[Senate Hearing 114-443]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 114-443

                    ACCOUNTING FOR THE TRUE COST OF
      REGULATION: EXPLORING THE POSSIBILITY OF A REGULATORY BUDGET

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

                             JOINT HEARING

                               before the

                        COMMITTEE ON THE BUDGET

                                and the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS


                             FIRST SESSION

                               __________

                             JUNE 23, 2015

                               __________

        Available via the World Wide Web: http://www.fdsys.gov/


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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                    RON JOHNSON, Wisconsin Chairman
JOHN McCAIN, Arizona                 THOMAS R. CARPER, Delaware
ROB PORTMAN, Ohio                    CLAIRE McCASKILL, Missouri
RAND PAUL, Kentucky                  JON TESTER, Montana
JAMES LANKFORD, Oklahoma             TAMMY BALDWIN, Wisconsin
MICHAEL B. ENZI, Wyoming             HEIDI HEITKAMP, North Dakota
KELLY AYOTTE, New Hampshire          CORY A. BOOKER, New Jersey
JONI ERNST, Iowa                     GARY C. PETERS, Michigan
BEN SASSE, Nebraska

                    Keith B. Ashdown, Staff Director
                       Courtney J. Allen, Counsel
                   Satya P. Thallam, Chief Economist
              Gabrielle A. Batkin. Minority Staff Director
           John P. Kilvington, Minority Deputy Staff Director
             Katherine C. Sybenga, Minority Senior Counsel
                Brian F. Papp, Minority Legislative Aide
                     Laura W. Kilbride, Chief Clerk
                   Lauren M. Corcoran, Hearing Clerk
                                 ------                                

                        COMMITTEE ON THE BUDGET

                   MICHAEL B. ENZI, Wyoming Chairman
CHARLES E. GRASSLEY, Iowa            BERNARD SANDERS, Vermont
JEFF SESSIONS, Alabama               PATTY MURRAY, Washington
MIKE CRAPO, Idaho                    RON WYDEN, Oregon
LINDSEY O. GRAHAM, South Carolina    DEBBIE STABENOW, Michigan
ROB PORTMAN, Ohio                    SHELDON WHITEHOUSE, Rhode Island
PATRICK TOOMEY, Pennsylvania         MARK R. WARNER, Virginia
RON JOHNSON, Wisconsin               JEFF MERKLEY, Oregon
KELLY AYOTTE, New Hampshire          TAMMY BALDWIN, Wisconsin
ROGER F. WICKER, Mississippi         TIM KAINE, Virginia
BOB CORKER, Tennessee                ANGUS S. KING., Jr., Maine
DAVID A. PERDUE, Georgia

                 Eric Ueland, Republican Staff Director
     Susan Eckerly, Director of Regulatory Review Budget Committee
                Warren Gunnels, Minority Staff Director
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Johnson..............................................     1
    Senator Enzi.................................................     3
    Senator Carper...............................................     5
    Senator Stabenow.............................................    17
    Senator Portman..............................................    22
    Senator Perdue...............................................    26
    Senator Ayotte...............................................    29
Prepared statements:
    Senator Johnson..............................................    35
    Senator Carper...............................................    36
    Senator Enzi.................................................    38
    Senator Whitehouse...........................................    44

                               WITNESSES
                         Tuesday, June 23, 2015

Hon. Tony Clement, President of the Treasury Board, Government of 
  Canada.........................................................     7
Hon. Susan E. Dudley, Director, Regulatory Studies Center, and 
  Distinguished Professor of Practice, George Washington 
  University.....................................................     9
Richard J. Pierce, Jr., Lyle T. Alverson Professor of Law, George 
  Washington School of Law.......................................    11

                     Alphabetical List of Witnesses

Clement, Hon. Tony:
    Testimony....................................................     7
    Prepared statement...........................................    46
Dudley, Hon. Susan E.:
    Testimony....................................................     9
    Prepared statement...........................................    53
Pierce, Richard J., Jr.:
    Testimony....................................................    11
    Prepared statement...........................................    65

                                APPENDIX

Response to post-hearing questions submitted for the Record
    Mr. Clement..................................................    69
    Ms. Dudley...................................................    75
    Mr. Pierce...................................................    85
 
                    ACCOUNTING FOR THE TRUE COST OF
      REGULATION: EXPLORING THE POSSIBILITY OF A REGULATORY BUDGET

                              ----------                              


                         TUESDAY, JUNE 23, 2015

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committees met, pursuant to notice, at 10:06 a.m., in 
room SD-G50, Dirksen Senate Office Building, Hon. Ron Johnson, 
Chairman of the Committee, presiding.
    Present: Senators Johnson, Enzi, Grassley, Portman, Ayotte, 
Lankford, Perdue, Ernst, Carper, Stabenow, Whitehouse, Warner, 
King, Heitkamp, and Peters.

             OPENING STATEMENT OF CHAIRMAN JOHNSON

    Chairman Johnson. Good morning. This hearing will come to 
order.
    I want to welcome the witnesses. Thank you for your written 
testimony. I am looking forward to this hearing on really how 
do we come to grips with our regulatory burden in terms of some 
kind of regulatory budget, some kind of process for 
subtraction.
    Certainly one thing I have learned in my 4\1/2\ years here 
in Washington, D.C., is everything seems to be additive. And, 
of course, we have over the decades added layer upon layer upon 
layer--I could keep going--of law and rules and regulations, 
which are becoming quite burdensome.
    One of the things I am always trying to attempt to do is 
really grab America by the lapels so they understand the extent 
of this problem. And the problem with the regulations, unless 
you are on the front lines, unless you are a compliance officer 
in a business, unless you are an innovator, distracted from 
innovating and creating and building a business and creating 
jobs, distracted by the fact that you have to comply with layer 
upon layer of Federal and State regulations, you really do not 
understand really how corrosive and harmful all of this 
regulatory overreach has become in terms of growing the 
economy, allowing businesses that create products and services 
that we all actually do value, and as a result growing a 
business to create the kind of good jobs that we all are 
seeking for the American public.
    A couple ways I try and quantify it is we have had a number 
of studies that try and calculate what the cost of the 
regulatory burden is. We have had some estimates as high as $2 
trillion. Well, again, we are immune to these enormous numbers, 
so let me put that in perspective for folks.
    Only nine economies in the world are larger than $2 
trillion. Whether you completely buy into that figure, it gives 
you some measure of the depth, the size of the problem, the 
onerous nature of the regulatory burden.
    Another way of looking at this is, if you remember, in 2009 
during the debate over the health care law, I know that a lot 
of people are really concerned about the fact that we are 
spending one-sixth of our economy on health care--again, trying 
to heal ourselves, get well, cure diseases. That one-sixth of 
our economy is about $2.5 trillion. So, there is a lot of time 
and effort put into trying to contain and control $2.5 trillion 
worth of expenditure on health care. Where is the outrage, 
where is the sense of urgency to try and control a $2 trillion 
regulatory burden?
    Another way of kind of putting this in perspective is 
understanding how we create all these regulations. We do not 
seem to pass laws anymore in this Congress. What we do is we 
pass frameworks. Two examples: Both Dodd-Frank and Obamacare 
were somewhere between 350,000 and 380,000 words when they were 
enacted. This is about a year ago when I had my staff check 
into this. About a year ago, Dodd-Frank was already up to 15 
million words, about 43 times the size of the original 
legislation. Obamacare was over 12 million words, about 32 
times the size.
    So, again, I am just trying to put into context the extent 
of this regulatory burden because, again, unless you are one of 
those business owners or a compliance officer having to deal 
with complying with regulations, being distracted from your 
primary goal of growing a business, growing your organization, 
providing products and services we all want, we really do not 
understand collectively what this burden really is.
    So the purpose of this hearing is to lay out that reality 
and then start trying to grapple with some ways we can come up 
with a subtractive process as opposed to strictly additive. And 
we have a representative here from the Canadian Government that 
I think has come up with something that is certainly started, I 
think began in the United Kingdom (U.K.), a one-in/one-out 
rule. I mentioned that I would be all in favor of a one-in/ten-
out rule, but I will be happy with incremental success. So we 
are looking forward to that kind of testimony.
    I do ask consent that my written statement be entered in 
the record.\1\
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Johnson appears in the 
Appendix on page 35.
---------------------------------------------------------------------------
    With that, I will turn it over to our other Chairman, 
Senator Mike Enzi. This is a somewhat unusual hearing. We are 
combining our Senate Committee on Homeland Security and 
Governmental Affairs (HSGAC) together with the Budget 
Committee. Because these are sort of dual jurisdiction, we 
thought this was a pretty interesting hearing for all of our 
Members. Senator Enzi

