[Senate Hearing 113-325]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 113-325

          THE FIRST STEP TO CUTTING RED TAPE: BETTER ANALYSIS

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

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 30, 2014

                               __________

          Printed for the use of the Joint Economic Committee


                        JOINT ECONOMIC COMMITTEE

    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]



















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HOUSE OF REPRESENTATIVES             SENATE
Kevin Brady, Texas, Chairman         Amy Klobuchar, Minnesota, Vice 
John Campbell, California                Chair
Sean P. Duffy, Wisconsin             Robert P. Casey, Jr., Pennsylvania
Justin Amash, Michigan               Bernard Sanders, Vermont
Erik Paulsen, Minnesota              Christopher Murphy, Connecticut
Richard L. Hanna, New York           Martin Heinrich, New Mexico
Carolyn B. Maloney, New York         Mark L. Pryor, Arkansas
Loretta Sanchez, California          Dan Coats, Indiana
Elijah E. Cummings, Maryland         Mike Lee, Utah
John Delaney, Maryland               Roger F. Wicker, Mississippi
                                     Pat Toomey, Pennsylvania

                 Robert P. O'Quinn, Executive Director
                 Niles Godes, Democratic Staff Director




















                            C O N T E N T S

                              ----------                              

                     Opening Statements of Members

Hon. Kevin Brady, Chairman, a U.S. Representative from Texas.....     1
Hon. Amy Klobuchar, Vice Chair, a U.S. Senator from Minnesota....     3

                               Witnesses

Mr. Jay Timmons, President and Chief Executive Officer, National 
  Association of Manufacturers, Washington, DC...................     7
Dr. Michael Greenstone, 3M Professor of the Environmental 
  Economics, Massachusetts Institute of Technology, Cambridge, MA     9
Dr. John D. Graham, Dean, School of Public and Environmental 
  Affairs, Indiana University, Bloomington, IN...................    11
Mr. Shaye Mandle, Executive Vice President and Chief Operating 
  Officer, LifeScience Alley, St. Louis Park, MN.................    13

                       Submissions for the Record

Prepared statement of Hon. Kevin Brady...........................    28
    Report titled ``The Need for Economic Analysis in Federal 
      Regulation''...............................................    30
Prepared statement of Mr. Jay Timmons............................    71
Prepared statement of Dr. Michael Greenstone.....................    83
Prepared statement of Dr. John D. Graham.........................    87
Prepared statement of Mr. Shaye Mandle...........................   101

 
          THE FIRST STEP TO CUTTING RED TAPE: BETTER ANALYSIS

                              ----------                              


                       WEDNESDAY, APRIL 30, 2014

             Congress of the United States,
                          Joint Economic Committee,
                                                    Washington, DC.
    The committee met, pursuant to call, at 9:32 a.m. in Room 
301 of the Russell Senate Office Building, the Honorable Kevin 
Brady, Chairman, presiding.
    Representatives present: Brady of Texas, Paulsen, and 
Carolyn B. Maloney.
    Senators present: Klobuchar, Murphy, Coats, and Lee.
    Staff present: Corey Astill, Ted Boll, Gail Cohen, Jon 
Foltz, and Connie Foster, Niles Godes, Colleen Healy, Patrick 
Miller, and Robert O'Quinn.

    OPENING STATEMENT OF HON. KEVIN BRADY, CHAIRMAN, A U.S. 
                   REPRESENTATIVE FROM TEXAS

    Chairman Brady. Good morning, everyone. Welcome to the 
Joint Economic Committee hearing entitled The First Step Toward 
Reducing Red Tape: Better Analysis.
    Too often Congressional hearings are given titles that 
merely attract attention. But I believe the title for today's 
Joint Economic Committee hearing accurately describes what our 
witnesses are here to talk about, and what we should take to 
heart--namely, that the first step toward reducing red tape and 
achieving our regulatory goals is better analysis.
    Every Member of Congress recognizes the economic 
justification and the Constitutional authority under the 
Commerce Clause in Article I, Section 8 of the U.S. 
Constitution for balanced Federal regulation to protect public 
health and safety, preserve our environment, and prevent fraud 
of all kinds.
    At the same time, many Members of Congress also recognize 
that Federal regulation has become overly burdensome and costly 
to job creators and the economy alike. Some regulations, 
regrettably, are even counterproductive.
    As the volume of Federal regulation has grown, regulation 
has done less to advance its stated goals and imposed ever more 
costs. These costs include slower economic growth, higher 
uncertainty that inhibits business investment and job creation, 
foregone product and process innovation, a lessening in the 
international competitiveness of American businesses, and 
stagnant incomes for hardworking American families. 
Unnecessarily burdensome regulation also aggravates our 
country's long-term fiscal imbalance by inhibiting the natural 
growth of Federal revenues under existing tax law.
    Consider the following facts:
    In 2013, the federal government issued 3,659 final rules 
contained on 26,417 pages, a record number in the Federal 
Register. Including proposed rules, the Federal Register 
finished last year with over 79,000 pages.
    Four of the five highest regulatory page counts have 
occurred during President Obama's Administration, the all-time 
record being over 81,000 in 2010.
    Mr. Wayne Crews, the author of TEN THOUSAND COMMANDMENTS: 
AN ANNUAL SNAPSHOT OF THE FEDERAL REGULATORY STATE, estimates 
the overall annual cost of regulatory compliance to be $1.9 
trillion, about equal to the economy of Australia, Canada, or 
Italy.
    Mr. Crews estimates that U.S. households face an annual 
hidden regulatory ``tax'' of nearly $15,000.
    In last year's draft report to Congress on the benefits and 
the costs of Federal regulation, the Office of Management and 
Budget stated that Executive agencies and independent 
regulatory agencies promulgated a combined total of 68 major 
rules during 2012--each of which, as you know, have an impact 
of $100 million or more. Alarmingly, OMB presented a cost-
benefit analysis for only 14 of those 68 major rules.
    Looking longer term, during the decade ending in 2012, 
Federal agencies published over 37,000 final regulatory rules--
with OMB presenting cost-benefit analysis for only 115 of them. 
That is 3/10ths of 1 percent, meaning only 3 in every 1,000 
regulations were subject to a complete analysis of their 
effects on the U.S. economy, job creators, and families. For a 
Nation seeking a smarter, more efficient government, that is 
just shameful.
    America's regulatory system should be designed to achieve 
the greatest good at the least cost. Both Republicans and 
Democrats should be able to agree on that principle.
    Smart, effective regulations should seek to reduce rates of 
illness, mortality, and pollution--but not by reducing economic 
growth, job creation, and the incomes of hardworking Americans 
out of neglect or disregard.
    Safety and security must not come at the cost of 
stagnation, unemployment, and lower incomes that rob from the 
middle class. Yes, there will be tradeoffs, but too often our 
Federal regulatory system pursues singular objectives blind to 
the unintended consequences of its methods, and indeed often 
does not even focus on realizing the intended results.
    We need a better way, a 21st Century way to sift through 
regulations, both proposed and existing; transparently identify 
their true costs; and find the least costly, the least 
intrusive way to achieve the goals on which we all agree.
    We cannot do that without better analysis.
    My colleague, Senator Dan Coats, and I have introduced the 
Sound Regulation Act to improve the regulatory process through 
better analysis. The Sound Regulation Act would:
    First, expand accurate cost-benefit analysis to all Federal 
regulatory agencies--beyond the Executive Branch agencies to 
the independent ones as well--and close loopholes that allow 
some Federal agencies to skirt the requirement for objective 
economic analysis.
    It would end agency bias and establish more public 
transparency by requiring agencies to clearly identify the 
nature and significance of the market failure or other problem 
that necessitates regulatory action; establish an achievable 
objective for the regulatory action; and publish for public 
comment in advance the method and process for objectively 
weighing the costs and benefits of the proposed regulation.
    It would encourage more innovative solutions by requiring 
the development and evaluation of the costs and benefits of at 
least three regulatory options ranked by cost from lowest to 
highest.
    And, justify the--require justifying the choice of any 
option that is not the least cost method of achieving the 
objective.
    Finally, it would require reviewing existing regulations on 
a timely basis to determine the success and costs of the 
regulation in the real world.
    The Sound Regulation Act would not dictate solutions or how 
to achieve them. Instead, it would provide a better framework 
for rulemaking by Federal regulators so that regulations work 
more effectively and at least cost to the American economy. I 
believe that all Members of Congress in both chambers and both 
parties can ascribe to this goal.
    We have many ideas on how best to move forward on smart 
regulations. Senator Coats and I have one. There are others. 
That is the topic of the discussion today, and with that I look 
forward to the testimony of today's witnesses.
    I would yield to the Vice Chair, Senator Klobuchar, for her 
opening remarks.
    [The prepared statement of Chairman Brady appears in the 
Submissions for the Record on page 28.]

