5. And what I'm trying to 
figure out is, whether or not you share my skepticism about how 
well the costs and benefits are quantified on these different 
regulatory issues.
    Ms. Heinzerling. Depends on which way your skepticism runs, 
sir. I believe that number may, in fact, be an understatement 
of the benefits of the Clean Air Act. That number is the result 
of a multi-year, millions-of-dollars effort on the part of EPA 
to quantify the costs and benefits of the Clean Air Act. It was 
peer-reviewed. People at the time said it was state-of-the-art 
cost-benefit analysis and it produced that number, despite the 
fact that many of the benefits of the Clean Air Act were not 
even quantified in that analysis, much less monetized.
    Mr. Ose. I actually have appreciated the fact that you 
brought this issue of how valid the numbers are forward 
because, if I read this report correctly, the $22 trillion 
number is constant dollars as of the date of the report which 
would have been 1997 for that 20-year timeframe 1970 to 1990. 
Now, the skepticism, and it's healthy on all of these numbers 
from my perspective, I have relates to my understanding of the 
gross domestic product for that period of time which, in 1997 
dollars, was probably only about $200 trillion. So you're 
saying that the benefits from the Clean Air Act during that 
1970 to 1990 timeframe is equivalent to about 10 percent of the 
aggregate gross domestic product of the United States?
    Ms. Heinzerling. I have no reason to dispute the account 
that EPA gave in that report which was reviewed by experts in 
the field. I'll say that about 90 percent of those benefits 
were from reduced human mortality or, that is, avoiding human 
death and the figure used in that report for unavoided human 
death was $6.1 million. Now, I don't know if you think that 
number is too high or too low, but that is the number to think 
about in thinking about whether that $22 trillion estimate is 
too high or too low. My opinion is, it might be a little too 
low. I don't know what your opinion is----
    Ms. Gramm. But there were other parts of that study, if 
you'll allow me to interrupt, where EPA did not consider the 
health risks of the Clean Air Act. In fact, there would be 
increased numbers of skin cancers and melanomas and increased 
numbers of deaths caused by, for example, the latest ozone 
regulation that was put into effect----
    Ms. Heinzerling. Excuse me. If I may respond to that, EPA 
has recently said that information, which was the result of 
sort of economist's back-of-the-envelope guess, was just not 
reliable enough.
    Ms. Gramm. That information was used in EPA's own 
regulation. It was prepared by the Department of Energy, and it 
was used in EPA's own regulation with regard to stratospheric 
ozone.
    Mr. Smith.  You'll find that when you look at--I'm sorry.
    Ms. Gramm. But I don't think we need to discuss that 
particular issue in this hearing.
    Ms. Heinzerling. But if we are, we should do it right.
    Mr. Ose. Let me just explore something. In other words, 
there is a standard of particulate matter in the atmosphere----
    Ms. Gramm. And this was in ozone.
    Mr. Ose [continuing]. That was issued by the Department of 
Energy, used by the Environmental Protection Agency to analyze 
a net-benefit, net-cost question to the economy as a whole of 
the Clean Air Act, and there's some question as to the 
validity, as there is today perhaps of our calculations. 
There's some question as to the validity of that original 
Department of Energy analysis?
    Ms. Gramm. The Department of Energy analysis was never 
allowed or was not included in the EPA's analysis of the ozone 
standard act, although it was used for an earlier analysis----
    Mr. Smith.  Could I try to explain it to you? When EPA 
wanted to show its programs had benefits, as you would expect 
it would, it evaluated the benefits of preventing ozone from 
dropping, because the argument was, if you had an umbrella up 
high you prevented ultraviolet radiation and so forth. But when 
EPA wanted to ignore that effect, because now the umbrella was 
going to be held low, it ignored the benefits--the disbenefits 
in this case--of reducing ozone shielding. Ozone shielding was 
good when you held the umbrella high. Ozone shielding wasn't 
good when you held the umbrella low. One can put different 
interpretations on that but it appeared as if EPA wanted its 
benefit estimates to look higher than they would have looked if 
it had used that information in the same way in both analyses.
    Mr. Ose. So if I may, I perceive by your comments, Mr. 
Smith, that you have a, what you would probably describe as a 
healthy skepticism of these numbers, both from a cost and a 
benefit standpoint.
    Mr. Smith. I think probably this whole panel has a certain 
skepticism from that.
    Mr. Ose. Well, I'm going to go through the rest of the 
panel.