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. Thank you, Chairman Johnson, for hosting 
this hearing today, and, yes, I am told that it is historic. 
This is the first time that two committees have met together to 
do a topic on the same hearing at the same time in 20 years. So 
this saves us having to bring them in twice and do the same 
thing.
    Chairman Johnson. High efficiency.
    Chairman Enzi. Yes, which is what we are trying to get, 
more efficiency.
    Welcome to Minister Clement. Mr. Clement, we appreciate you 
taking the time out of your busy schedule to visit with us and 
share your success in addressing the regulatory burden in the 
economy of Canada, and I was impressed that you serve on the 
Treasury Board of Canada.
    Ms. Dudley and Mr. Pierce, welcome. We have kind of a 
common connection. You teach at the George Washington 
University (GWU). I went to the George Washington University.
    Last month, for the first time since 2001, Congress agreed 
to a joint 10-year Federal budget that put our Nation on a path 
to a balanced budget. According to the Congressional Budget 
Office (CBO), a balanced budget will boost the Nation's 
economic growth and will provide for more than 1 million 
additional new jobs over the next 10 years.
    The Budget Committee is now working to enforce the spending 
targets laid out in the budget to make sure we stay on that 
path. But we have no such accounting and enforcement system 
when it comes to the regulation side of the ledger. The absence 
of such a system for regulations is an increasingly odd 
deficiency. Why not also address an area of government that 
would have the biggest positive impact on the lives of 
hardworking Americans by making government less intrusive?
    We heard from Senator Johnson a little bit on what the 
costs are. I am going to cover those again and in addition, 
because I wondered what it costs to have America's growing 
regulatory burden. The burden of government continues to grow 
for each and every American. One study estimated that the 
regulatory burden in the United States cost more than $1,800 
billion in 2014 alone. Now, that is $1.8 trillion, but I prefer 
to call it ``$1,800 billion'' because that sounds like a bigger 
number than one of anything. And that was bigger than the 
entire gross domestic product (GDP) of India. This burden is 
dragging down our economy when we should be working to boost 
economic growth and help create more jobs.
    These regulations are particularly hurting small 
businesses, which traditionally are America's economic engine. 
Over the years, we have tried various reform mechanisms to 
control red tape. Dating back to the 1980s, the Executive 
Branch has tried to control the flow of government agency 
regulations through Executive Orders (EO) mandating regulatory 
impact assessments on major rules. Agencies are tasked with 
measuring the paperwork burden of legislation, and laws have 
been passed to assess the small business impact of legislation.
    I strongly support these efforts, but if you ask the 
average small business owner in Wyoming if red tape has been 
reduced, he or she would absolutely shake their head and say 
no.
    We have a lot of work to do because the regulations and the 
burden they place on each and every American keep growing. What 
can we do to help ease the regulatory burdens? Minister 
Clement, I am especially looking forward to hearing more about 
your successful Red Tape Reduction Plan in Canada. We have a 
regulatory accounting system in place here as part of the 
Office of Management and Budget (OMB) which is supposed to 
regularly report on the cost of major regulations. However, 
that report does not encompass the whole government, and it is 
not built into any type of regulatory measure reduction system. 
It is almost like watching a fire slowly burn down a house 
without calling the fire department.
    In particular, I am interested in how the one-for-one rule 
requires regulators to monetize and offset any increases in 
administrative burden that result from regulatory changes with 
equal reductions from existing regulations. I am excited about 
today's hearing in part because we are going to hear a fresh 
perspective from those who have waged successful campaigns 
against red tape. Under Mr. Clement's leadership, when it comes 
to lowering regulatory burdens, Canada has experienced annual 
estimated compliance savings of 290,000 hours. That is equal to 
more than 33 years. That is the time that individuals can use 
to grow their businesses or improve their work.
    This Congress has a number of measures pending that would 
address regulations. However, we need to explore better ways to 
actually measure their costs in order to find more effective 
controls and procedures for eliminating unneeded and redundant 
regulations.
    Can we make government more effective? We know that one of 
the best ways to balance our budget is to make our government 
more efficient and accountable. Scrutinizing the rules and 
regulations that are hurting hardworking Americans helps us do 
both. If we can do this, we start to see what is not working 
and eliminate those regulations while streamlining what is left 
to help make government more effective. If government 
regulations are not delivering results, they should be 
improved. And if they are not needed, they ought to be 
eliminated.
    It is time to prioritize and demand results to ensure that 
government works for the people instead of the people working 
for the government. Congress has a responsibility to help make 
it easier for hardworking Americans to grow their businesses or 
advance in their jobs instead of worrying about inefficient and 
ineffective regulations.
    True regulatory reform can help serve as a foundation for 
helping all Americans grow and prosper. There are many 
different options. That is why I look forward to this 
conversation, beginning with our work here today.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Chairman Enzi.
    Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thank you, Mr. Chairman. Both Mr. Chairmen, 
thank you both. And to our colleagues from the Budget 
Committee, great to be with all of you.
    Our friends from Canada, bienvenue. We are happy to see 
you. Thanks for joining us.
    And, Susan, wonderful to see you again. I have great 
memories of when you were part of the Bush Administration and 
wore the Office of Information and Regulatory Affairs (OIRA) 
hat, and it is great to see you again. Thank you for all your 
service to our country.
    And, Mr. Pierce, I am excited about your testimony and am 
looking forward to hearing about your points about it is 
important for us not to ignore the benefits that may flow from 
regulations as we look at the costs.
    But we are happy you are all here, and my colleagues have 
heard me say this more than they would want to admit, but I 
often say people who have our jobs, we do not create jobs. 
Mayors do not create jobs. Governors do not create jobs. 
Presidents do not create jobs. What we do is try to create a 
nurturing environment for job creation. And that consists of a 
lot of different things: access to capital; a world-class 
workforce; rule of law and public safety; robust, vibrant 
transportation systems; a predictable Tax Code; a bearable tax 
burden; and also common-sense regulations.
    Two days after Father's Day, I am channeling my Dad, now 
deceased, but he used to say to my sister and me when we were 
growing up--and you can probably remember stuff that your 
parents said to you when you were growing up. My Dad would say 
to my sister--and when we would do some bone-headed stunt. He 
was always saying, ``Just use some common sense.'' He said it a 
lot. He did not say it that nicely. And one of the things I 
took away from that was to use some common sense.
    I think part of the nurturing environment for job creation 
and job preservation is, frankly, if we are going to have 
regulations--and we need them--make sure we are using some 
common sense.
    Regulations can help consumers feel confident that the 
products they buy and use every day are safe. Thoughtful 
regulations provide businesses with the predictability that 
they need. They play a major role in our daily lives, and 
usually--not always, but usually in positive ways. Every time 
we go to the bank, every time we drive a car or take a breath 
of clean air or a drink of clean water, we are enjoying the 
benefits of regulations.
    Of course, the regulatory process can be cumbersome at 
times. We all know that by personal experience. Not 
infrequently, regulations do impose some additional costs and 
requirements on businesses and on others who must comply with 
them. But I disagree with those who think that we have to 
choose between regulation and having a robust, growing economy. 
I think we can have both, and the record would show even now, 
as we make changes in some of our regulations, we have been 
able to grow the economy finally pretty smartly.
    For example, common-sense, cost-effective regulations to 
address our Nation's environmental and our energy challenges 
help to reduce harmful pollutants and lower energy costs. They 
also help the economy by putting Americans to work in advanced 
manufacturing jobs to create new products.
    I like to say that many of the laws that we pass in 
Congress are kind of like a skeleton. The regulatory process 
sort of puts the meat on the bones in order to have a fully 
prepared body. But Congress cannot always include in 
legislation the minute details, so we must ensure that the 
regulatory process results in regulations that achieve the 
objectives laid out in the laws that we pass here. To that end, 
it is important that we conduct oversight of the regulatory 
process to try to reduce burdens and encourage transparency.
    As we work to reduce the burdens, however, let us not 
forget about the benefits that flow--and Mr. Pierce will make 
this point later on--the benefits that flow from most 
regulations. I worry that is the fatal flaw in many discussions 
of a ``regulatory budget'' or ``regulatory PAYGO'' that is the 
subject of today's hearing. Such a system does not account for 
the benefits that regulations can and oftentimes do provide.
    Excluding the benefits from the equation may lead to the 
repeal of a rule and a reduction in the burden it places on 
businesses. But doing so potentially ignores the much greater 
benefits, economic and otherwise, that rule could bring to 
society as a whole. And that would be a mistake.
    So I want to be honest with everybody, I have some concerns 
with the idea that an agency's ability to implement a new rule 
could depend on it repealing an older one first in order to 
meet its ``regulatory budget,'' when, in fact, the older 
regulation actually might still be necessary. Or maybe even 
worse, an agency may delay implementing a much needed rule 
because an offset cannot be found.
    For example, the Environmental Protection Agency (EPA) 
could be forced to choose between issuing the proposed Clean 
Power Plan rule to regulate carbon pollution or keeping the 
Mercury and Air Toxics rule to regulate mercury emissions. It 
does not make sense, at least not to me, to make the EPA choose 
which air pollutants to regulate to protect public health just 
to fit the restrictions of a regulatory budget.
    That said, though, I am a strong supporter of efforts to 
identify existing regulations that should be modified or 
repealed. I have been encouraged by the administration's work 
in this arena and by the personal commitment the President has 
shown to these efforts to conduct retrospective reviews.
    Let me close by saying this: Cass Sunstein--and, Ms. 
Dudley, I am not sure if Cass actually succeeded you or not in 
your post, but I think he did. Cass was asked by this 
President, the current President, to do a top-to-bottom review 
of all of our regulations, find out which ones still make 
sense, which ones should be changed, and which ones we ought to 
get rid of. And I think that kind of top-to-bottom review, not 
just at the beginning of an administration but throughout an 
administration, actually makes a whole lot of sense, too.
    Thanks, Mr. Chairman.
    Chairman Johnson. Thank you, Senator Carper.
    It is the tradition of this Committee to swear in 
witnesses, so if you will all stand and raise your right hand. 
Do you swear the testimony you will give before this Committee 
will be the truth, the whole truth, and nothing but the truth, 
so help you, God?
    Mr. Clement. I do.
    Ms. Dudley. I do.
    Mr. Pierce. I do.
    Chairman Johnson. Please be seated.
    Our first witness is the Honorable Tony Clement. Minister 
Clement is the president of the Treasury Board of Canada. Since 
2006, he has served as the Member of Parliament for the Ontario 
Riding of Parry Sound-Muskoka. In the House of Commons, 
Minister Clement has served on the front benches as both 
Minister of Health and Minister of Industry. In this capacity, 
Minister Clement heads the development and implementation of a 
cross-government review looking at transformational ways to 
support and deliver services to taxpayers in the most efficient 
and effective means possible. During his private sector career, 
Mr. Clement was a lawyer, business board member, and a small 
business owner and entrepreneur. Minister Clement.