  OPENING STATEMENT OF HON. AMY KLOBUCHAR, VICE CHAIR, A U.S. 
                     SENATOR FROM MINNESOTA

    Vice Chair Klobuchar. Well thank you very much, Mr. 
Chairman. I am pleased that the Committee is again looking at 
regulatory issues, and thank you for holding this hearing.
    Improving regulation is a big issue in our country. It is 
important to business. It is also important to consumers.
    I would like to thank the witnesses on our panel. Some of 
you are making return visits. Mr. Mandle, of course, is just 
going to become the new President and Chief Executive Officer 
of LifeScience Alley, which specializes in medical device and 
technology.
    I knew, Mr. Chairman, you would like to see from 
Representative Paulsen and myself another medical device 
witness.
    [Laughter.]
    We also have with us Dr. Graham. Thank you, Dr. Greenstone, 
thank you, and also a special note to Jay Timmons, the head of 
the National Association of Manufacturers. Thank you so much 
for your leadership. I truly enjoyed recently addressing the 
Women in Manufacturing, which are growing daily, and thank you 
for your work.
    Dr. Greenstone, last summer you pointed out in a hearing 
that cost-benefit analysis of proposed regulations are done 
only before the regulations are enacted, when we least know 
what their impact will be. And I took your words to action, and 
Senator Susan Collins, Republican of Maine, and I introduced 
bipartisan legislation requiring a look-back to assess whether 
the regulation is actually meeting its goals. And I want to 
thank you for your testimony. We actually came out with that 
idea. And I also thank NAM and others for endorsing our bill.
    Our legislation requires the Congressional Budget Office to 
conduct a cost-benefit analysis of an economically significant 
Federal rule or regulation after it has been in effect. This 
would provide important information on which regulations are 
working, and I think would be a good step toward reducing red 
tape.
    Of course there's more to be done. This is especially 
important to me. As I pointed out in our last hearing, I spent 
13 years representing companies in regulatory areas. Americans 
expect a common sense approach to regulation. They want to have 
their water, and air, and their safety protected, but they also 
do not want to stifle innovation and economic growth. And we 
need to protect consumers with clarity and consistency, and not 
endless red tape.
    Medical devices are of course one example. Our State has a 
long history of leadership in this area of manufacturing and, 
Mr. Mandle, I am eager to hear your views on the opportunities 
and challenges facing the medical device industry.
    As head of LifeScience Alley, you represent hundreds of 
organizations that employ nearly a quarter of a million people 
in my State alone. The U.S. is the largest net exporter of 
medical devices in the world, enjoying a trade surplus of $6 
billion a year. Yet we have seen a decline in venture capital 
funding, partially due to delays in the approval process.
    According to one study, venture capital investment in the 
medical device industry fell 17 percent in 2013. It is critical 
we prevent regulatory burdens from interfering with the 
delivery of life-saving products.
    That is why in 2012 we passed the FDA Safety and Innovation 
Act. There are some very good ideas that many of us, including 
Senator Coats and Representative Paulsen, worked on, the least-
burdensome principles, which has been ignored by FDA reviewers. 
It improved conflict-of-interest provisions, making it easier 
for the FDA to recruit top-line experts. And, from what we have 
heard, there has been some improvement.
    I know, hearing from the companies in our State, that while 
there are still issues that the FDA has made some significant 
improvements in getting these approvals done. And I am hoping 
the future looks bright for medical devices.
    Tourism is another example. Senator Blunt and I have taken 
on this issue and done a lot without legislation. We have 
worked with the State Department to reduce wait lines, making 
it easier for tourists to visit the U.S.
    When they come here, they spend an average of $4,000. The 
Visa process itself is a profit-making center for our 
government because when they apply for a Visa, just doing that, 
we make money. But imagine how much money we make when they 
actually come to visit our country.
    Yet, in some countries they were waiting, like in Brazil, 
100 days, and we were losing business to other countries. If 
they could go to Great Britain in 3 days, that is where they 
would go. And so we have greatly improved that, and we were 
able to get an increase in tourism-related goods and services 
of 9 percent over 2012, and reduced wait lines significantly in 
Brazil and in China.
    We also, along with Representative Joe Walsh, streamlined 
the process for crossing the U.S.-Canada Border, something we 
care a lot about in our State.
    Exports is another great example, trying to reform the 
Export Control List. As we look at some decreased defense 
spending, looking at how we keep these companies strong by not 
just relying on old lists that, you know, basically make it 
hard to literally export nuts and bolts. And we have to do 
everything we can to make that easier.
    And the last thing I would mention is just one example of 
this regulatory reform is agriculture. We have seen a number of 
rules from the EPA that have come out and then been rejected, 
whether it's protecting farmers from regulations that require 
milk spills to be treated like oil spills, or burdensome dust 
regulations. We can be smarter about how we regulate farming in 
rural America.
    I was pleased that the recent farm bill included something 
that Senator Lugar, when he was still with us, he and I had 
introduced a bill on the EPA to make sure that people with 
rural backgrounds were on the rulemaking authority that would 
suggest that they can bring a little of their expertise and 
farm backgrounds into the EPA.
    Mr. Chairman, thank you again for holding this important 
hearing. We have good attendance. As you know, I have two other 
hearings this morning, including one involving an important 
bill that I passed with Senator Cornyn where we have waited--
are you ready for this, guys?--four years for the rules to come 
out involving allowing people to take back their prescription 
drugs. And I want to be at the hearing to ask the DEA why it is 
taking so long, and that is my good purpose for leaving early. 
And I appreciate your leadership in holding this hearing, and I 
will be turning this over to Representative Maloney.
    Chairman Brady. Thank you, Vice Chair, and good luck 
getting an answer.
    [Laughter.]
    I would like to--and I appreciate each of the Members being 
here today on this important topic.
    I would like to welcome our four witnesses this morning. I 
will be introducing three of them, and I will let my colleague, 
Senator Coats, introduce our witness from Indiana.
    Jay Timmons is President and CEO of the National 
Association of Manufacturers. Prior to his appointment as NAM 
president, Mr. Timmons was Executive Vice President and Senior 
Vice President of Policy and Government Relations at NAM. His 
previous experience includes serving as Chief of Staff to 
Congressman, Governor, and Senator George Allen of Virginia 
from 1991 to 2002. He is a Buckeye, Ohio State University.
    Dr. Michael Greenstone is a 3M Professor of Environmental 
Economics in the Department of Economics at the Massachusetts 
Institute of Technology. He is a nonresident Senior Fellow at 
the Brookings Institution, a Research Associate at the National 
Bureau of Economic Research, and is on the MIT Energy 
Initiatives Energy Council. Dr. Greenstone previously served as 
the Chief Economist for President Obama's Council of Economic 
Advisers, and as the Director of the Hamilton Project at the 
Brookings Institution. Dr. Greenstone received a Ph.D. in 
Economics from Princeton, and a B.A. in Economics with High 
Honors from Swarthmore College.
    Shaye Mandle serves as Executive Vice President and COO for 
LifeScience Alley. Previously Mr. Mandle served as Executive 
Director of the FedEx Institute of Technology at the University 
of Memphis. Mr. Mandle has served as chief executive to 
industry and economic development organizations, the East-West 
Corporate Corridor Association, and the Illinois Coalition; and 
he previously served on the policy staff of former U.S. House 
Speaker Dennis Hastert, and former Illinois Governor Jim Edgar. 
Mr. Mandle has a J.D. from Duquesne University Law School, and 
a B.A. from Illinois Wesleyan University.
    And I would turn to Senator Coats for the final 
introduction.
    Senator Coats. Well, Mr. Chairman, thank you very much, and 
Vice Chair Klobuchar, also. It has been a pleasure for me to 
work with both of you. Vice president--Vice--Chair--I've got 
you moved up to Vice President already.
    [Laughter.]
    Chairman Brady. Is there an announcement here?
    Senator Coats. This could make some news this morning, if 
you want to respond to that----
    Vice Chair Klobuchar. We have had a number of them from our 
State.
    [Laughter.]
    Senator Coats. The Vice Chair and I have worked together on 
the medical device issues in the FDA, and am very pleased to 
work with Chairman Brady on the Sound Regulation Act, which as 
you said will require every Federal agency to engage in 
extensive cost-benefit analysis to determine the actual cost in 
dollars of regulations under each agency's jurisdiction.
    The negative effects of over-regulation are felt in 
industries throughout my home State, and I'm sure throughout 
the states being represented here by the panel. While many 
regulations of course are of worthy purpose, there are many 
that I think unnecessarily increase costs and slow 
productivity.
    The statistics are pretty compelling, particularly as it 
impacts on small business. The Small Business Administration 
found that complying with Federal regulations cost small 
businesses 36 percent more per employee than larger firms. In 
many cases, this cost amounts to the difference between a small 
business hiring or not hiring additional employees.
    And further, new financial regulations have imposed what 
Indiana bankers are telling me is an avalanche of new rules. 
Hoosier community banks and credit unions are spending as much 
as 70 percent of their time and 10 percent of their net income 
on compliance reporting.
    Now it is one thing for CitiCorp, JPMorgan, and so forth, 
to hire a backroom of lawyers and technicians to deal with all 
these regulations. It's another thing for the community banks, 
credit unions, and smaller banks that had nothing to do with 
the financial crisis, yet they have to go outside and outsource 
or hire their own cadre of lawyers, accountants, and others who 
will have to fill out all this paperwork as if at the same 
level that the major banks do.
    So we need to have some distinction, I think. The numbers 
are eye-popping when you add them up. Regulators published $112 
billion in net regulatory cost in 2013 alone.
    Now I am pleased to welcome and introduce Dr. John Graham. 
Jay, we couldn't let Ohio State control the whole thing here. 
We had to get an Indiana counter balance here. Dr. Graham 
serves as Dean for the highly regarded School of Public and 
Environmental Affairs at the Indiana University. The school is 
ranked first among all state universities' public affairs 
programs. In March 2001, President Bush nominated Dr. Graham to 
serve as Administrator of the Office of Information and 
Regulatory Affairs. He was confirmed by the Senate, oversaw the 
regulatory information and statistical activities of the 
federal government.
    Dr. Graham, while encouraging good regulations that save 
lives, prevent disease, and protect the environment, actually 
reduced the growth of regulatory costs by 70 percent during his 
tenure.
    After his time at OIRA, Dr. Graham was Dean of the 
Frederick Pardee-Rand Graduate School at the Rand Corporation 
in Santa Monica, California. And then later assumed the 
deanship of Indiana School of Public and Environmental Affairs.
    Dr. Graham, we appreciate your willingness to come and 
testify before us, as we do for all four of our witnesses, Mr. 
Chairman, and look forward to their testimony.
    Chairman Brady. Right. Thank you, Senator.
    Mr. Timmons, we will begin with you. As in most hearings, 
we have reserved five minutes for the opening statement so we 
will have an opportunity to explore the testimony further 
during questions. So you are recognized.

  STATEMENT OF MR. JAY TIMMONS, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, NATIONAL ASSOCIATION OF MANUFACTURERS, WASHINGTON, DC

    Mr. Timmons. Thank you, Mr. Chairman and Vice Chair 
Klobuchar----
    Chairman Brady. Can you hit that microphone?
    Mr. Timmons. All right. Well thank you very much, Mr. 
Chairman, and Vice Chair Klobuchar, Members of the Committee:
    I really appreciate the opportunity to testify about the 
regulatory system that is facing manufacturers, and some of our 
ideas about improving the system.
    Now from the opening statements today, bipartisanship is 
clearly breaking out all over the place when it comes to 
regulation, and that is a very good thing. I have to say, Mr. 
Chairman and Madam Vice Chair, manufacturers really appreciate 
your efforts to find common ground on regulatory reform.
    The legislation you have each offered would go a long way 
toward adding balance and transparency to the regulatory 
process. And, importantly, your proposals represent ideas that 
both parties can support.
    And as I said, bipartisan cooperation is the key. It is 
crucial to any successful reform effort, and frankly it has 
been lacking in previous reform efforts. The inability of 
Congress to advance reform measures has led presidents of both 
parties to exercise their executive authority. And, to his 
credit, President Obama has signed Executive Orders seeking to 
enhance regulatory review. As you know, President Bush 
undertook similar initiatives. So did President Clinton, and so 
did President Reagan.
    Yet, look at where we are today. The regulatory state is 
growing in size and it is growing in complexity. Now I happen 
to be optimistic that we can get something done. Whether you 
are on the left, the right, or somewhere in between we all want 
clean air. We all want clean water. And we want healthy 
communities for our families.
    So step one is changing the rhetoric. The conversation 
about regulation all too quickly turns partisan. But from the 
perspective of the business community, particularly 
manufacturers, our position on regulation is often 
mischaracterized.
    Manufacturers believe that regulation is critical to the 
protection of worker safety, to public health, and to our 
environment, and our record backs up that fact. We have 
supported regulations such as the enhanced corporate average 
fuel economy rules in 2009, and legislation such as the Food 
Safety Modernization Act of 2011 and its accompanying 
regulations.
    And indeed, some critical government objectives can only be 
achieved through regulation. But that does not mean that 
Congress or the Executive Branch should be off the hook. By 
simplifying regulations, reducing overlap--or even conflicting 
rules--and ensuring that regulations are based on good data, we 
can ease the burdens placed on manufacturers and other 
businesses alike.
    New regulations are often poorly designed, poorly analyzed, 
and inefficient. Many times they are unnecessarily complex and 
duplicative. Their critical inputs--scientific and other 
technical data--are sometimes unreliable and fail to account 
for significant uncertainties.
    Regulations are allowed to accumulate with no real 
incentives to evaluate or clean up the past, and they too are 
often one-size-fits-all, without the needed sensitivity to 
their impact on small businesses. Frankly, we can do better.
    I constantly hear from members of the National Association 
of Manufacturers about the challenges they face in dealing with 
the regulatory system in our country.
    One small company, a die-caster, estimates that $1 out of 
every $5 of the company's pretax profits is spent on complying 
with a dizzying array of new regulations.
    Another small manufacturer had an inspector at its 
facility, and that inspector told him that a fire extinguisher 
was affixed too low on the wall, making it difficult for 
employees to use. So the manufacturer corrected the problem, 
only to have another inspector come to his plant a few weeks 
later to inform them that the fire extinguisher was now too 
high and therefore it was in violation of the Americans with 
Disabilities Act.
    Yet another manufacturer told me that they spend upwards of 
80 percent--80 percent--of their R&D budget on regulatory 
compliance. It all boils down to a manufacturer's ability to 
succeed in a highly competitive global economy.
    Today we see the nascent signs that manufacturing in 
America is making a comeback. We are now a $2 trillion sector 
of the economy, and that is larger than all but seven world 
economies. But imagine how much stronger this comeback could be 
if Washington removed impediments to growth; if manufacturers 
could focus on making better products and innovating instead of 
spending hours figuring out which rules that they must follow 
and then how to comply with those rules.
    Manufacturers are committed to common sense regulatory 
reforms that protect the health of our workers and the 
environment, as well as prioritize economic growth and jobs.
    We look forward to working with Congress in a bipartisan 
manner to make that a reality. Thank you very much, Mr. 
Chairman.
    [The prepared statement of Mr. Timmons appears in the 
Submissions for the Record on page 71.]
    Chairman Brady. Thank you, sir.
    Dr. Greenstone.