    Mr. Smith. But I certainly do and the reason is that there 
haven't been as many attempts as one would like to evaluate the 
EPA. One of the most fertile ones was a survey done some years 
ago. EPA asked the wrong question. It looked quite thoroughly 
at the argument that EPA was a major public health contributor 
as we've heard here earlier. It had rejected that. They thought 
EPA was a very important agency but it made the question over 
and over again that EPA had very little value it could add as a 
major public health agency. It could do a lot to improve 
aesthetics, it could make us like the environment, it could 
eliminate smog and nuisances, but the idea that EPA was out 
saving trillions of dollars of human life was as fanciful then 
as it is now.
    Mr. Ose. Dr. Gramm, do you share Mr. Smith's skepticism 
about the degree of accuracy in these cost and benefit numbers?
    Ms. Gramm. I believe the Agency estimates have been grossly 
overvalued in terms of benefits on many, many counts, and 
especially in this particular case; so it's very troubling to 
see these numbers being produced every year in OMB's reports.
    Mr. Ose. Mr. Sample.
    Mr. Sample. I'm sorry. Again, I don't have any background 
in this but I don't have any reason to disbelieve that.
    Mr. Ose. OK. Mr. Arth.
    Mr. Arth. Quite frankly, I guess I'm a little surprised 
that we're discussing this at such length because everybody 
seems to feel that the numbers are wrong; either they're too 
high or too low depending on where our perspectives are. The 
fundamental issue here is that there is this huge expenditure 
that's being incurred by the private sector as a result of 
regulation and it's being ignored at the present time. And so 
whether it's $800 billion or $1 trillion or $600 billion, it's 
a huge number and we can only get better government, better 
regulation, if we started to try to take into account not just 
the tax dollars we're going to spend, but the dollars we're 
going to require the private sector to spend as we pass new 
laws, adopt new regulations.
    Mr. Ose. So you do have a skepticism?
    Mr. Arth. I have a skepticism. You know, I was a CPA once 
upon a time, and I have worked with actuaries, and I really 
respect their ability to make numbers sing.
    Mr. Ose. I sit on Financial Services. We're not going into 
the corporate statements. Professor Heinzerling, do you have a 
skepticism on these numbers, whether it be too high or too low 
given the circumstances?
    Ms. Heinzerling. Well, as I've said, I do have skepticism 
about the numbers. I happen to think that they're probably 
wrong in a different direction from everybody else on the 
panel. My opposition to this bill and to other efforts at 
regulatory reform is, in fact, based on a deep-seated 
skepticism about numbers like these.
    Mr. Ose. So let me ask this central question: Absent a 
pilot program to at least test the hypotheses as to whether or 
not something is valid or not, how do we ever improve the 
situation? Professor Heinzerling.
    Ms. Heinzerling. I think that a person can think 
conceptually about an issue without actually putting it into 
place. Some ideas seem like bad ideas even if you don't try 
them out. You can use what you know about the world and think 
about whether it seems like a good idea or not. Looking at this 
bill I think it's not a good idea and I don't think a pilot 
project is going to help change that.
    Mr. Ose. So at least in that context you're not willing to 
test it against a real world situation?
    Ms. Heinzerling. Well, I don't even know what we're testing 
really, because the bill is so vague.
    Mr. Ose. Mr. Arth, are you willing to test this?
    Mr. Arth. I think it's absolutely essential that we do.
    Mr. Ose. OK.
    Mr. Arth. And would be very supportive of that.
    Mr. Ose. You're not focused on doing it in any particular 
agency or department, just test it and then refine your test, 
and test it again?
    Mr. Arth. Test it, refine it, get some numbers that mean 
something, and we need to start realizing that all these 
little--and there are good regulations. Don't misunderstand me. 
But there are an awful lot of them that no one would ever vote 
against--clean air, motherhood, apple pie--but we're spending a 
whole lot more in a lot of areas than the benefits would 
suggest is a worthwhile investment.
    Mr. Ose. And the only way to determine that is to run a 
test?
    Mr. Arth. To start to get some ideas of what those costs 
are.
    Mr. Ose. Mr. Sample, you've got a wag going on over in your 
business on your analysis.
    Mr. Sample. My observation is that it isn't working the way 
it is, so the only alternative that I see is to try something.
    Mr. Ose. Dr. Gramm.
    Ms. Gramm. I think this is a very important part of the 
bill, and I believe we should try it. Absolutely.
    Mr. Ose. And you're willing to leave what it is that's 
tested to OMB's discretion?