 TESTIMONY OF THE HONORABLE TONY CLEMENT,\1\ PRESIDENT OF THE 
              TREASURY BOARD, GOVERNMENT OF CANADA

    Mr. Clement. Well, thank you very much, Chairman Johnson, 
Chairman Enzi, Ranking Members, and distinguished Members of 
this set of committees. Thank you so much for inviting me here 
today to be in Washington, D.C. It is such an honor to address 
a common issue of concern for both our countries--namely, the 
reduction of excessive Federal regulatory burden on our 
countries.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Clement appears in the Appendix 
on page 46.
---------------------------------------------------------------------------
    As you mentioned, Senator, my primary job was to do 
spending reviews, never the most popular man on the Hill when 
you are reducing budgets, but we were able to balance the 
Canadian Federal budget this year and actually have a small 
surplus, and that was a primary function of the Treasury. But I 
also had this other important function, which was to review our 
regulatory burden, particularly as it pertained to small 
business. And it is in that capacity that I worked through our 
Red Tape Reduction Action Plan, which culminated in a bill 
which passed Parliament just this past April, which dealt 
primarily with this one-for-one policy, making it not only just 
a policy of government but actually the law of the land. And 
that is making it one of the first pieces of legislation on 
one-for-one, as we call it, in the world of its kind.
    I wanted to quote the executive vice president of the 
Canadian Federation of Independent Business, Laura Jones, who 
said, and I quote: ``The effort to control red tape got a big 
boost . . . when C-21''--that was the one-for-one law--``became 
law. The stick-to-itiveness from the Prime Minister, Minister 
Clement and colleagues with respect to implementing the Red 
Tape Action Plan on behalf of small business deserves applause 
from all Canadians as it is critical to our economic well-being 
going forward.'' So that is how small business saw this.
    The one-for-one law has two key parts:
    First, it requires that regulatory changes which increase 
administrative burden costs be offset with equal reductions in 
administrative burden.
    Second, ministers of the Federal Government departments are 
required to remove at least one regulation each time they 
introduce a new one that imposes administrative burden costs on 
business.
    We, as I said, introduced this as a policy of government 3 
years ago. Over the first 2 years of the policy, we saw hard 
evidence that the rule was reducing the administrative burden 
on business.
    As of May 20 of this year, in fact, the rule has saved 
businesses about $32 million in administrative burden, and 
actually the hourly count now, Senator, is almost 750,000 
person-hours annually or nearly 85 years, reduced in time spent 
by businesses dealing with regulatory red tape. So those are 
encouraging results, and that is why we decided to enshrine the 
reduction of red tape in law.
    I also want to mention that this was also part of a 
cultural shift that we wanted to take place within our Federal 
regulatory system. We wanted to make sure that it was part of 
the culture of the place in Parliament, in our government, to 
look at how any regulation was impacting on society more 
generally, but particularly on small business. And that is what 
you do when you create a basic inventory of baseline regulatory 
requirements and Federal regulations, and then start to 
monetize the administrative burden on business.
    So we do have an administrative burden count, and that 
contributes to accountability and openness in the Federal 
regulatory system. And then we use what is called the 
``standard cost model,'' where we calculate the administrative 
burden of these regulations under the one-for-one law. The 
standard cost model formula--and it is a formula--involves 
multiplying the wages times the hours times the number of 
businesses that are impacted by a proposed regulation to give 
an estimated cost of the burden of an administrative 
requirement on business. And that is an internationally 
accepted way to estimate the administrative burden costs to 
businesses resulting from information and reporting obligations 
including in the regulation.
    Further, to the counting and costing of Federal 
regulations, the Government of Canada committed to publicly 
report this information every year as part of efforts to 
maintain transparency in monitoring and reporting. And so by 
the end of 2014, the government had a calculated total of 
129,860 Federal requirements and regulations and related forms 
that could impact Canadian businesses across different sectors 
and industries.
    So let me just in the time I have available talk about how 
the rule works in practice. I will give you one example: Health 
Canada, which has reduced red tape burden by amending 
regulations to allow regulated pharmacy technicians to oversee 
the transfer of prescriptions from one pharmacy to another, a 
task that was previously restricted by regulation to the actual 
pharmacist. This enables pharmacists to spend more time 
providing advice to and serving customers while running their 
businesses. And just reducing that burden alone saved 
pharmacists $15 million a year.
    So this underscores the importance of reducing red tape for 
the small businesses, and, of course, those are the backbones 
of both of our economies.
    Just a little bit on process. We carried out extensive 
consultations starting in January 2011. Prime Minister Harper 
launched the Red Tape Reduction Commission. We held roundtables 
with businesses and business groups in 13 cities across Canada. 
We had 2,300 submissions. And that is where we came up with 
these ideas, including the one-for-one rule.
    I do not have to tell you that business owners felt 
regulators do not understand what entrepreneurs had to do to 
succeed and were actually making it harder for them to do so. 
And so we set out to reduce the burden on them.
    I think there is a lot of lessons for other countries, 
including the United States of America, and we certainly look 
forward to working with you on the Regulatory Cooperation 
Council, which is certainly a bi-national body where we can, in 
fact, impact change there as well.
    Thank you very much.
    Chairman Johnson. Thank you, Minister Clement.
    Our next witness is the Honorable Susan Dudley. Ms. Dudley 
is the Director of the George Washington University Regulatory 
Studies Center, which she established in 2009. From April 2007 
through January 2009, Professor Dudley served as the 
Presidentially appointed Administrator of the Office of 
Information and Regulatory Affairs, in the U.S. Office of 
Management and Budget. Prior to being the Administrator for 
OIRA, she directed the Regulatory Studies Program at the 
Mercatus Center at George Mason University and taught courses 
on regulation at the George Mason University School of Law. 
Professor Dudley.