     STATEMENT OF DR. MICHAEL GREENSTONE, 3M PROFESSOR OF 
ENVIRONMENTAL ECONOMICS, MASSACHUSETTS INSTITUTE OF TECHNOLOGY, 
                         CAMBRIDGE, MA

    Dr. Greenstone. Thank you, Chairman Brady, Vice Chair 
Klobuchar, and Members of the Committee, for inviting me to 
speak today.
    The purpose of my testimony is to describe in concrete 
terms how we can improve our regulatory system, and to 
wholeheartedly offer my support for Senate Bill 1472, 
Strengthening Congressional Oversight of Regulatory Actions for 
Efficiency, that was introduced by Senator Klobuchar and is co-
sponsored by Senator Collins and Senator King.
    American government at every level regulates a broad array 
of social and economic life. Regulatory policy determines the 
air we breathe, the quality of the water we drink, the safety 
of our workplaces, the investments we make, and much more.
    Government regulates these activities because in cases of 
market failure, for example, our free market system does not 
create the necessary incentives for businesses and individuals 
to protect the public good.
    The challenge for regulators is to consistently set rules 
with benefits that exceed their costs, or otherwise achieve 
their statutory objectives. However, an important weakness in 
our regulatory system is that we generally do not have the 
information necessary to make these judgments over the long 
haul.
    This is because our evaluations are done before the 
regulations are enacted and are almost entirely based on 
regulations' ``likely'' benefits and ``likely'' costs. Of 
course, this is the point when we know the absolute least, 
precisely because the regulations are untested.
    Once a regulation passes this ex ante bar, it generally 
goes on the books and can stay there unexamined for years. In 
practice, some regulations work out exactly as we intended them 
to do, and in some instances they do not.
    For example, an air pollutant may prove to be more harmful 
than was originally understood, or innovation may lead to new 
and less expensive pollution-abatement technology.
    President Obama's Executive Orders 13563 and 13610 spell 
out what I think are a potentially revolutionary step forward 
in regulatory policy. Specifically, they require that agencies 
routinely revisit the measurement of costs and benefits of 
existing regulations, and identify the least costly ways to 
achieve a regulation's goals.
    In the remainder of my testimony I am going to identify two 
further changes that I think would increase the chances that 
our regulatory system consistently produces rules with benefits 
that exceed their costs.
    The first is to make three reforms that build on the 
President's Executive Orders. First, I recommend 
institutionalizing the retrospective review of economically 
significant rules so that these reviews are automatic. 
Depending on the particulars of the rule, the review should be 
completed within a prespecified period--say 5 to 10 years.
    In addition, the relevant agency would be required to 
prespecify the expected benefits, as well as the expected 
costs--so that the terms of the subsequent review would be 
known in advance, which I think bears some similarity to your 
bill, Mr. Chairman.
    Second, the relevant agencies should commit to undertaking 
a new rulemaking when the results from the retrospective 
analysis differ from the benefits and costs that were expected 
prior to the rule's implementation. The new rulemaking should 
also operate under a time limit.
    And third, these efforts would be strengthened if they were 
accompanied by triggers to ensure that they are undertaken 
within the prescribed time period. One approach would be for 
agencies to post on their websites the deadline for a rule's 
review and reconsideration. A stronger approach would be to 
enable the judiciary to compel reviews and new rulemakings in 
cases where an agency has failed to comply with a review 
timeline, or to act upon its results.
    There are some difficulties with this approach I just 
outlined. Many agencies do not have the staff, expertise, or 
resources necessary to undertake these reviews.
    Further, the process of self-evaluation is quite difficult. 
I find it difficult in my own life. So my second recommendation 
is to establish a new, independent body for regulatory review. 
The nonpartisan Congressional Budget Office provides a very 
appealing model.
    As you know, before the CBO was established, only the 
President had a ready source of budgetary and economic data and 
analysis. The entire budget process has benefited from CBO's 
existence and its independence.
    Budgetary analyses and proposals throughout Washington are 
now created to a higher standard knowing that they must 
ultimately face scrutiny by the nonpartisan CBO.
    I believe that Senator Klobuchar's bill, Senate Bill 1472, 
which creates a regulatory analysis division in the nonpartisan 
CBO, is the best solution. The regulation analysis division 
would be charged with conducting independent regulatory impact 
evaluations.
    Of course the creation of a regulatory analysis division 
within the CBO would require resources. My best estimate is 
that it would cost less than $10 to $15 million a year, and 
that that is very likely--it would very likely pay for itself 
10, or 20, or 100 times over.
    To quickly summarize, I propose two key reforms.
    One, institutionalize a process by which agencies 
automatically undertake retrospective reviews of regulations, 
and initiate a new rulemaking when the results from the 
retrospective analysis differ from the expected benefits and 
costs.
    Two, create a regulatory analysis division within the 
Congressional Budget Office. We live in a rapidly changing 
economy and need a new regulatory review structure that evolves 
to meet the new and different needs of our society.
    The reforms that I have outlined here would give 
policymakers better tools for protecting those regulations with 
great benefits for our society, reforming those regulations 
that impose unnecessary costs, and culling those that no longer 
serve their purpose.
    That would be good for our well-being, and good for the 
American economy. Thank you once again for inviting me to 
participate in the discussion.
    [The prepared statement of Dr. Greenstone appears in the 
Submissions for the Record on page 83.]
    Chairman Brady. Thank you, Dr. Greenstone.
    Dr. Graham.

  STATEMENT OF DR. JOHN D. GRAHAM, DEAN, SCHOOL OF PUBLIC AND 
   ENVIRONMENTAL AFFAIRS, INDIANA UNIVERSITY, BLOOMINGTON, IN

    Dr. Graham. Good morning, Mr. Chairman, Members of the 
Committee:
    The focus of my remarks will be on what Congress can do to 
bring smarter regulation from the Executive agencies. But 
before I go to those points, I want to underscore the 
importance that Congress itself needs a more evidenced and 
analytic approach to these issues. And I want to add my voice 
of support for expanding the Congressional Budget Office, as 
Dr. Greenstone indicated, to have regulatory analysis as a 
division that routinely introduces itself into the regulatory 
process.
    By way of comparison, I was in Brussels last week working 
on the effort for a Free Trade Agreement between Europe and the 
United States, and it turns out the European Parliament--which 
is often considered a primitive and developing legislative 
body; it has its own regulatory impact assessment unit now that 
checks the power of the European Commission. And I think for 
Congress, something like that at CBO would be quite sensible.
    Now moving to reforms at the agencies, the first point I 
would like to make is we need to remember that a lot of the 
burdens that occur for businesses and the private sector, and 
state and local governments, they occur before the regulation 
is proposed or adopted.
    There are quasi-regulatory determinations made early in the 
process--a technological hazard determination, a guidance 
document. The information quality that underpins these quasi-
regulatory documents needs to be very strong if the ultimate 
rulemaking is going to be done.
    I give examples in my written testimony of both the housing 
industry and the coal industry, where a lot of harm was done 
because of problems in these early quasi-regulatory documents.
    The second point is state and local regulation. You might 
say, oh, but we are here in Washington; we are talking about 
the federal government; we cannot solve all the world's 
problems. In many cases, the federal government has the 
authority to preempt or to oversee state and local regulation 
and shape it in a specific direction.
    So for example we have in the automotive industry a 
regulation in California which is starting to be binding which 
requires manufacturers who do business in California to sell a 
zero-emission vehicle--practically speaking, an electric car in 
most cases--in California. Up to 15 percent of their fleets 
have to be ZEVs by 2025.
    These vehicles cost $10- to $20,000 more. And while there 
are savings in fuel costs, the cost-benefit analysis is pretty 
speculative on the advantages of this type of rule.
    It turns out the federal government already has incentives 
to promote electric cars. There's a $7,500 Federal income tax 
credit for purchasers of electric cars. Manufacturers are 
allowed to count each electric car twice in their compliance 
for CAFE and carbon standards.
    You might say, well, aren't there big environment 
advantages to having a mandate from California for electric 
cars? Well, it turns out manufacturers, because they have a 
national binding carbon constraint, if California forces more 
electric cars to be sold there that means the manufacturers 
will simply sell more higher-polluting vehicles in the non-
California states.
    So it is a whole regulation that is actually not very well 
thought out. The federal government gave an official waiver to 
allow California to do this, and the federal government never 
did a cost-benefit analysis of that waiver decision.
    So we need to keep in mind that the state and local 
governments and the federal government needs to coordinate in a 
way that makes sense for regulatory policy.
    Point three, we need to look hard at regulation by 
litigation. The basic strategy here of a regulatory agency--and 
I was done in by this several times while I was an 
administrator--they get sued. They get into a negotiation. And 
then they agree, in a sense, to force certain regulations by a 
certain deadline.
    This prejudges all of the analytic and cost-benefit process 
that the Executive Orders put in place. So I think clearly we 
need some transparency in that process. We need some public 
comment process on whether there should be a settlement. And 
there needs to be some evidence-based analysis before agencies 
actually sign consent decrees that force mandatory rulemakings.
    The fourth point, we need more regulatory cooperation with 
our trading partners in Europe and Asia. And I applaud the 
Obama Administration for trying to get action moving in the 
direction of freer trade between Europe and the United States.
    Of course the signature examples of this that we complain 
about, with justification, are in agriculture where genetically 
modified seeds are still not available throughout most of 
Europe. But we have a lot of problems in our own regulations.
    Our automotive safety regulations, and our automobile 
tailpipe emission standards are not aligned with the European 
standards, so manufacturers have to separately design and test 
their vehicle in Europe and the United States.
    I think Congress should be pushing the agencies to find a 
way to find common ground, or at least mutual recognition that 
European cars are clean and safe enough to be imported here, 
and ours are clean and safe enough to be put into Europe. So we 
have a lot of work to do there in terms of making that 
progress.
    I hope these points are constructive and point the 
direction for some stronger, better regulation initiatives, and 
I look forward to the comments and questions.
    [The prepared statement of Dr. Graham appears in the 
Submissions for the Record on page 87.]
    Chairman Brady. Thank you, Dr. Graham. Mr. Mandle.