    Ms. Gramm. Absolutely.
    Mr. Ose. OK.
    Mr. Smith. In 1921, we enacted the first Budget and 
Accounting Act. We didn't get it perfect back then, and we 
don't have it perfect now on expenditures, but we started and 
we've made some progress. I think it's well overdue to start 
the progress on regulatory accounting too.
    Mr. Ose. I thank the Chair for his indulgence.
    Mr. Janklow. Thank you very much, Mr. Ose. I just have one 
comment and a very brief question. I was really struck by the 
previous testimony before this committee of the gentleman I 
believe from somewhere in the East who built organs and the 
document that he had to fill out. He actually held up all his 
documents he had to fill out and said the key one was involving 
lead. There's no dispute about lead and the regulatory aspects 
required for lead, but the documentation that he had to fill 
out and the cost was astronomical. With respect to--and it 
doesn't change anything with respect to the way he handled lead 
within his business, which was in compliance with the law--but 
Professor Heinzerling, I'm really struck with one thing that 
you said. This $22 trillion number that you think might be too 
low, even though you said that at that time it was state-of-
the-art and it had been reviewed by specialists in the area and 
praised in effect. Am I correct?
    Ms. Heinzerling. Yes.
    Mr. Janklow. Can you tell me who these specialists were in 
the area that reviewed this analysis of the $22 trillion 
savings and gave it those accolades?
    Ms. Heinzerling. The Scientific Advisory Board of EPA, I 
mean the Scientific Advisory Board on Economics of the EPA 
review.
    Mr. Janklow. Of the EPA. So the agency issued an analysis 
and then their board said it was a great job?
    Ms. Heinzerling. They're not within the EPA. They're other 
people, private people, professors and the like who looked at 
the report.
    Mr. Janklow. These were science people or fiscal people or 
both?
    Ms. Heinzerling. I believe they had both scientists and 
economists.
    Mr. Janklow. Can you furnish to us the documentation about 
the accolades that scientific group gave to that?
    Ms. Heinzerling. Sure.
    Mr. Janklow. If you would.
    Ms. Heinzerling. Yeah, I don't remember if it was a 
scientific group, but I think it was state-of-the-art in 
economic analysis. That was the point of the report was to take 
the existing science----
    Mr. Janklow. Well, you said, I believe your testimony under 
oath was that this other group, after it was submitted, that 
had praised the accuracy of the and the efficiency of----
    Ms. Heinzerling. Yes. Correct and I'm just being precise 
about what--so that we understand they praised it as a state-
of-the-art economic analysis, and I'd be happy to supply that 
information.
    Mr. Janklow. Sure. I'd appreciate that. I have nothing 
further. Do you have anything further, sir?
    Mr. Ose. You're the Chair.
    Mr. Janklow. Well, I just wanted to know. I may be the 
Chair, but you're the boss. I've been told by both the chairman 
and the ranking member that they both have statements that they 
want put into the record today, but because of the voting 
process we weren't able to do that. And so we're going to hold 
the record open for 5 days for any member of the committee that 
chooses to submit statements for the record.
    And with that, really these things get contentious, but 
they sure help at least people like me figure out what the 
right thing to do is. I'm really struck, really struck, that 
some people think the regulatory burden is $230 billion a year. 
We throw a lot of billions around in Washington, and I know I'm 
from a small Western State, Midwestern State. But you could run 
every single thing in the whole government of the State of 
South Dakota for a 115 years for that $230 billion.
    Ms. Gramm. $843 billion in the year 2000? It's more than 
that.
    Mr. Ose. To the extent that we have questions, we need to 
ask the panel, are you going to leave the record open for us to 
submit them in writing?
    Mr. Janklow. How long do you suggest?
    Mr. Ose. Ten days.
    Mr. Janklow. All right. And to the extent any members of 
the panel have questions--excuse me, any members of the 
committee have questions of the panel, we'll also leave the 
record open for 10 days for them to submit the questions. Is it 
agreeable with you? You'll respond to those questions. Is it 
agreeable with you folks?
    Ms. Heinzerling. I'll be on vacation for 2 weeks.
    Mr. Janklow. Thank you all very much. And the hearing is 
adjourned.
    [Whereupon, at 5:12 p.m., the committee was adjourned.]
    [The prepared statements of Chairman Tom Davis, Hon. Henry 
A. Waxman, Hon. Wm. Lacy Clay, and additional information 
submitted for the hearing record follow:]



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