   TESTIMONY OF THE HONORABLE SUSAN E. DUDLEY,\1\ DIRECTOR, 
   REGULATORY STUDIES CENTER, AND DISTINGUISHED PROFESSOR OF 
           PRACTICE, THE GEORGE WASHINGTON UNIVERSITY

    Ms. Dudley. Thank you very much, Chairman Johnson, Chairman 
Enzi, and distinguished Members of the Committee. I am very 
happy to be joining you today, and I appreciate the Committee's 
interest in exploring the possibility of a regulatory budget.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Dudley appears in the Appendix on 
page 53.
---------------------------------------------------------------------------
    Like the spending programs embodied in the fiscal budget 
and supported by taxes, regulations provide benefits to 
Americans. But the costs associated with regulatory programs 
are not as transparent nor are they subject to the same checks 
and balances. As a result, it is often more politically 
desirable to accomplish policy objectives through regulatory 
tools rather than more direct spending tools. Not only are 
regulatory costs less visible, but they are often assumed to be 
borne by businesses even though individual consumers and 
workers ultimately shoulder them.
    In the United States, the development of individual 
regulations is constrained in three ways: by their enabling 
legislation, the notice and comment procedures of the 
Administrative Procedure Act (APA), and by executive 
requirements for benefit-cost analysis. Despite this, the scope 
and reach of regulations continue to grow, and with it concerns 
that we may be reaching a point of diminishing returns. The 
application of fiscal budgeting concepts to regulation holds 
the potential to bring more accountability and transparency to 
the regulatory process.
    The idea is not new. In 1980, President Carter's Economic 
Report of the President discussed proposals to--and I am 
quoting now--``develop a `regulatory budget,' similar to the 
expenditure budget, as a framework for looking at the total 
financial burden imposed by regulations, for setting some 
limits to this burden, and for making tradeoffs within those 
limits.'' So my written testimony summarizes some advantages of 
a regulatory budget and also some challenges, and I will just 
summarize those briefly.
    An advantage of a regulatory budget would be increased 
transparency regarding the private sector resources needed to 
achieve regulatory objectives. I think this is something that 
Mr. Clement mentioned in Canada, and it helps inform regulatory 
priorities and tradeoffs. This transparency would also 
strengthen political accountability and discipline. Expected 
benefits would be considered up front (when issuing new 
legislation or new regulations), at which point elected 
officials would consider how much achieving particular goals 
are worth.
    Resources would likely be better allocated because 
policymakers would have incentives to find the most cost-
effective ways of achieving goals.
    A regulatory budget could impose internal discipline on 
regulatory agencies, perhaps lessening the need for case-by-
case oversight. By allowing agencies to set priorities and make 
tradeoffs among regulatory programs, subject to a defined 
constraint, it might remove some of the contentiousness 
surrounding benefit-cost analysis and Presidential oversight.
    And, finally, a regulatory budget constraint would also 
encourage evaluation of existing rules' costs and effects, and 
both of you Chairmen mentioned that in your opening remarks. 
Despite broad support, initiatives to require ex post 
evaluation of regulations have met with limited success largely 
because they did not change the underlying incentives. If the 
issuance of new regulations were contingent on finding a 
regulatory offset, agencies would have incentives to evaluate 
how well existing programs are working.
    Now, despite these potential advantages, a regulatory 
budget would be challenging analytically. The task of gathering 
and analyzing information on the costs of all existing 
regulations in order to establish a baseline budget would be 
enormous and the resulting numbers probably not very reliable. 
Even defining what should be considered ``costs'' would be 
challenging. Estimating the opportunity costs of regulation is 
not as straightforward as estimating the fiscal budget outlays, 
where past outlays are known and we can predict future outlays 
with some accuracy.
    So an incremental approach, such as a ``regulatory PAYGO'' 
or a one-for-one approach, would avoid some of these 
difficulties while retaining many of the benefits of a 
regulatory budget. Under such an approach, agencies would have 
to eliminate an outdated or duplicative regulation before 
issuing a new regulation of the same approximate impact. Unlike 
a regulatory budget, agencies would only have to estimate costs 
for regulations being introduced--which they should do anyway--
and for offsetting regulations they would like to remove. 
Nevertheless, deciding what costs should be included in 
estimating budgets or offsets will necessarily be a matter of 
judgment.
    These problems are not insurmountable, as we can see from 
the experience in Canada and the United Kingdom and other 
countries that have addressed these issues and initiated 
successful reforms using regulatory offsets.
    While it will never be possible to estimate the real social 
costs of regulations with any precision, these approaches 
should provide incentives to improve our understanding of 
regulatory impacts--as Mr. Clement said, change the culture.
    A regulatory budget or a more modest regulatory PAYGO has 
the potential to impose discipline on regulatory agencies, 
generate a constructive debate on the real impacts of 
regulation, and ultimately lead to a more cost-effective 
achievement of policy priorities.
    So I will close with a quote from President Carter's 1980 
Economic Report: ``The Nation must recognize that regulation to 
meet social goals competes for scarce resources with other 
national objectives. Priorities must be set to make certain 
that the first problems addressed are those in which 
regulations are likely to bring the greatest social benefits. 
Admittedly, this is an ideal that can never be perfectly 
realized, but tools like the regulatory budget may have to be 
developed if it is to be approached.''
    So given the increase in regulatory activity in the 35 
years since those words were written, I appreciate the 
Committee's interest in exploring a budget now. Thank you.
    Chairman Johnson. Thank you, Professor Dudley.
    Our next witness is Professor Richard Pierce, Jr. Professor 
Pierce is the Lyle T. Alverson Professor of Law at George 
Washington University. He has taught and researched in the 
fields of administrative law and regulatory practice for 38 
years. He has published 125 scholarly articles and 20 books in 
those fields. His books and articles have been cited in 
hundreds of agency and court opinions, including over a dozen 
opinions of the U.S. Supreme Court. He is a member of the 
Administrative Conference of the United States. Professor 
Pierce.