  STATEMENT OF MR. SHAYE MANDLE, EXECUTIVE VICE PRESIDENT AND 
 CHIEF OPERATING OFFICER, LifeSCIENCE ALLEY, ST. LOUIS PARK, MN

    Mr. Mandle. Chairman Brady, Vice Chair Klobuchar, Members 
of the Committee, thank you for the opportunity to be here this 
morning.
    My name is Shaye Mandle and tomorrow I will take over as 
President and CEO of LifeScience Alley, the Nation's largest 
regional life science association.
    This year we celebrate our 30th anniversary of leading 
Minnesota's medial alley, the most densely concentrated medical 
technology cluster in the world, and home to some of history's 
greatest therapeutic and health care innovations. Our members 
include: 3M, Medtronic, Boston Scientific, St. Jude Medical, 
Covidien, Endo/AMS, Mayo Clinic, and hundreds of small 
companies that will bring new innovation to the health care 
marketplace.
    I personally would like to thank Senator Klobuchar as well 
as Congressman Paulsen for their leadership on behalf of 
patients and the companies that serve them, especially for 
those of us who call Minnesota home.
    Today this Committee is interested in taking the first step 
to cutting red tape through better analysis, and we agree that 
better analysis is needed, and that a regulatory environment 
that is smarter and more collaborative would serve patients and 
the U.S. health care system well.
    It is also important for broad-based analysis of the entire 
ecosystem, including tax and regulatory policy. It is critical 
for Congress to address repeal of the Medical Device Tax if we 
want to keep our jobs and competitive advantage, as well as 
providing a permanent fix to the FDA user fees and 
sequestration issue to ensure that FDA has access to the funds 
committed by industry.
    In 1957, Earl Bakken and Medtronic introduced the first 
battery-operated external pacemaker. In 1976, the Federal Food, 
Drug and Cosmetics Act was amended to include the regulation of 
medical devices. At the beginning, innovation came from doctors 
and engineers working together to save lives.
    For the first 25 years of medical technology innovation, 
there was no FDA oversight. So is it our position that medical 
devices shouldn't be regulated? Quite the contrary.
    When medical devices were added to the FDA's regulatory 
responsibility, something unique happened. An agency with no 
expertise in the field connected with the patients, doctors, 
and innovators to form a collaborative relationship. They 
taught each other.
    If you talk to anyone from industry or the FDA from those 
early years of regulation, they will amaze you with stories of 
working together to accomplish a shared goal: delivering the 
safest and most effective therapies in the world to the 
patients whose lives depended on them.
    Both the medical device industry and the FDA want the same 
outcome: safe and effective devices invented in the U.S. and 
available first in the U.S.
    For a couple of decades, this is exactly what we got. Over 
the past decade or so, this dynamic has changed and an 
adversarial relationship has emerged.
    As a result, patients outside of the U.S. frequently gain 
access to innovation and technology before American patients 
do. In fact, Eucomed claims that European patients get 
innovative technologies 3 to 5 years earlier than the U.S. 
patient does. In fact, they even have a website called ``Don't 
Lose The 3'' as in the 3 years of therapeutic advantage that 
European patients have over Americans.
    But things are improving. So passage of FDASIA in 2012 was 
a welcome update to our regulatory government, and MDUFA III 
should promote a more collaborative and effective pathway to 
approval.
    This legislation, if fully implemented as intended, will be 
a real benefit for patients, innovation, and our economy. The 
FDA is working hard to collaborate with industry and is 
focusing now on practical priorities, including:
    Improving efficiency in clinical trials;
    Balancing the premarket and post-market process; and
    Identifying ways to shorten the lag between product 
approval by the FDA and reimbursement approval by CMS and/or 
private payers.
    Dynamic public-private solutions are also happening. Since 
2011, LifeScience Alley has been working closely with CDRH 
Director Jeff Shuren to find a solution that would re-engage 
the agency and industry in a conversation of collaboration and 
cooperation.
    As a result, we created the Medical Device Innovation 
Consortium, a public-private partnership that still has its 
roots in Minnesota but now includes a national consortium from 
industry and key members from government, including CMS and the 
NIH.
    Through the MDIC, we are working to identify opportunities 
for technical collaboration in the pre-competitive space where 
industry and the FDA can work together to share knowledge and 
improve the regulatory environment.
    Better analysis means constant improvement. As one of the 
few U.S. industries with a positive trade balance and an 
average wage of more than $70,000 annually, the medical device 
industry is a U.S. success story.
    Regulation is vital. Smart regulation is even more vital. 
We look forward to working with the Committee to ensure that 
the U.S. regulatory environment represents the safest and 
smartest in the world.
    And I thank you for the opportunity to be here today.
    [The prepared statement of Mr. Mandle appears in the 
Submissions for the Record on page 101.]
    Chairman Brady. Thank you, Mr. Mandle. Congratulations on 
your new title.
    I thank the witnesses for your thoughts and insights today. 
A couple of thoughts. We had another disappointing GDP number 
today--some of it was weather-related; we hope it picks up next 
quarter--but it has been a disappointing recovery. We are all 
hopeful we can do better.
    Regulation I think has dragged, helped drag down the 
economic recovery. What I have noticed, I come from a Chamber 
of Commerce background, so you create a local business climate. 
You help start small businesses, help them survive tough times. 
You recruit new industry. You create a business climate for 
growth.
    There is always a natural tension between business and 
regulation. There should be a healthy tension. I have never 
seen it at the level we see today. It doesn't matter what size 
businesses, or where they are, regulation, aside from the 
economy, is the number one concern facing them as they try to 
expand and in some cases survive.
    So today is about how we remove that drag on the economy 
and actually help our economy grow. A couple of questions.
    Does anyone on the panel object to expanding cost-benefit 
analysis to independent agencies like the SEC, the FCC, and the 
Fed, as it is now applied to the Executive agencies? Does 
anyone have a--think that is a bad idea?
    [No response.]
    Does everyone believe in closing loopholes so that no 
agencies or regulations are exempt from an objective cost-
benefit analysis if they are a major rule? Does anyone object 
to that principle?
    [No response.]
    Third question. And this is the one I need your insight on. 
How do we end agency bias? How do we, or at least mitigate it, 
and realize the thought that agencies develop regulations and 
then are tasked with determining whether their benefits 
outweigh their costs?
    As you would imagine, the rare times it occurs, 3 out of 
every 1,000 new Federal regulations have gone through this 
objective analysis, 3 out of 1,000, when that occurs, 
oftentimes the agency, as you would imagine, decides their own 
regulation is in fact a good one. Not surprising.
    So how do we create the transparency up front--and I think 
Dr. Graham you made the point that there are a number of quasi-
regulatory decisions made early on that have a huge impact--how 
do we create transparency? How do we end agency bias? Is it 
requiring them to identify up front how they are going to 
measure this cost-benefit analysis? Invite public comments? So 
in an increasingly complex world some assume we have to have 
complex regulations; I assume we have to have more complex 
analysis up front.
    So, Mr. Timmons, Let me start with you. Your ideas on how 
we mitigate or begin to address agency bias?
    Mr. Timmons. Well I think several of the proposals that the 
other panelists made here today are vital to that. Specifically 
with regard to agencies, you referenced when you introduced me 
that I had experience working for a governor, and states are--
well, the states that really want to see economic growth and 
economic development--are very focused on the things that make 
them competitive. And the regulatory environment is clearly one 
of them.
    The governor that I worked for immediately seized the reins 
on the regulatory process through executive order and he 
demanded then, and required through executive order, a review 
of every single regulation. It was a retrospective review of 
whether the regulations were still relevant, and ordered a top-
to-bottom review of their cost-benefit.
    And in the process, Virginia ended up either amending or 
abolishing 75 percent of those regulations. That is not getting 
directly to your question, but one of the things that he did 
insist on--and it created, just very honestly it created a 
firestorm at the beginning when he insisted that--those that 
are regulated had a seat at the table to present their 
analysis, their experiences--because oftentimes the regulators, 
as well intentioned as they are and were in Virginia, did not 
have the real-world experience of how the, perhaps, either the 
intended or unintended consequences of a regulation might 
impact that business.
    In the end, there was unanimous praise from all sectors--
from folks on different sides of the philosophical divide--on 
that process and how effective it was. And I think it is a 
model for the rest of the country. I think that would be very 
helpful at the Federal level.
    Chairman Brady. Thank you.
    Dr. Greenstone, your thoughts?
    Dr. Greenstone. Thank you for the opportunity.
    I want to come back to the first question you asked. I 
think there are lots of--there are some opportunities for 
bringing the independent agencies under the same rules and 
requirements that the other agencies face.
    I think that would probably have to be examined, though, on 
a case-by-case basis. I don't know that we want to be 
overlooking what the monetary policy is of the Federal Reserve. 
So I just want to put that note of caution out there. I think 
it probably should be considered on a case----
    Chairman Brady. But on the regulatory function, you would 
not object to that. Obviously the Fed, as you know, has a 
pretty robust regulation agenda and has a major impact on our 
financial institutions. They have been given more power there.
    I agree on the monetary side of that. On the regulatory 
side, though, I think the impact is fairly strong.
    Dr. Greenstone. Yes. No, I think one could make a very 
strong case, actually, that what came out of Dodd-Frank should 
have been subject to IORA oversight, to be honest. And because 
it went in the Fed and supposedly in the Treasury, that didn't 
happen.
    Chairman Brady. Got it.
    Dr. Greenstone. And then, you know, I think, does anyone 
object to widespread cost-benefit analysis? You know, I think 
the more cost-benefit analysis the better. We will be able to 
make better decisions. It will help our economy. And as you 
pointed out, it has been a disappointing recovery, and I think 
having a clear look at things in advance would help.
    I think there is--the easiest opportunity to change things 
in a positive way is to change the culture of regulatory 
analysis. And that, as you highlighted, Mr. Chairman, right now 
almost all analysis of regulation comes from the people who are 
doing the regulations.
    And, you know, I have a very high view of myself as a 
father and a husband, and occasionally my wife is able to cut 
through the noise in my head and highlight that maybe there is 
an alternative viewpoint.
    And I just think history is very unkind to institutions 
that only engage in self-evaluation. And so how can that be 
done? As I outlined in my testimony, I think the easiest way to 
do it is to introduce a new player. And the CBO has been 
unbelievably effective at changing the quality of analysis that 
goes into budgeting, and I think it is just lying there as a 
slam dunk for regulatory analysis.
    And it would make the agencies' analyses better, as well, 
knowing that they would face--their analyses would face 
scrutiny from a CBO-style organization.
    Chairman Brady. Thank you, Doctor. I too hate those marital 
cost-benefit analyses. They never work out well for me.
    [Laughter.]
    And we are running out of time. Dr. Graham, or Mr. Mandle, 
thoughts on agency bias?
    Dr. Graham. Just very quickly, OIRA had about 50 full-time 
equivalent staff when I served for Mitch Daniels in the Bush 
Administration. And it is now at 38. It has been in a steady 
erosion.
    So if you want inside the Executive Branch a reasonable 
check on the agencies, we need to staff OIRA appropriately.
    Chairman Brady. Got it. Good point. Thanks. Mr. Mandle.
    Mr. Mandle. I would just add, through FDASIA in 2012, you 
know, we required much earlier connectivity with the agency. I 
think those interactions are important.
    The one thing, you know, that I would urge the Committee to 
really work with regulators on is an analysis around what 
activities are actually value-added. So in our business, for 
example, the legal requirements are to make sure that medical 
devices are safe and effective. And certainly the regulation 
process, whether it is through submissions, or inspections, 
includes a lot of other activities that do not go to that 
value-add to American businesses and patients, which is, you 
know, fulfilling the legal responsibilities.
    And so, you know, staying true to their legal 
responsibilities but also asking the question: Are we adding 
value to our economy, to patients, I think is an important 
question.
    Chairman Brady. Great point. Thank you.
    Former Chair Maloney.
    Representative Maloney. Well I want to thank all of you for 
your very thoughtful testimony. And I think we can all agree 
that agencies should be able to reexamine and adapt policies to 
new developments and changing circumstances.
    It strikes me that many of our most important regulations 
seek to prevent catastrophic events or crises, and evaluators 
may find it difficult to quantify the benefit of avoiding a 
disaster before it strikes. That is a lot of the movement that 
was in Dodd-Frank. That is a lot of the legislation that came 
out of the financial crisis.
    For example, a report published last year by the Dallas Fed 
found that the 2007 and 2009 financial crisis cost our country 
nearly a year's worth of economic output, $14 trillion, up to 
$120,000 for every household in America.
    And at this hearing, really, in our body here at the Joint 
Economic Committee, economists have testified that it was the 
first crisis that was totally preventable by better regulation 
of risky financial products.
    Just in my home State, it is estimated that rebuilding 
after the devastation of Hurricane Sandy will cost our State 
alone $41 billion. We are implementing certain programs to try 
to get ready for the next Sandy--how do you evaluate that? 
Surely avoiding another financial crisis or an environmental 
crisis like Sandy is a great benefit to our country. But these 
benefits are very difficult to quantify, and how can we better 
account for these benefits of policy and regulation?
    I will give you an example now, right before Congress. It 
is the Anti-Terrorism Risk Insurance. After Sandy--excuse me, 
after the financial crisis, no one would insure anyone in New 
York, Illinois, or L.A., or Washington. We had to go to Lloyd's 
of London to get insurance. It was very costly.
    And then we developed a program to be ready for the next 
crisis, and to respond to it. We put it in place, and it has 
not cost this country one cent. But the program was in place 
and ready in the event, God forbid, we had another crisis.
    There is still tremendous opposition to another Terrorism 
Risk Insurance Act (TRIA) program. So I would like to throw 
that out for anyone who would like to comment on it, because I 
think a lot of our thought process after a lot of Dodd-Frank 
was how do you prevent it in the future, how do you prevent and 
respond in the future? The Sandy regulations we are putting in 
place in New York City, maybe in other cities. So maybe we 
could start with Mr. Timmons, and anyone else who would like to 
make a comment. Mr. Greenstone.
    Mr. Timmons. I am probably going to defer to some of my 
colleagues here that have studied this in more detail, but I 
think it is really important to note--and I think all of us 
have said this--not all regulation is bad. Not all regulation 
is--in fact, in most cases the intent of the regulation is 
good.
    Eliminating all risk from everything that we do in American 
life is probably not an achievable objective if we want our 
economy to grow and we want to be able to maintain the quality 
of life that we have as Americans.
    But trying to minimize risk certainly is a goal. And doing 
it in a way that is smart and, again, is transparent and puts 
all--put all options on the table from not only the regulators 
but the regulated, I think, is the goal that we seek to 
achieve.
    Representative Maloney. I would also say that, in response 
to TRIA, the opposition to it, if this country is attacked 
again, if an attack happens here in the Capital, the country is 
going to respond. The government will respond.
    So it seems like, if we are going to respond anyway, we 
might as well put mechanisms in place that help us during an 
emergency.
    My time is about to run out, and I want to throw out 
another question because I think it relates directly to what 
Mr. Greenstone and Mr. Graham and others were saying.
    Earlier we had a program that was very debated called 
``Sunset,'' that every regulation after five years had to be 
reviewed. And it was basically a cost-benefit analysis. And I 
would like your response on Sunset, whether it worked, and if 
some agencies implemented and others did not, or if the better 
approach that Congresswoman Klobuchar and really Mr. Greenstone 
and Timmons have spoken in support of having a special office 
in CBO.
    But how did Sunset work? Did Sunset work? That whole bill 
that every five years you've got to review every single 
regulation on whether or not it works? Any comment from anyone?
    Dr. Graham. I am not aware that it ever passed at the 
Federal level. There are some states that have tried to do 
Sunset legislation.
    One thing I want people to keep in mind is that a lot of 
the costs of regulation that are substantial are actually one-
time capital costs early in the implementation period of 
regulation. This is particularly true in energy and in 
manufacturing.
    And if you look after the fact at what the costs and 
benefits are and you find it is not a good idea, it is frankly 
oftentimes too late. It is very important to get the analysis 
done right, properly, up front. And that is why a lot of this 
emphasis on the transparency and peer review and quality of 
information, when the rule is adopted in the first place, is 
very important.
    Representative Maloney. I think my time has expired.
    Chairman Brady. Thank you, Madam Chair.
    Senator Coats.
    Senator Coats. Mr. Chairman, thank you. And thanks to all 
of you for the good information here.
    It occurs to me there is a pretty good consensus among the 
four of you that cost-benefit analysis, retrospective reviews, 
perhaps a new division at CBO or a new involvement for an 
outside player, approval process, state and local coordination, 
alignment of standards on trade, that all that is, I probably 
could say, pretty much supported on a bipartisan basis, and 
pretty much a consensus, unless someone wants to say that 
should not be in there, or something else should be in there.
    Of all those, I would think that the cost-benefit is most 
important because it is a metric that we need before we pass 
legislation, or before we deal with responding to regulatory 
proposals, to really be able to make the case.
    I mean, does that rise to the top of priorities? Just a 
``yes'' or ``no.'' Would anybody think that there is something 
more important that we ought to focus on relative to the role 
of Congress in terms of dealing with either proposed rules or 
dealing with legislation?
    Mr. Timmons. From our perspective, that is a very important 
objective.
    Senator Coats. Secondly, I think there is probably a 
consensus that tax reform, regulatory reform, fiscal reform, 
including entitlement reform, are the three big issues for 
things Congress ought to deal with. And we are dealing with 
regulatory here.
    I am struck by the fact that, while there is this 
consensus, while Chairman Brady and I and Members on the other 
side, pretty much have come to agreement on all of this, we 
introduced a lot of ideas. We talked about a lot of potential 
reforms. But we never seem to get to the final piece where it 
is actually enacted and put into place.
    And that goes to the question, or to the matter that I 
think Mr. Greenstone raised about the need for a change of 
culture.
    Dr. Graham in particular, based on your experience at IRA, 
I always get that acronym wrong, based on your past experience, 
what does it take to achieve that change of culture, that 
change of mindset?
    Does it take legislation to force it? Is there something 
you can do through leadership of the particular agencies, or 
what comes out of the White House? It just seems that we keep 
talking about all these legislative proposals and ideas, but if 
even those are implemented would that force the change of 
culture? Or is the change of culture--is the culture so 
ingrained in the past, and not understanding and recognizing 
the negative impact of regulations, is that too hard to do?
    Dr. Graham. Well it's a great question. The agencies--it's 
important to see the agencies as mission-oriented professionals 
trying to accomplish a certain objective. And some people might 
interpret that as bias, but they really do have a pretty kind 
of single-minded orientation, if you are at FDA, or EPA, et 
cetera.
    So I think Dr. Greenstone's analysis of this is right at 
the heart of the cultural issue. Because you need to create a 
culture, a kind of a checkpoint about the value of the economy, 
and the value of cost-benefit, and so forth.
    And historically we have tried to do that through OIRA and 
through the Council of Economic Advisors. But OMB's role over 
time has really diminished relative to the agencies, and this 
is well quantified by studies on staffing and so forth.
    So I think his point that maybe you bring CBO in as a 
player, but the basic point is the culture--you need multiple 
cultures, cultures that clash a little bit with each other. 
That is not necessarily a bad idea to have these people with 
different missions and different orientations, and getting 
their information on the table.
    So moving in that direction--which I think a lot of these 
bills that we are talking about do in modest ways, will lead to 
culture change.
    Senator Coats. I would like to get other comments on that, 
perhaps for the record since my time is running down. I want to 
ask if Mr. Mandle suggests a tax policy ought to be 
incorporated in the cost-benefit analysis. Is there agreement 
with that? Or do you have some reservations of the other three 
here?
    Dr. Greenstone. I'm not sure I completely understand the 
connection----
    Senator Coats. Well----
    Dr. Greenstone. I'm not sure I completely understood the 
connection between tax policy and regulatory policy, so I am 
reluctant to agree to something I don't understand.
    Senator Coats. Okay. Mr. Mandle, just very quickly?
    Mr. Mandle. Sure. No, my comment was simply that the 
regulatory environment itself also, from the Congressional 
perspective, you have to look at the entire ecosystem and those 
impacts on things like early stage investment.
    So in our business specifically it is the combination of 
cost controls through the Affordable Care Act, the Medical 
Device Tax, the expanded costs of going through the regulatory 
process. And so, you know, if we are asking questions about how 
does all of this impact our economy and job growth? You know, 
it is a quite complicated process and we just think it is again 
important to, as you are looking at regulatory changes, to also 
know that for every action there is a reaction in both--tax 
policy, you know, is a piece of this puzzle.
    Senator Coats. Well my time has expired. Mr. Chairman, 
thank you very much. I just hope that we seem to have a 
consensus here in terms of the direction that we ought to go, 
at least, and I just hope we can bring this home and put it 
into practice.
    Chairman Brady. I agree.
    Senator Coats. It will require bipartisanship, but it can 
be done because there does seem to be a consensus that it needs 
to be done.
    Thank you, Mr. Chairman.
    Chairman Brady. You are right, Senator.
    Mr. Paulsen.
    Representative Paulsen. Thank you, Mr. Chairman. I want to 
thank you for holding this hearing, because, part of the Joint 
Economic Committee's responsibility is to gather this type of 
input and make recommendations to our colleagues to take 
actions on some of these policies.
    The regulatory environment and the red tape environment has 
definitely risen to the top of what I am hearing from my 
manufacturers, from small businesses, and from the medical 
device companies in Minnesota, for instance, in terms of how 
challenging it is.
    I want to ask one question on the tax policy, because 
Senator Coats asked about that. The Medical Device Tax, which 
you just mentioned, Mr. Mandle, has been front and center as a 
high priority of mine, and Senator Klobuchar has been pushing 
that issue in the Senate to repeal that tax.
    There have been some estimates that say maybe 25 percent of 
the tax might be paid out of a State like Minnesota where we 
have a big ecosystem, as you mentioned, in this area. We have 
the Medtronics and other large companies in Minnesota, but 
there are all these small companies that are directly impacted 
in particular too.
    What are you seeing on the ground that we are not seeing or 
hearing about in the press, or in the media?
    Mr. Mandle. I will be happy to answer that question. As you 
know, your Congressional District is the most densely 
concentrated medical device cluster in the world. You know, the 
medical device industry is different than pharmaceuticals and 
other industries.
    Most of the companies, 80, 90 percent, have less than 50 
employees. And, you know, it's really where a lot of innovation 
takes place that can have an impact on cost, as well as 
increase and deliver new therapies.
    What we are seeing is a real challenge for those early 
stage companies. So there's the Medical Device Tax, there's an 
Excise Tax; it hits first sales. So in order to get a company 
started, and to get a medical device on the market, you are 
talking 3, 5, 7 years,
$50-, $100-, $150 million. And as soon as you begin to sell to 
work toward profitability, you are paying the tax.
    Probably the biggest impact on innovation that the Medical 
Device Tax is having is it is really drying up early stage 
investment. So you're an investor. Ten, twenty years ago you 
put your money in medical devices and it was a great return for 
investors, as well as great for patients.
    Today, with the regulatory timetables being significantly 
longer, the cost of going through them being significantly 
longer, the tax hitting first sale, if you are an investor 
there are frankly in some ways better places to put your money.
    So we do see growth in places like health IT software, a 
lot of the consumerization, I'll say, of health care. And it is 
really harming the next generation of medtech companies that 
frankly either won't get started, or won't survive this period 
of time.
    Representative Paulsen. So just to follow up now on the 
regulatory side of that equation, you mentioned a lot of small 
companies get hit, and a lot of companies are developing not 
only traditional medical devices but also maybe creating 
medical software applications, for instance.
    On the regulatory side of the equation, you've got the FDA 
classifying ``devices,'' and so the tax may apply to software, 
for instance. Does it apply to software upgrades? And can you 
just talk a little bit about maybe what the regulatory 
environment has done in our ecosystem for companies that are 
looking for that venture capital startup? Are companies putting 
the FDA approval process, are they factoring that in to 
attracting venture capital as part of their business plan?
    Mr. Mandle. Again, I'm happy to answer that question. 
Actually, we saw something change about three or four years 
ago. You know, at LifeScience Alley we work with entrepreneurs 
in medtech specifically. We see business plans all the time. 
Haven't seen a business plan that intends to take a product 
through the FDA process first in about three years now.
    So if you have a business plan today that does not go to 
Europe first, your likelihood of getting that company or that 
business plan funded is I would say almost nonexistent.
    Representative Paulsen. And Europe is bragging about 
getting products, your testimony said, three years earlier for 
their patients versus our patients, right?
    Mr. Mandle. Correct. Yeah. Look up the website. It's called 
``Don't Lose The 3.'' So it's a marketing campaign in Europe.
    Representative Paulsen. Senator Klobuchar mentioned the 
least-burdensome principle and some of the provisions in the 
User Fee legislation that we passed, Mr. Chairman, in both 
bodies and in law now. We need to follow through on it, and I 
will give some compliments to Jeff Shuren who we continue to 
meet with on a quarterly basis to make sure we are tracking and 
benchmarking the law. We need to make sure that that cultural 
issue which we were just talking about is actually going to be 
moving forward, as well, so that we are not stifling growth and 
innovation in a very important industry.
    Thank you, Mr. Chairman.
    Chairman Brady. Thank you, Mr. Paulsen.
    Senator Lee.
    Senator Lee. Thanks so much for your testimony.
    I appreciate having each of you here. Mr. Graham, why don't 
we start with you. One of the difficulties that we have here 
involves measuring regulatory costs, and doing so in a way that 
is understandable to Members of Congress, that Members of 
Congress can get behind.
    So by way of analogy, in the budgeting context we have come 
up with a baseline. And so even though not every Member of 
Congress will necessarily agree with the baseline methodology 
that is used, it at least does give us some metric according to 
which we can kind of navigate our discussion.
    Do you think that it would be possible for us to construct 
sort of a baseline definition set that would allow us to 
estimate the cost of a particular regulation, or the aggregate 
costs of all regulations in a particular year? And what do you 
think some of the uses of that might be, if we could do it?
    Dr. Graham. There is a former colleague of mine at OMB, Dr. 
John Morrall, who has written extensively on the concept of a 
regulatory budget, which would be analogous to the 
appropriations process, but it is for costs that are imposed 
upon businesses and state and local governments that are not 
showing in the Federal budget.
    His idea is that you would try to basically expect Congress 
to exert discipline in this process by setting limitations on 
maybe an annual, or every-other-year basis on how large these 
regulatory costs, or unfunded mandates, could be over time.
    It is a complex business of trying to define those 
baselines. But your point is well taken. The budgetary 
baselines are pretty complicated to do.
    So I think in principle it is possible to do. I think the 
avenue that I would like to see is that you do a pilot project 
of this on maybe a couple of agencies. You do that for a couple 
of years, and you see how it goes. And then if you are 
comfortable, then you could try to do that on a government-wide 
basis.
    I think to try to just leap and do that on a government-
wide basis, you know like through next year in legislation, I 
think that is a prescription for the UK's problem. The UK 
actually tried to do a government-wide regulatory budget, and 
after passing the legislation and trying to implement it, they 
just basically gave up.
    So in a sense they tried too hard, and they didn't take off 
a modest amount that they could actually learn from.
    Senator Lee. You think it might be better, for example, 
then to start with saying okay we're going to try to develop 
such a model in the context of EPA and FDA, or, you know, pick 
any two regulatory bodies?
    Dr. Graham. Right. Pick a couple of big regulators and have 
them do that as a regulatory budget, and try it as a pilot for 
a couple of years. Yes.
    Senator Lee. And you think that would be helpful to the 
economy to have Congress at least move in the direction of 
developing some kind of measure for aggregate regulatory 
compliance costs?
    Dr. Graham. Yes. Because one way to think about this is 
Congress never actually deliberates and votes on the overall 
impact they are imposing on the business community and state 
and local governments every year.
    Senator Lee. Right.
    Dr. Graham. And I would argue that you should have some 
heat on you to have to actually deliberate on that and vote on 
that. And the regulatory budget is explicitly designed to 
induce that, but it is a complicated idea and it needs----
    Senator Lee. It is deliberately designed to what?
    Dr. Graham. It is deliberately designed to compel the 
legislature----
    Senator Lee. Right.
    Dr. Graham [continuing]. To assume the responsibility for 
saying this is how much regulatory burden we are willing to 
impose for the next year, or the next two years. So it requires 
that deliberation and those votes.
    Senator Lee. Are you familiar with the REINS Act? The REINS 
Act is a bill that has been introduced. It has been passed by 
the House for the last two or three years in a row. It has been 
introduced in the Senate, but we have not had occasion to vote 
on it. It stands for Regulations from the Executive in Need of 
Scrutiny.
    It says basically that for any new major rule to take 
effect--``major rule'' as defined by OMB with an aggregate 
economic impact of $100 million or more--that it would need to 
be passed affirmatively into law. It would need to pass the 
House and the Senate and be signed into law by the President.
    This is an approach that would put Congress, as I see it, 
back in charge of actually making the law. In other words, what 
you described as a problem in which you've got Executive Branch 
agencies run by men and women who are well educated, very well 
intentioned, and very hard working and knowledgeable within 
their subject field matter areas, and very skilled, are not 
elected by the people and are therefore not accountable to the 
people as Members of Congress are.
    But if you had those major rules act as sort of proposals, 
and proposals that could not take effect, could not bind the 
general public unless or until they were enacted into law by 
Congress, then you would have Congress do the legislating. Do 
you think this would help address some of the problem you have 
described?
    Dr. Graham. What I would do is couple that idea with Dr. 
Greenstone's Congressional Budget Office regulatory analysis 
branch, because I think Congress would need fairly indepth 
assessment of each of these rules from an independent body.
    So my suggestion would be: Start with Dr. Greenstone's 
idea. Get the CBO regulatory analysis branch up and running and 
have it issue reports on legislation and regulation. And then 
take the step--I think jumping right to the REINS Act, and then 
have Congress vote on all these rules, I think that is too--I 
think it is not realistic. Because you don't have the evidence 
and analytic base to be deliberating on this level of 
specificity that we have in each of these regulations that 
we've talked about in the testimony. I think we are a ways from 
that.
    Senator Lee. Although arguably that is part of the problem, 
though, isn't it?
    Dr. Graham. It is part of the problem, but we need to build 
the culture and the capability to get Congress involved in a 
meaningful way on a regulation by regulation basis. That is a 
big change from where we are now.
    Senator Lee. Yes.
    Dr. Graham. And we're not anywhere close to having the 
evidence and analytical infrastructure in the Congress to do 
that.
    Senator Lee. I think Mr. Greenstone wants----
    Dr. Greenstone. Yes, if I could just--you know, I am just 
going to underscore what Dr. Graham was saying. I think the 
first-order problem in regulatory policy is the almost near 
complete opacity on what the impacts both on the cost side and 
also on the benefits side are. And the fact that we do not have 
like a reliable set of information about that means people can 
say anything, and anything could be true or not true, and there 
is no basis to judge what is false and what is true.
    And so I think any regulatory reform that is going to be 
successful is going to have to seed that environment with 
information that would allow all of you to make judgments. I 
mean, right now I don't think, candidly, there is the 
information for all of you to make judgments on a lot of the 
regulation.
    Senator Lee. Right, right. Although I--and I understand the 
point you are both making. I would add to that, though, that in 
the meantime we are subjecting the American economy to an 
estimated $2 trillion, nearly $2 trillion in annual regulatory 
compliance costs.
    So by doing nothing, we continue through our own past 
delegation of authority, recklessly broad delegation of 
authority I might add, we are subjecting the American people to 
a lot of laws that are basically legislated without any elected 
official being involved in it.
    Dr. Graham. The European Parliament feels the same way. 
They feel that in Brussels the European Commission is imposing 
an enormous burden throughout the European economy, and where 
did they start, the European Parliament? They started by 
creating the analytic capacity, impact assessment unit, to 
actually independently analyze what the European Commission was 
giving them.
    Okay? And if we don't have that step, the rest is not going 
to be smooth.
    Senator Lee. I want to remain in good standing with our 
Chairman. Thank you very much.
    Chairman Brady. You are. Thank you, Senator. I think your 
point that the regulatory horse is now out of the barn and we 
chase it with poorly designed unworkable regulations means we 
just fruitlessly chase it. And is there a better way at the 
outset? I think that is very key.
    We are very mindful and respectful of our witnesses and 
Members. Thank you for being here today. You have given us 
great insight. I wish every Member of Congress could hear the 
ideas you have outlined, because there is a frustration and 
there is a need to act. You have been very helpful in building 
momentum for action in a bipartisan way on smart regulation.
    So again, thank you for being here today, to all our 
witnesses. The hearing is adjourned.
    (Whereupon, at 11:15 a.m., Wednesday, April 30, 2014, the 
hearing was adjourned.)
                       SUBMISSIONS FOR THE RECORD