   TESTIMONY OF RICHARD J. PIERCE, JR.,\1\ LYLE T. ALVERSON 
  PROFESSOR OF LAW, GEORGE WASHINGTON UNIVERSITY SCHOOL OF LAW

    Mr. Pierce. I want to begin by thanking Chairmen Johnson 
and Enzi and Ranking Members Carper and Sanders, and the other 
distinguished Members of the Senate Committees on the Budget 
and on Homeland Security and Governmental Affairs for giving me 
the opportunity to testify today on possibility of a regulatory 
budget.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Pierce appears in the Appendix on 
page 65.
---------------------------------------------------------------------------
    I strongly support the idea of a regulatory budget, but it 
needs to be very carefully designed and implemented. As I will 
explain in a couple of minutes, we already have the functional 
equivalent of a regulatory budget that is well designed and 
well implemented. Indeed, it was implemented by Professor 
Dudley for 2 years recently during the Bush Administration.
    Now, there are versions of a regulatory budget that would 
harm the Nation. Any version that is based solely on the cost 
of a rule and ignores the benefits of a rule would harm the 
Nation. I share the views that President Reagan expressed when 
he issued Executive Order 12291. That Executive Order required 
each agency to use benefit-cost analysis to evaluate each rule 
the agency proposes to issue and to issue only those rules that 
will yield estimated benefits that exceed the estimated costs 
of the rule. President Reagan's Executive Order also gave the 
Office of Information and Regulatory Affairs, responsibility to 
review the benefit-cost analysis provided by each agency of 
each rule and to take such actions as are needed to ensure that 
each agency complies with that Executive Order.
    Every President since President Reagan has issued Executive 
Orders that reflect President Reagan's view that the cost of a 
rule alone is not an appropriate criterion to use in deciding 
whether the agency should issue the rule, and that the 
appropriate criterion is the net benefits of a rule to society. 
Those net benefits can only be estimated by subtracting the 
estimated cost of a rule from the estimated benefits of the 
rule. The benefits often include lives saved, injuries and 
illnesses avoided, and reductions in property damage.
    The importance of considering both the benefits and the 
cost of a proposed rule is illustrated particularly well by 
OIRA's most recent estimates of the aggregate costs and 
benefits of all of the rules reviewed by OIRA during the last 
10 years. As you know, OIRA is required to provide that report 
to the House and Senate annually.
    In the most recent such report, OIRA estimated that the 
costs of the rules that it had reviewed over the last 10 years 
were between $57 and $84 billion. That seems like a very large 
regulatory cost until you compare it with OIRA's estimate of 
the benefits of those rules. OIRA estimated the aggregate 
benefits as between $217 billion and $863 billion. So OIRA's 
estimates indicate that over that 10-year period of time, the 
aggregate benefits exceeded the aggregate costs by a factor of 
3 to 15 to 1.
    More recently, Presidents Clinton, Bush, and Obama have 
reinforced the principles underlying benefit-cost analysis by 
issuing Executive Orders that require agencies to review all of 
their existing rules, to identify those rules that impose costs 
that exceed the benefits they confer on society, and to begin 
the process of rescinding any rule that produces costs that 
exceed its benefits. Those Executive Orders are an excellent 
complement to the Executive Orders that forbid an agency from 
issuing a new rule unless its benefits exceed its costs. Those 
Executive Orders are estimated to provide cost savings of $20 
billion and 100 million hours of paperwork.
    When you combine the effects of the Executive Orders that 
forbid an agency from issuing a rule with costs that exceed its 
benefits with the effects of the Executive Orders that require 
agencies to identify and to rescind any existing rule with 
costs that exceed its benefits, you get a regulatory budget 
that maximizes the net benefits created by rules issued by 
Federal agencies by ensuring that the aggregate benefits of 
those rules exceed the aggregate costs of those rules. That is 
a sensible version of a regulatory budget that every year 
improves social welfare to the United States.
    I should add one other thing. This hearing is particularly 
timely. I expect that either today or tomorrow the U.S. Supreme 
Court is going to decide a case involving how to calculate 
costs and benefits,\1\ and I am going to be very interested, as 
I am sure Professor Dudley will, in how the Court addresses 
that issue.
---------------------------------------------------------------------------
    \1\ Mr. Pierce referred to an important case involving-benefit-
cost-analysis that the Supreme Court was about to decide. The Court 
decided that case on June 29, 2015, in Michigan v. EPA. A five justice 
majority held that the term ``appropriate and necessary'' in the Clean 
Air Act could not reasonably be interpreted to allow the agency not to 
consider costs in its decisionmaking. The majority held that EPA must 
consider cost in some way. It vacated the rule that was before the 
Court based on the majority's conclusion that EPA has not considered 
cost at all. The four dissenting Justices agreed with the majority that 
it would be unreasonable for an agency to make a major decision without 
considering cost, but the dissenting Justices expressed the view that 
EPA had considered cost in making the decision before the Court.
---------------------------------------------------------------------------
    I want to thank you again for the opportunity to testify 
today, and I look forward to your questions.
    Chairman Johnson. Thank you, Professor Pierce.
    I will start the round of questioning with a question for 
Minister Clement. Minister Clement, how difficult has it been--
because we have heard a number of people talk about the 
potential dangers of just having to eliminate a regulation if 
you are going to implement a new one. How difficult has it been 
in Canada for you to identify regulations to eliminate?
    Mr. Clement. Not that difficult at all, Senator. Of course, 
by requiring each department and agency to basically do an 
audit of what they had in stock as regulations on the books, 
that gave them an idea about which regulations were still 
meaningful in the 21st Century. And so as president of the 
Treasury Board, what we do at the beginning of every meeting is 
we have a ledger--because we are basically the board that does 
approve new regulations as well as looking at expenditures of 
government, and so at the start of each board meeting, we will 
have a ledger, and if there is a department or agency that is 
proposing a new regulation, rather, they also have a period of 
time during which they can find an out for the in that they are 
putting in. And so they are given a period of time in which to 
do that. They do not have to do that immediately because there 
might be some immediacy to the regulation. But within a defined 
period of time, within a 24-month period, they have to find an 
out.
    And so I keep a ledger of each regulatory department and 
agency, and so far there has been no issue. And, in fact, in 
some cases, in order to buildup some bandwidth for proposed new 
regulations that they are anticipating with their regulatory 
agenda, some departments and agencies remove regulations to 
create a credit for themselves, which they can then withdraw 
from at the appropriate time when they are creating new 
regulations.
    Chairman Johnson. So this really has created a cultural 
shift, a real discipline to the process. I think you mentioned 
in your testimony 129,000 different regulations in Canada. Is 
there any assessment as a result of this culture shift, this 
discipline, that would indicate how many of those are going to 
be potentially on the chopping block? How many of those 129,000 
might be eliminated? Do you have a feel for that?
    Mr. Clement. Well, we are not going to run out of time for 
those. This is going to be an ongoing exercise. And by culture 
shift--I am a politician as well. I have to get re-elected. And 
I have noticed--maybe this happens in other jurisdictions as 
well, but whenever there is an issue that comes to the fore, a 
media issue or what have you, people start to light their hair 
on fire and run around in circles in Ottawa and say, ``What do 
we do? We have this issue.'' And the normal go-to position had 
always been, ``Well, if we only pass this regulation, that 
issue will go away.''
    And what we have done is we have created a cost to that 
kind of thinking, because now they have to think about what 
regulations they want to remove from the books in order to pass 
that regulation, and there might be 15 other ways to solve the 
problem, the public policy problem that is exercising the minds 
of somebody or another, that do not involve regulating 
particularly on small businesses.
    And so what we have done is created a discipline within the 
system by adding to the internal cost of thinking about 
regulation that shifts them to find other ways to resolve the 
public policy issue that does not involve overregulation of 
small business.
    Chairman Johnson. So, again, in the past, everything in 
Canada, like in the United States, has been additive, and you 
have come up with a process for subtraction.
    Mr. Clement. Exactly right.
    Chairman Johnson. What a concept.
    Professor Dudley, you are certainly aware of the fact how 
challenging it is to calculate these costs benefits. In a 
perfect world, we would have perfect information on that. I am 
a little concerned in terms of how this administration has 
handled the calculation of benefits. In President Obama's 
Executive Order issued in 2011, his direction to OIRA, in terms 
of calculating the benefits, he included equity, human dignity, 
fairness, and distributive impacts. That seems to be a loophole 
in terms of calculating a benefit so you can drive a Mack truck 
through it. Can you just talk about the appropriateness of that 
type of loose language and how easy it becomes to certainly 
calculate benefits that far exceed costs?
    Ms. Dudley. Yes. In an ideal world, we would have all the 
information on the consequences of a regulation before we issue 
it--so both the costs and the benefits. There will be equitable 
impacts on the cost side; there will be efficiency impacts. So 
all those impacts would affect either side of the ledger. In an 
ideal world, we would have all that information before we made 
the decision. We will never have that.
    So I do have a concern that there is a greater emphasis on 
finding those indirect or other types of impacts on the benefit 
side of the ledger than on the cost side.
    Chairman Johnson. Has anybody really set about doing a 
study in terms of the opportunity cost on people who are trying 
to innovate, trying to produce products and services just in 
terms of--again, in Canada, they are taking the number of hours 
times number of businesses times wage rates to come up with a 
cost or kind of a defined formula. But, again, it is very 
difficult. Has anybody estimated just the opportunity costs of 
regulations on our economy?
    Ms. Dudley. There are some estimates, and I do not know how 
reliable they are. It is tricky to do. It is.
    Chairman Johnson. Professor Pierce, again, you were 
obviously--and, again, I agree. Cost-benefit analysis is 
exactly what you need to go through, but, again, it is 
difficult to come up with exactly those numbers. Do you know 
how many rules and regulations have actually been eliminated in 
the United States over the last 10 years?
    Mr. Pierce. No.
    Chairman Johnson. Is that something, do you think, that the 
Federal Government ought to keep track of?
    Mr. Pierce. Yes. I do not know whether Professor Dudley's 
office takes on that responsibility or not.
    Chairman Johnson. Professor Dudley.
    Ms. Dudley. As I think you mentioned, Professor Pierce. We 
are friends. We have to be careful to treat each other 
respectfully here. Each administration of the last three 
Presidents has required agencies to look back and try to remove 
them. I think there is some tracking of that, but I do not know 
how accurate or robust it is.
    Chairman Johnson. But, again, the fact of the matter is we 
have dramatically increased the number of rules, regulations, 
laws, but have not done a real good job of eliminating them, 
right? Once they are on the books, they just stick around 
there, and, it has been very difficult to remove them. Isn't 
that a basic fact? Professor Pierce.
    Mr. Pierce. I think there has been a net increase in the 
number of rules, but because of the way rules are issued, that 
means there has been a net increase in social benefits, because 
each of those rules had to go through the benefit-cost analysis 
and then review by OIRA. So if there has been--and I believe 
there has been--an increase in rules, that has been accompanied 
by an increase in net social benefits of regulation.
    Chairman Johnson. Again, my concern is there is always 
going to be a bias to overstate the benefits and understate the 
costs. Again, with this Executive Order, including equity, 
human dignity, fairness, distributive impacts, that is, again, 
a pretty large loophole. Chairman Enzi.
    Chairman Enzi. Thank you, Mr. Chairman.
    I hope all of you will accept written questions afterwards. 
This is being chaired by two accountants. For 14 years, I was 
the only accountant in the U.S. Senate. Now we have two, and it 
shifts the focus a little bit to some specific things. But I 
have noticed that if we ask the accounting questions, the 
people in the back all go to sleep. But it gives us good 
information, so we will be passing that on, too,
    Part of the purpose of this hearing is to figure out a way 
that we can do a lookback at what has already been done. When I 
was doing the budget, I discovered that we have 260 program 
authorizations that have expired, but we are still spending 
money on them. That is supposed to be the ability to spend 
money. And those 260 represent 1,200 programs of the Federal 
Government, and the cost is $293 billion a year. So I am trying 
to get them to go back and look at those programs and see if 
any of them are still worth doing. We are spending money on 
them, so we ought to do that.
    Well, in the regulatory area, we do not have that, and I am 
always concerned when we talk about the cost and the benefit, 
because I know, having been in small business, that when you 
get a new regulation, the cost is immediate, the benefits are 
over a period of time. And there is not any way for the small 
businessman to finance that cost on the front end to provide 
the benefits on the back end. So I am trying to figure out a 
way through that, and I hope all of you will think about that a 
little bit, because that will be in some of my written 
questions.
    I do like the approach that you can remove regulations in 
advance and get a credit. That would be an advantage of having 
one of these ledgers, and I am really excited about that.
    But for Minister Clement, you mentioned in the discussion 
of 
C-21, the one-for-one rule, that it is important that the 
weight of Parliament be behind the aspiration that goes along 
with the one-for-one rule. By doing so, it adds credibility and 
it requires government, the Executive Branch government as well 
as the parliamentary branch, to take it seriously. Our major 
regulatory review procedures are required by the Presidential 
Executive Orders. They are not in statute. Could you elaborate 
on what you meant by that and whether the codification of the 
Executive Orders would be necessary? I do not know if you do it 
through Executive Orders up there or not, but some elaboration 
on that?
    Mr. Clement. Thank you, Senator. I appreciate the 
opportunity to elaborate a little bit. Primarily, we have a 
fused political system, so the legislative branch and the 
executive branch are all obtained from the same Parliament. So 
I serve in Parliament as a legislator, but I am also a member 
of the executive council that is called ``the Cabinet.'' And so 
the regulatory authority is obviously through the executive 
branch, not the legislative branch. And it is through my 
position as president of the Treasury Board of Cabinet--it is a 
Cabinet committee--that reviews regulations usually on a weekly 
basis through an order, and counsel then agrees to that 
regulation. So that is the process.
    One thing I do want to mention, though, Senator, is the 
back-and-forth that we have now required so that when the 
executive branch is doing that, there is automatically a give-
and-take with stakeholders--that is to say, small business 
owners or what have you. So under the plan that is the Red Tape 
Reduction Action Plan, each regulatory department and agency 
has to publish forward plans 2 years in advance of what types 
of regulations they are planning to look at so--because what I 
heard from small business owners--when I was a small business 
owner myself, I heard the same thing--it is not only the 
regulation itself; it is that it comes out of the blue. All of 
a sudden there is a new regulation that comes from Ottawa of 
which they were unaware, and now they have play catchup and 
spend hours of their compliance time trying to figure out the 
regulation and how it pertains to them and how do they comply.
    So by requiring the departments and agencies to publish 
that in advance--and there may be emergency situations and what 
have you, but, generally, publish in advance, it gives the 
small business owners a chance to either prepare for the 
regulation or to say to government, ``I know what you are 
trying to accomplish there, but here is a better way of 
accomplishing the same public policy goal that will not crush 
small business with its extra burden,'' and have that dialogue 
well ahead of the Executive Order that creates the regulation.
    The other thing I want to make clear is--because we are 
talking about costs and you Senators are from the accounting 
side in your previous world experience--the standard cost model 
is the process we use, which I said was internationally 
recognized, but we require the regulator, when it calculates 
the cost of the regulation, we require them to consult with the 
stakeholders, with the small business owners, and say, ``Here 
is what we think this regulation will cost. Do you have any 
comments?'' And it gives the small business community a chance 
to say, ``I think you are a bit off in that cost. We think it 
is Y, not X.'' And, again, you have that dialogue going prior 
to the regulation taking effect.
    So it is more or less a constant dialogue that we have set 
up here, and, again, that helps create a different culture in 
government where, quite frankly, a lot of people who are 
regulators in departments and agencies may never have had an 
experience as a small business owner and so are not really 
attuned to those issues until we have created this 
relationship.
    Chairman Enzi. Thank you. I will have some more questions 
on that, too, but I will move to Ms. Dudley. The 1990 
Regulatory Right to Know Act required the OMB to report to 
Congress on the cost of major regulation as part of its budget 
submission to Congress and offer recommendations for reform. As 
you pointed out in testimony, the OMB reports have been 
incomplete. From your experience as the OIRA Administrator, can 
you explain what this means and why--the ability of OIRA as an 
independent agency to get that regulatory baseline in the 
future?
    Ms. Dudley. Yes, thank you. The OIRA reports, the OMB 
reports, are incomplete in three main ways: they only look at 
major regulations; they do not look at the regulations of 
independent agencies, so the Federal Communications Commission 
(FCC) or the Consumer Financial Protection Bureau (CFPB) would 
not be covered; and--oh, well, I am trying to think of what my 
third one is. But there are three ways.
    Anyway, so, yes, those are not complete. Also, to a point 
that Senator Johnson was making in his last question, it is all 
based on agencies' estimates of the costs and benefits of their 
regulation. So it is that one-off.
    And if I could take a few more minutes, because I know--
what Mr. Clement is talking about in Canada, the process for 
advance notice, we do all those things. We provide 
opportunities for advance notice. We have a regulatory plan. 
The one thing that we do not do that they are doing is there is 
no constraint on that, which is their one-for-one constraint.
    Chairman Enzi. Thank you. My time is up.
    Chairman Johnson. Thank you. Senator Stabenow.