    Prepared Statement of Hon Kevin Brady, Chairman, Joint Economic 
                               Committee
    Too often congressional hearings are given titles that merely 
attract attention. But I believe the title for today's Joint Economic 
Committee hearing accurately describes what our witnesses are here to 
talk about and what we should take to heart, namely that the first step 
toward reducing red tape and achieving regulatory goals is better 
analysis.
    Every Member of Congress recognizes the economic justification and 
constitutional authority under the Commerce Clause in Article I, 
Section 8 of the U.S. Constitution for balanced Federal regulation to 
protect public health and safety, preserve our environment, and prevent 
fraud of all kinds. At the same time, many Members of Congress also 
recognize that federal regulation has become overly burdensome and 
costly to job creators and the economy alike. Some regulations, 
regrettably, are even counterproductive.
    As the volume of federal regulation has grown, regulation has done 
less to advance its stated goals and imposed ever more costs. These 
costs include slower economic growth, higher uncertainty that inhibits 
business investment and job creation, foregone product and process 
innovations, a lessening in the international competitiveness of 
American businesses, and stagnant incomes for hardworking American 
families. Unnecessarily burdensome regulation also aggravates our 
country's long-term fiscal imbalance by inhibiting the natural growth 
of federal revenues under existing tax law.
    Consider the following facts:

      In 2013, the federal government issued 3,659 final rules 
contained on 26,417 pages, a record number in the Federal Register. 
Including proposed rules, the Federal Register finished 2013 with 
79,311 pages.
      Four of the five highest regulatory page counts have 
occurred during President Obama's administration; the all-time record 
being 81,405 pages in 2010.
      Mr. Wayne Crews, the author of Ten Thousand Commandments: 
An Annual Snapshot of the Federal Regulatory State, estimates the 
overall annual cost of regulatory compliance to be $1.9 trillion, about 
equal to the economy of Australia, Canada, or Italy.
      Mr. Crews estimates that U.S. households face an annual 
hidden regulatory ``tax'' of $14,974.
      In last year's draft report to Congress on the benefits 
and costs of federal regulation, the Office of Management and Budget 
(OMB) stated that executive agencies and independent regulatory 
agencies promulgated a combined total of 68 major rules during 2012, 
(each of which have an impact of $100 million or more). Alarmingly, OMB 
presented a cost-benefit analysis for a miniscule 14 of them.
      Looking longer term, during the decade ending in 2012, 
federal agencies published 37,786 final regulatory rules--with OMB 
presenting cost-benefit analysis for only 115 regulations. That is 3/10 
of one percent--meaning only three in every 1,000 regulations were 
subject to a complete analysis of their effects on the U.S. economy, 
job creators and families. For a nation seeking a smarter, more 
efficient government, that is just shameful.