             OPENING STATEMENT OF SENATOR STABENOW

    Senator Stabenow. Well, thank you very much. We appreciate 
the testimony of all of you, and it is a pleasure to be at a 
joint Committee hearing.
    First, I am just curious. Minister Clement, in all the work 
that you are doing, how big is your office? How big is your 
staff? It sounds like you have got a pretty big operation 
going.
    Mr. Clement. Thank you, Senator. Just on the regulatory 
oversight staff, we have about 20.
    Senator Stabenow. Ah, very good. OK. Well, I did want to 
indicate to both of our Chairmen that when we talk about the 
process--and I am all for analyzing what works and what does 
not work--I do want to say on behalf of everybody on the 
Agriculture Committee--and I see Senator Grassley here--that 
when we did the farm bill, we did exactly what you are talking 
about. We actually eliminated 100 different authorizations or 
programs that did not work. We consolidated--we dealt with 
duplication. We cut $23 billion. I know it can be done because 
we did it on a bipartisan basis in the Agriculture Committee, 
and I would welcome that being done in every part of the 
Federal budget.
    I do think as a contrast, Mr. Chairman, that sequestration 
is exactly the opposite of that. It is random, across the 
board, no attention to what is important and what is not 
important, as opposed to looking at every program and 
determining value of what works and what does not work. So I 
hope in our budgeting process as we move forward we are 
actually going to be more rational and come together in a 
bipartisan way to be able to address what is really important 
for the country rather than--I think sequestration is a way of 
giving up our responsibility to make good judgments.
    I do also want to just stress that there is a value to the 
rule of law. I assume all of you would agree with that. I 
remember being in Moscow a few years ago, and they were 
lamenting there was not more American investment. And I went 
home to our great Michigan businesses and said, ``Are you 
considering investing there?'' And they said, ``Well, we do not 
have confidence in the rule of law there.'' So rules actually 
can create economic certainty for businesses.
    And being in Haiti a couple of years ago on a trip and 
talking to the President of Haiti, who was looking, again, for 
more Americans to come--I am sure he would welcome Canadians as 

well--what we heard was they bring the ship into the harbor; 
they cannot get the product off of the ship because of the 
graft and corruption and all the costs that it takes, because, 
again, there is no enforcement, there is no rule of law, there 
is no economic certainty.
    So in a strong economy, it is also true that having 
certainty, economic certainty, whether it is tax policy, not 
doing tax extenders at the last minute, I will say to all of us 
on the Finance Committee, so there is certainty is very 
important.
    I also want to just speak a moment about really the cost-
benefit analysis of the tradeoff between making sure we are not 
burdening small businesses or large businesses, by the same 
token making sure we are smart in terms of preventing 
additional costs or the protection of all of us in terms of 
safety. All of us get on airplanes every week, and we have 
confidence that there is, in fact, airline safety, or we all 
know what needs to happen on train safety or automobile safety 
or what happens when we eat our food or breathe the air or 
drink the water and so on. And so there is an importance--and 
shared waters with Canada and Michigan, by the way, as we know, 
that we care deeply about together.
    So I did want to give another water analysis and just ask 
if any of you want to speak to, again, sort of the--Mr. Pierce, 
as you have, about the value--how we determine cost-benefit in 
terms of the public. When we think about preventing further 
costs by doing things up front, avoiding spending additional 
dollars on crises by doing things up front, and that relates to 
something that, again, we share with Canada, which is the Great 
Lakes.
    We know that because we have not paid attention to invasive 
species as we should, sea lamprey or addressing the treatment 
of power plants, the costs of that and what has happened 
because of zebra mussels and so on, all the economic losses, 
almost $6 billion from invasive species, that if we were smart 
about it and had gotten ahead of it, we would save a lot of 
money. We would save money for our businesses who are in the 
boating, tourism, fishing industries and so on. So that being 
smart about how we address regulations and investments can also 
save us dollars as we move ahead, and now we have these great 
big fish called ``Asian carp'' that we are deeply worried about 
getting into the Great Lakes. And, again, we may need some 
common-sense regulatory action to protect and make sure that we 
have a fishing industry, a boating industry, a Great Lakes for 
the future of the country and certainly of the region.
    So, Mr. Pierce, could you speak a little bit more 
specifically--you talked the most about the economic case for 
having common-sense regulation in terms of the value of how we 
look at these things, rather than all or nothing, which is what 
I worry about in the debate, unfortunately, here is that, all 
regulation is bad or all regulation is good. How do we evaluate 
this?
    Mr. Pierce. I cannot think of anything better than what we 
have been doing since President Reagan began the process. I 
think all we can do--certainly we never have perfect 
information. That is certainly true. As Professor Dudley has 
mentioned, it is very difficult to estimate both costs and 
benefits, but I do not know of anything better that we could do 
than use benefit-cost analysis, and we do that now. And I would 
be all in favor of extending it to agencies where it cannot be 
done right now, but that is a matter that requires statutory 
amendment.
    I do not know of any way to improve on what we are now 
doing. There is constant debate among economists, political 
scientists, and law professors about the best way to do this, 
and there is constantly changes being made. But whatever 
problems there may be in the estimation process, it is hard for 
me to imagine that they could be nearly enough to offset the 3 
to 15 times benefits versus costs. I mean, you would have to be 
really far off, OIRA would have to be very far off in its 
estimates of costs and benefits for us to have rules that in 
the aggregate cost more than their benefits.
    Senator Stabenow. Thank you.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Senator Stabenow.
    I do want to just quickly make the point that I do not 
think anybody makes the point that, all regulations are bad. I 
think most of us think that regulations are very good and they 
provide a clean environment and worker safety. All those things 
are good, but there is a point of diminishing returns. I think 
we have to look to regulations and law to create certainty, but 
when we have so many laws, so many rules, so many regulations, 
when they are contradictory, when they are enforced at the 
discretion of regulatory agencies or prosecutors, you create a 
high level of uncertainty. So we have to take a look at that in 
a very open and honest measure, find out at what point do we 
hit that law of diminishing returns and where do we create even 
greater uncertainty and start having a negative economic 
impact. Senator Carper.
    Senator Carper. Thanks. I apologize for being out of the 
room for a while. On a separate track, the Environment and 
Public Works Committee (EPW) is rolling out a 6-year 
transportation plan for our country, and I have been part of 
that drafting, and I needed to be there to help with the 
rollout, and so I apologize for missing your testimonies, all 
of which I have read.
    I want to start, if I could, Mr. Pierce, with you and the 
idea--let us go back in time. You said it was Ronald Reagan who 
did--what did he do when he was President? Did he issue an 
Executive Order that said that when we are doing regulations, 
we have to look at cost and benefit? Was that his handiwork?
    Mr. Pierce. Yes. If you look at Order 12291--and it has 
been somewhat expanded and modified in various ways by each 
President, but the basics are still the same. The requirement 
is estimate benefits, estimate costs, and then choose--among 
alternative regulatory approaches, choose the one that produces 
the largest net benefits. That is the principle that President 
Reagan announced in Executive Order 12291.
    Senator Carper. OK.
    Mr. Pierce. Now, as Professor Dudley has pointed out, that 
cannot apply to all agencies in all circumstances because some 
agencies are not allowed to consider costs when they make 
decisions. But that is a function of their statutes. One of the 
decisions before----
    Senator Carper. EPA.
    Mr. Pierce [continuing]. The Supreme Court--it depends. 
There are many provisions of the Clean Air Act, the Clean Water 
Act. The Supreme Court\1\ will issue a decision either today or 
tomorrow about one of the most important provisions of the 
Clean Air Act and whether it allows an agency--and independent 
agencies are not covered by this, and, again, that is a 
function of legislation. And I believe Senator Portman has 
proposed a bill that would change that, and I think both 
Professor Dudley and I support that bill.
---------------------------------------------------------------------------
    \1\ Mr. Pierce referred to an important case involving-benefit-
cost-analysis that the Supreme Court was about to decide. The Court 
decided that case on June 29, 2015, in Michigan v. EPA. A five justice 
majority held that the term ``appropriate and necessary'' in the Clean 
Air Act could not reasonably be interpreted to allow the agency not to 
consider costs in its decisionmaking. The majority held that EPA must 
consider cost in some way. It vacated the rule that was before the 
Court based on the majority's conclusion that EPA has not considered 
cost at all. The four dissenting Justices agreed with the majority that 
it would be unreasonable for an agency to make a major decision without 
considering cost, but the dissenting Justices expressed the view that 
EPA had considered cost in making the decision before the Court.
---------------------------------------------------------------------------
    So we would like to make this more complete, but it 
requires legislation.
    Senator Carper. All right. Thank you.
    I said when I was here earlier in my opening statement, I 
talked about my Dad. I talked about his invocation that we use 
common sense in our work. And when I think about it, I think 
what Ronald Reagan proposed all those years ago meets the 
commonsense test for me. What are the benefits? What are the 
costs? And figure out what is actually a good payoff. Most of 
the time that works. Not always. But, Professor Dudley, one of 
the problems with that, it is hard to estimate some of these 
costs, isn't it? It is hard to estimate some of these benefits. 
And we have to make, I guess, our best effort and get as close 
as we can, knowing that many of them will never be perfect. But 
what would you say about that? How hard is it to come up with 
these numbers?
    Ms. Dudley. It is hard, and the benefits tend to be more 
contentious, I think, than the costs, although that may be 
partly because we do focus more on direct costs.
    In terms of the net benefit test--and I do think if you do 
go forward with a PAYGO budget, we will need to think hard 
about exactly how to do that, what costs we do want to measure, 
whether it is a net cost or direct cost or what. But all of us 
in our lives, we always want to do more than we can, than we 
can afford to. We have budgets that constrain us. And so a net 
benefit test, it is--if we could measure everything perfectly, 
it would be sufficient. But as with us in our daily lives and 
with the fiscal budget, it is not sufficient.
    Do you mind if I take another minute?
    Senator Carper. No. Go ahead.
    Ms. Dudley. The Army Corps of Engineers (ACE) is one of the 
few agencies that for their on-budget programs has to do a 
benefit-cost test. But that is a test they have to do in order 
to spend money on a program, but it is not sufficient. They 
still are constrained by a budget because they will still have 
so many programs that they could do that would provide the 
Nation benefits than taxpayers would want to afford.
    Senator Carper. OK. Mr. Clement, the job that Professor 
Dudley used to hold is the head of what we affectionately call 
``OIRA.'' The fellow who succeeded her, Cass Sunstein, as I 
mentioned, came along and said, at the urging of the President, 
``Let us do a top-to-bottom review of our regulations, find out 
which ones are just fine, which ones need to be updated, which 
ones need to be modified and gotten rid of in some cases.''
    Do you all do that kind of thing up in Canada? Do you have 
that periodic review?
    Mr. Clement. Sure. Thank you, Senator, and----
    Senator Carper. Thank you for being here.
    Mr. Clement. Oh, it is my honor to be here. Thank you, sir.
    Senator Carper. Thank you to the folks in Canada for being 
such great partners and allies of ours. We think the world of 
our neighbors up north.
    Mr. Clement. We share a continent and many interests and 
values, absolutely.
    Senator Carper. Yes, we do.
    Mr. Clement. I had the honor of meeting Mr. Sunstein 
actually at the start of his mandate a few years ago, and we 
talked about our various regulatory initiatives, and we kept in 
touch for sure. And we do have a life cycle for regulations 
that was started in 2007, so there is a systematic periodic 
review over time in different sections year upon year of 
various regulations. So we do that on a regular, systematic 
basis, and it provides us with the understanding of which 
regulations are still relevant.
    As you can imagine, some regulations were more relevant in 
the early part of the 20th Century than in the early part of 
the 21st Century. One example I can give you of one of the 
regulations that was taken off the books was a Federal 
regulation of canoes and kayaks owned by commercial 
enterprises. Maybe there was a time when they had to have a 
register and had to pay a fee to register, but it really does 
not have a point in today's day and age. So we took that off 
the books, and that saved businesses about $500,000 in 
compliance costs. So we do that.
    If I could mention very briefly----
    Senator Carper. Just very briefly. I am almost out of time, 
please.
    Mr. Clement. OK. Well, then, I will leave it for another 
occasion, but thank you for----
    Senator Carper [Presiding.] Thanks so much.
    Let me just close with--I do not know what your approach is 
in Canada on this, but before our agencies issue regulations, 
we expect them to go out and say to those who are going to be 
regulated, ``What are your ideas? What do you think?'' And to 
use that input in order to create draft regulation, and then 
after that draft regulation is gathered, we print that, and we 
disseminate that and say, ``Now what do you think?'' So we ask 
for more comment, Sometimes there is not enough comment time.
    Recently, in one proposed reg, a bunch of us on one issue 
said, when we back to the regulation, ``How about some more 
time? That is not enough comment time.'' And so that is the 
approach that we use. Sometimes it helps us get it right the 
first time. But it is hard to get it right forever, and I think 
the idea of coming back and doing this revisiting from time to 
time, plus trying to do a better job on the cost-benefit, is 
helpful. But thank you for showing us how you do it up there, 
and we are just delighted that you are in our country.
    Susan, it is great to see you. Mr. Pierce, thank you so 
much. Rob Portman.