    America's regulatory system should be designed to achieve the 
greatest good at the least cost. Both Republicans and Democrats should 
be able to agree on that principle.
    Smart, effective regulations should seek to reduce rates of 
illness, mortality and pollution--but not by reducing economic growth, 
job creation, and the incomes of hardworking American families out of 
neglect or disregard.
    Safety and security must not come at the cost of stagnation, 
unemployment and lower incomes that rob from the middle class. Yes, 
there will be tradeoffs, but too often our federal regulatory system 
pursues singular objectives blind to the unintended consequences of its 
methods--and indeed often does not even focus on realizing the intended 
results.
    We need a better way to sift through regulations both proposed and 
existing; transparently identify their true costs; and find the least 
costly, least intrusive way to achieve the goals on which we all agree.
    We cannot do that without better analysis.
    My colleague, Senator Dan Coats, and I have introduced the Sound 
Regulation Act to improve the regulatory process through better 
analysis.
    The Sound Regulation Act would:

      Expand accurate cost-benefit analysis to all federal 
regulatory agencies--beyond executive branch agencies to independent 
agencies as well--and close loopholes that allow some federal agencies 
to skirt the requirement for objective economic analysis.
      End agency bias and establish more public transparency by 
requiring agencies to clearly identify the nature and significance of 
the market failure or other problem that necessitates regulatory 
action; establish an achievable objective for regulatory action; and 
publish for public comment in advance the method and process for 
objectively weighing the costs and benefits of the proposed regulation;
      Encourage more innovative solutions by requiring the 
development and evaluation of the costs and benefits of at least three 
regulatory options ranked by cost from lowest to highest;
      Justify the choice of any option that is not the least 
cost method of achieving its regulatory objective; and;
      Review existing regulations on a timely basis to 
determine the success and costs of the regulation in the real world.

    The Sound Regulatory Act would not dictate solutions or how to 
achieve them; instead, it would provide a better framework for rule-
making by federal regulators so that regulations work more effectively 
and at less cost to the American economy. I believe that all Members of 
Congress in both chambers and both parties can ascribe to this goal.
    With that, I look forward to the testimony to today's witnesses.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

 Prepared Statement of Michael Greenstone, Massachusetts Institute of 
      Technology, Non-Resident Senior Fellow Brookings Institution
    Thank you Chairman Brady, Vice Chair Klobuchar, and members of the 
Joint Economic Committee for inviting me to speak today.
    My name is Michael Greenstone, and I am the 3M Professor of 
Environmental Economics at the Massachusetts Institute of Technology 
and a non-resident Senior Fellow at the Brookings Institution. My 
research focuses on estimating the costs and benefits of environmental 
quality, with a particular emphasis on the impacts of government 
regulations.
    I appreciate the opportunity to speak with you today about 
opportunities to improve the government's regulatory system. Under all 
economic circumstances, regulatory efficiency and clarity are crucial 
objectives for the credibility and predictability of the government's 
role in the marketplace. However in today's economy, it is absolutely 
essential to design a regulatory structure that protects the well-being 
of our citizens without imposing unnecessary costs on American 
businesses and society as a whole.
    We can achieve these objectives without compromising our values in 
key areas ranging from the protection of public health to the 
supervision of financial markets by ensuring that the Executive and 
Legislative branches have the tools of analysis and measurement they 
need to review current and proposed regulations. The purpose of my 
testimony is to describe in concrete terms how this can be accomplished 
and to wholeheartedly offer my support for Senate Bill 1472, 
``Strengthening Congressional Oversight of Regulatory Actions for 
Efficiency,'' that was introduced by Senator Klobuchar and is co-
sponsored by Senator Collins and Senator King.
                              introduction
    American government, at every level, regulates a broad array of 
social and economic life. Regulatory policy determines the air we 
breathe, the quality of the water we drink, the materials we use to 
construct our homes, the cars we buy, the safety of our workplaces, the 
investments we make, and much more. Government regulates these 
activities because in cases of market failures, for example, our free 
market system does not create the necessary incentives for businesses 
and individuals to protect the public good.
    But, in making decisions about regulations, public officials must 
choose which areas of our lives merit government rules, as well as how 
stringent those rules should be.
    The Clean Air Act is a classic example of a regulation with 
significant benefits and costs. Before its passage in 1970, there were 
few constraints on businesses that emitted pollution as a byproduct of 
their operations. The result was poor air quality. As one small 
example, white-collar workers in Gary, Indiana often brought an extra 
shirt to work because the first would be dirty from the air and unfit 
to wear by midday. Even more importantly, some of my research, as well 
as research by others, has found that the polluted air led to sicker 
and shorter lives for the American people.\1\ Obviously, no business 
sets out to cause these impacts; but, in trying to maximize their 
profits, it was not in their interest to install expensive pollution 
abatement equipment when their competitors did not. As a result, they 
did not act to adequately reduce emissions.
---------------------------------------------------------------------------
    \1\ Kenneth Chay and Michael Greenstone, ``The Impact of Air 
Pollution on Infant Mortality: Evidence from Geographic Variation in 
Pollution Shocks Induced by a Recession,'' Quarterly Journal of 
Economics, 2003, 118(3); Olivier Deschenes, Michael Greenstone and 
Joseph Shapiro, ``Defending Against Environmental Insults: Drugs, 
Emergencies, Mortality and the NOx Budget Program Emissions Market,'' 
Department of Economics, MIT (2013).
---------------------------------------------------------------------------
    At the same time, the Clean Air Act's regulations require firms to 
alter their production processes in ways that raise their costs. 
Indeed, some of my recent research finds that an important set of Clean 
Air Act rules has raised polluting industries' costs of production by 
roughly 2.6%. This has reduced firms' profits and led to higher prices 
for consumers. Further, it has caused regulated firms to scale back 
their operations, which led to employment losses at those firms.\2\ 
Although the ultimate effect on the level of jobs in the economy is 
likely minimal in normal economic times, recent research indicates that 
workers who lose their jobs due to regulations often face prolonged 
periods of unemployment and become reemployed at lower wages.\3\
---------------------------------------------------------------------------
    \2\ Michael Greenstone, ``The Impacts of Environmental Regulations 
on Industrial Activity: Evidence from the 1970 and 1977 Clean Air Act 
Amendments and the Census of Manufacturers.'' Journal of Political 
Economy, 2002, 110(6); Michael Greenstone, John A. List and Chad 
Syverson ``The Effects of Environmental Regulation on the 
Competitiveness of U.S. Manufacturing,'' Department of Economics, MIT 
(2011).
    \3\ Reed Walker, ``The Transitional Costs of Sectoral Reallocation: 
Evidence From the Clean Air Act and the Workforce,'' Quarterly Journal 
of Economics, 2013, 128(4).
---------------------------------------------------------------------------
    The challenge then for regulators is to consistently set rules with 
benefits that exceed their costs.
    In a pair of Executive Orders, President Obama has created a 
framework that has the potential to be the most fundamental shift in 
regulatory policy in more than three decades. The Executive Orders 
require that federal agencies routinely review existing significant 
regulations in order to ``determine whether any such regulations should 
be modified, streamlined, expanded, or repealed'' with the purpose of 
making the ``regulatory program more effective or less burdensome in 
achieving the regulatory objectives.'' These reforms offer the promise 
of finding a better balance between our health and safety, and our 
economic growth.
    To understand why the president's efforts are so critical, imagine 
if the Food and Drug Administration approved new drugs without ever 
having tested them on people--that it approved drugs knowing only in 
theory how they were likely to affect the human body. Further imagine 
if such drugs remained on the market for years, or even decades, 
without their effects ever being subject to evaluation. This path is 
simply inconceivable, but it is how we have historically approached 
government regulations.
    Make no mistake--inadequate regulatory policy can be, as with drug 
approvals, a life-or-death issue because of the significant role 
regulations play in every aspect of our daily lives.
    A bit of history: U.S. regulations used to be designed essentially 
in the dark. Then, in 1981, President Ronald Reagan issued an executive 
order institutionalizing the idea that regulatory action should be 
implemented only in cases when, among other provisions, ``the potential 
benefits to society for the regulation outweigh the potential costs to 
society.'' It sounds obvious. But this idea of applying cost-benefit 
analysis in the regulatory arena fundamentally altered the way in which 
regulations were considered.
    In 1993, President Bill Clinton outlined more specific guidelines 
for prospective analysis of cost-benefit trade-offs. And yet, the 
regulatory review process was still operating with one hand tied behind 
its back. As a general matter, a regulation's likely benefits and costs 
were considered only before the proposal was enacted--the point when we 
know the least precisely because the regulations are untested. 
Consequently, prospective estimates of the costs and benefits must rest 
on many unverifiable and potentially controversial assumptions.
    And, once a regulation passed through a prospective analysis and 
went on the books, it could remain there for decades without any 
further evaluation.
    Some regulations work out exactly as intended. But some, of course, 
do not. For example, an air pollutant may prove to be more harmful than 
was originally understood. Or, a regulation may end up imposing larger 
costs on businesses than suggested by the prospective analysis. In our 
rapidly changing world, regulations can and should adapt to change.
    President Obama's Executive Orders take a critical step forward by 
looking backward. They require that agencies routinely reevaluate the 
costs and benefits of existing regulations and identify whether the 
goals of a regulation could be achieved through less expensive means. 
This potentially revolutionary process of retrospective analysis offers 
the promise of finding a better balance between our health and safety 
and our economic growth.
    In the remainder of my testimony, I will identify two further 
changes that would increase the chances that our regulatory system 
consistently produces rules with benefits that exceed costs.
I. Extending Executive Orders 13563 and 13610
    The first change is to make three reforms that build on Executive 
Orders 13563 and 13610.
    First, I recommend institutionalizing the retrospective review of 
economically significant rules in a public way so that these reviews 
are automatic in nature. In the case of rules that are currently in 
force, this would mean publicly committing to a retrospective analysis 
of each existing rule within a pre-specified period. This might be 5 or 
10 years, with the length of time depending on the particulars of the 
rule and the results of any previous reviews.
    In the case of new rules, the implementing agency would be required 
to announce a timetable for review with a maximum allowable amount of 
time, perhaps 5 or 10 years, with shorter time periods being 
preferable. In addition, the agency would be required to pre-specify 
the expected benefits (e.g., reduced child mortality rates) and costs 
(e.g., reduced business profits) so that the terms of the subsequent 
review would be known in advance. The agency would also be required to 
identify how these benefits and costs would be measured, such as the 
types of data and other information that it anticipates being necessary 
for review.
    Second, the relevant agency should commit to undertaking a new 
rulemaking when the results from the retrospective analysis differ from 
the benefits and costs that were expected prior to the rule's 
implementation. As with the retrospective analysis, there should be a 
time limit for conducting the new rulemaking. In cases where the 
realized benefits exceed the costs by a wider margin than expected, 
there may be further opportunities to maximize net benefits. In cases 
where the rules are found to be ineffective or unjustified, agencies 
should identify ways to modify the rules or abandon them. Finally, if 
the retrospective analysis confirms the original expectation of 
benefits and costs, then there would not be a need for a new 
rulemaking.
    Third, these efforts would be strengthened if they were accompanied 
by a triggering mechanism to ensure that retrospective evaluations 
occur and, when appropriate, for new rulemakings to be undertaken 
within the prescribed time periods. One approach would be for agencies 
to announce publicly and post on their website the deadline for a 
rule's review and reconsideration. A stronger approach would be for 
judicial action to compel reviews and rulemaking in the cases where an 
agency has failed to comply with a review timeline or to act upon its 
results.
II. Creating a Regulatory Analysis Division Within the Congressional 
        Budget Office
    The second change is to ensure that the quality of the reviews is 
commensurate with the stakes of getting regulatory policy right. In 
this spirit, there are some difficulties with the approach I just 
outlined. Many agencies do not have the staff, expertise, or resources 
necessary to undertake these reviews. Further, the process of self-
evaluation is challenging for all organizations, as it requires 
complete objectivity. Indeed, history is unkind to organizations that 
fail to get outside reviews of their work.
    My recommendation is to establish a new, independent body for 
regulatory review. The non-partisan Congressional Budget Office (CBO) 
provides an appealing model.
    As you know, before the CBO was established, only the President had 
a ready source of budgetary and economic data and analysis. Congress 
was forced to largely rely on the Office of Management and Budget (OMB) 
for this sort of information. The CBO was invented to level the playing 
field. Its analyses allow Congress to consider the economic and 
budgetary implications of new policy ideas. Crucially, the CBO also 
helps Congress evaluate the information that it receives from the 
Executive Branch.\4\
---------------------------------------------------------------------------
    \4\ Congressional Budget Office, ``CBO Testimony: Statement of 
Robert D. Reischauer, Director, Congressional Budget Office, before the 
Joint Committee on the Organization of Congress'' (1993). http://
www.cbo.gov/ftpdocs/105xx/doc10580/1993_06_10_mission.pdf.
---------------------------------------------------------------------------
    The entire budget process has benefited from CBO's existence. This 
is a direct result of its independence. The budgetary analyses and 
proposals of all legislators and Executive agencies are now created to 
a higher standard, knowing that they must ultimately stand up to 
scrutiny by the non-partisan CBO.
    I believe that Senator Klobuchar's bill S.1472, which creates a 
Regulatory Analysis Division in the non-partisan CBO, is the best 
solution. This Regulatory Analysis Division would be charged with 
conducting independent regulatory impact evaluations. Some of the 
organization's activities would be statutory in nature--for example, 
automatic reviews of economically significant regulations--while other 
evaluations could be performed at the request of Congressional 
committees and members.
    A Regulatory Analysis Division within the CBO would directly 
strengthen our regulatory system. Agency analyses would benefit from 
the scrutiny that they would ultimately receive from this new, 
independent organization. Further, the results of the retrospective 
reviews would become part of the agencies' automatic assessments of 
their regulations that I described above. I believe that providing this 
type of rigorous, independent review would build confidence within the 
business community and a better sense of transparency.
    Finally, a Regulatory Analysis Division of the CBO could help to 
increase the credibility of the regulatory evaluations by developing an 
explicit checklist to determine the rigor of regulatory analyses. The 
checklist should favor randomized control trials, the gold standard in 
terms of evidence, and natural experiments over models and 
observational studies. A 2011 Hamilton Project paper provides some 
other ideas for a check list.\5\ Such a checklist could also be issued 
as guidance by the Administration to its agencies.
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    \5\ Ted Gayer, ``A Better Approach to Environmental Regulation: 
Getting the Costs and Benefits Right,'' Discussion Paper 2011-06, The 
Hamilton Project, Brookings Institution (2011).
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    Of course, the creation of a Regulatory Analysis Division would 
require resources, which are difficult to come by in our current fiscal 
environment. My best estimate is that it could be funded for less than 
$10-15 million annually. To put this in context, the current CBO budget 
is about $50 million annually.
    This is a very small amount of money when compared to the potential 
costs and benefits that regulations impose on our economy. Although it 
is difficult to determine the total number of economically significant 
regulations that are on the books, the Office of Management and Budget 
reviewed 540 major regulations between 2001 and 2010\6\, which are 
defined as having an effect of more than $100 million on the economy 
annually--either in costs or benefits. Consequently, it seems safe to 
conclude that the total costs and benefits of regulations can be 
measured in the hundreds of billions of dollars annually.
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    \6\ Office of Information and Regulatory Affairs, Office of 
Management and Budget, ``2011 Report to Congress on the Benefits and 
Costs of Federal Regulations and Unfunded Mandates on State, Local, and 
Tribal Entities'' (2011).
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    It is apparent that we have a lot at stake economically with regard 
to our regulatory system and the cost of finding out which parts are 
working is quite small in comparison. My judgment is that it is very 
likely that a Regulatory Analysis Division would pay for itself many 
times over.
    By creating a body that can undertake rigorous analysis of the 
costs and benefits of regulation--both ex-ante and ex-post--
policymakers will have better tools for protecting those regulations 
with great benefits for our society, reforming those regulations that 
impose unnecessary costs, and potentially culling those that no longer 
serve their purpose.
IV. Conclusions
    In conclusion, our regulatory system is a linchpin of our well-
being. It allows us to live longer and healthier lives, among many 
other important impacts. However, these important benefits come with 
direct economic costs. The purpose of my testimony has been to identify 
some reforms that will help to ensure that our regulatory system does 
its job in the most cost-effective way possible--in which the benefits 
to society exceed the costs.
    To quickly summarize, I propose two key reforms:

        1. Institutionalize a process by which agencies automatically 
        undertake retrospective reviews of regulations and initiate a 
        new rulemaking when the results from the retrospective analysis 
        differ from the expected benefits and costs.
        2. Create a Regulatory Analysis Division within the 
        Congressional Budget Office.

    We live in a rapidly changing economy and need a regulatory review 
structure that evolves to meet the new and different needs of our 
society. The reforms that I have outlined here will allow our 
regulatory system to consistently produce rules with benefits that 
exceed costs. That would be good for our well-being, and good for the 
American economy.
    Thank you once again for inviting me to participate in this 
discussion. I will gladly respond to any questions.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

  Prepared Statement of Shaye R. Mandle, EVP & COO, LifeScience Alley
    Vice-Chair Klobuchar, Chairman Brady, Members of the Committee--
thank you for the opportunity to testify before you this morning. My 
name is Shaye Mandle and, tomorrow, I will take over as President & CEO 
of LifeScience Alley, the nation's largest regional life science 
association. This year, LifeScience Alley celebrates our 30th 
anniversary of leading Minnesota's Medical Alley--the most densely 
concentrated medical technology cluster in the world and home to some 
of history's greatest therapeutic and healthcare innovations. Our 
members include 3M, Medtronic, Boston Scientific, St. Jude Medical, 
Covidien, Endo/AMS, Mayo Clinic and hundreds of small companies that 
will bring new innovation to the healthcare marketplace. Before we get 
started, I would like to personally thank Senator Klobuchar for her 
leadership and advocacy on behalf of patients and our companies who 
serve them, especially for those of us who call Minnesota home.
    Today, this committee is interested in taking the first step to 
cutting red tape through better analysis. We agree that better analysis 
is needed and that a regulatory environment that is smarter and more 
collaborative would serve patients and the U.S. healthcare system well. 
It is also important for broad-based analysis of the entire ecosystem, 
including tax and regulatory policy. It is critical for Congress to 
address repeal of the medical device tax if we want to keep our jobs 
and competitive advantage, as well as providing a permanent fix to the 
FDA user fees and sequestration issue, to ensure that FDA has access to 
the funds committed by industry.
    In 1957, Earl Bakken and Medtronic introduced the first battery 
operated external pacemaker. In 1976, the Federal Food, Drug and 
Cosmetics Act was amended to include the regulation of medical devices. 
At the beginning, innovation came from doctors and engineers working 
together to save lives. For the first 25 years of medical technology 
innovation there was no FDA oversight.
    Is it our position that medical devices shouldn't be regulated? 
Quite the contrary. When medical devices were added to the FDA's 
regulatory responsibility, something unique happened. An agency with no 
expertise in the field connected with the patients, doctors, and 
innovators to form a collaborative relationship. If you talk to anyone 
from industry or the FDA from the early years of regulation, they will 
amaze you with stories of working together to accomplish a shared 
goal--delivering the safest and most effective therapies in the world 
to the patients whose lives depended on them.
    Both the medical device industry and the FDA want the same 
outcome--safe and effective devices, invented in the U.S., and 
available in the U.S. first. For a couple of decades, this is exactly 
what we got. Over the past decade or so, this dynamic has changed and 
an adversarial relationship emerged.
    As a result, patients outside of the U.S. frequently gain access to 
innovation and technology before American patients do. In fact, Eucomed 
claims that European patients get innovative technologies 3-5 years 
earlier than U.S. patients. They even have a website called ``Don't 
Lose the 3,'' as in the 3 years of therapeutic advantage that European 
patients have over their U.S. counterparts.
    But, things are improving. Passage of FDASIA in 2012 was a welcome 
update to our regulatory environment and MDUFA III should promote a 
more collaborative and effective pathway to approval. This legislation, 
if fully implemented as intended, will be a real benefit for patients, 
innovation and our economy. The FDA is working hard to collaborate with 
industry and is focusing on practical priorities, including 1) 
improving efficiency in clinical trials 2) balancing the premarket and 
post market process, and 3) identifying ways to shorten the lag between 
product approval by the FDA and reimbursement approval by CMS and/or 
private payers.
    Dynamic public-private solutions are also happening. Since 2011, 
LifeScience Alley has worked closely with CDRH Director Jeff Shuren to 
find a solution that would re-engage the agency and industry in a 
conversation of collaboration and cooperation. As a result, we created 
the Medical Device Innovation Consortium, a public-private partnership 
that still has its roots in Minnesota, but now includes a national 
consortium from industry and key members from government, including CMS 
and the NIH. Through the MDIC, we are working to identify opportunities 
for technical collaboration in the pre-competitive space, where 
industry and the FDA can work together to share knowledge and improve 
the regulatory environment.
    Better analysis means constant improvement. As one the few U.S. 
industries with a positive trade balance and an average wage of more 
than $70,000 annually, the medical device industry is a U.S. success 
story. Regulation is vital. Smart regulation is even more vital. We 
look forward to working with this committee to ensure that the U.S. 
regulatory environment represents the safest and smartest in the world. 
Thank you!


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