              OPENING STATEMENT OF SENATOR PORTMAN

    Senator Portman. Thank you, Mr. Vice Chairman.
    Thanks to the witnesses for being here. I really appreciate 
the opportunity to talk about a topic near and dear to my 
heart, and I have a vote, so I am going to talk quickly and get 
some responses from these experts.
    Look, to me it is very simple. Congress can impose taxes on 
people, but so can the agencies, really, because it is much the 
same thing in terms of the costs for businesses. We had a town 
hall meeting last night, 25,000 Ohioans on a tele-town hall, 
and a small business owner called in, and he was there at 7:30 
at night and wanted to talk about regulations and just sort of 
the cumulative effect of regulations, and clearly it is an 
issue that we have made progress on, as Professor Pierce said, 
but there is more to do.
    One thing that is noteworthy, I think, is that when I had 
the honor of working with Professor Dudley when I was at the 
Office of Management and Budget, we put out an Executive 
Order--it was 13422--and it asked all the agencies to 
accumulate their costs and to report on those. That was 
rescinded in the Obama Administration as soon as President 
Obama was elected, and I think it should be restored because I 
think it makes sense. That aggregate cost issue--it was costs 
and benefits of regulations--would be a good starting point to 
talk about this budgeting because you do need better data. As 
Professor Dudley has said, it is not easy.
    The one thing that I thought was interesting today that 
came up was about the independent agencies, and talking about 
incremental steps, one certainly should be bringing the 
independent agencies more into our cost-benefit analysis. I do 
not know, Minister Clement, if you have this same issue, but we 
have executive branch agencies, of course, and independent 
agencies, and they are subject to different standards as to the 
Executive Order that Professor Pierce talked about. The 
independent agencies, by definition, are independent, and some 
of them require under the statutes that they implement to go 
through some analysis and some do not. And this is, I think, a 
good first step, again, toward a better budgeting or a better 
understanding of what the costs are.
    I guess I would like to ask, if I could, our witnesses 
about that, Professor Dudley and Professor Pierce. Senator 
Warner, who was here earlier, and I have reintroduced our 
legislation to ensure Federal agencies like the U.S. Securities 
and Exchange Commission (SEC) or the FCC and others--and, by 
the way, they are doing many more major rules than they used 
to, so it is a bigger problem than it used to be--they perform 
the kind of cost-benefit analysis other executive agencies must 
do, and OIRA would review their work, and I wondered if you 
could just go on the record, Professor Dudley and Professor 
Pierce, talking about why you think that is important.
    Mr. Pierce. I think it is important because I think all 
rules should be subject to the process of estimating benefits 
and estimating costs, and then we should only issue the ones 
that are likely to produce net benefits. And I do not see any 
reason why the independent agencies would be any different from 
the executive branch agencies in that respect. So for that 
reason, I sent your Committee a letter--I think it was about a 
week ago--in support of the bill that you and Senator Warner 
have introduced, and I gave some more explanation for my 
support of that in that letter. And if I remember right, 
Professor Dudley sent a similar letter about the same time.
    Ms. Dudley. Yes.
    Senator Portman. I think she used some of your same 
language.
    Ms. Dudley. Well, he is a brilliant administrative law 
expert, so it was----
    Senator Portman. Both of you, I really appreciate your 
support. And, Professor Dudley, you have been involved with 
this issue for a long time. Your thoughts on that?
    Ms. Dudley. Yes, regarding the letter, it was actually all 
the former OIRA Administrators of both parties who could sign 
the letter signed the letter. Some judges cannot. I think it is 
important for two things:
    As Professor Pierce said, there is really no reason not to 
do benefit-cost analysis to try to get the best understanding 
we can of the likely effects of a regulation before it goes 
into effect. Why would you not want to do that?
    But, second, the oversight that you provide for in your 
bill, the executive branch oversight I think is very valuable 
because it is more likely to keep the agencies accountable for 
doing that analysis well.
    Senator Portman. I am going to literally run, and I see the 
Chairman has returned to continue the hearing. But the other 
thing I just want to mention is the Regulatory Accountability 
Act is also legislation we introduced in the last Congress. We 
are still working on it for this Congress, and it has been 
bipartisan in the past, and it does very much of what Minister 
Clement talked about in terms of ensuring that the 
constituents--in other words, small businesses, for instance--
are consulted ahead of time, requires more transparency and 
more consulting. It also deals with this issue of getting at 
the best way to achieve the results, so the least burdensome 
alternative is required. And I would hope that legislation as 
well could provide some of the baseline for beginning to think 
about this budget. You need to have better cost analysis and 
benefit analysis in order for it to work.
    Thank you all very much. Thank you, Mr. Chairman.
    Chairman Enzi [Presiding.] Thank you, and your vote is very 
much needed over there.
    For those of you who do not have a program and you cannot 
tell what we are doing without a program--and, oh, yes, that is 
right, we do not do a program--what we are voting on right now 
is the trade preference (TPA), and this is a cloture vote that 
passed with 61 votes last time. So it is being repeated because 
the House did not get it done in the form that we sent it over. 
So just one of the little complexities around here, but it is 
something everybody is intensely interested in and absolutely 
expected to vote on. So they are doing that, which leaves me 
with an extraordinary opportunity. I usually do not get to go 
twice, but I am going to get to today. So I will continue with 
some of the things that I had listed that I was curious about, 
which I still will not get through them all.
    When we were talking about the rules and regulations and 
whether--we did not really get into the Executive Orders. 
Executive Orders are different than regulation. We talked about 
how regulations have to go through this process of being 
reported, evaluated, and sent to different entities for 
evaluations and stuff. To my knowledge, that does not happen 
with an Executive Order. So for Professor Dudley and Professor 
Pierce, do you think that there ought to be some kind of a 
requirement for codification of Executive Orders with some kind 
of a sunset date if they are not codified?
    Ms. Dudley. Executive Orders can only affect the executive 
branch, and the next President can come in and with a stroke of 
a pen eliminate the Executive Orders.
    Chairman Enzi. That would be in 4 to 8 years, though, would 
it not?
    Ms. Dudley. Right. So with respect to the Executive Orders 
that Professor Pierce talked about that guide OIRA review, one 
of the drawbacks of those--in response to your earlier 
question, I said they do not cover independent agencies; they 
only look at major rules; and it is also not judicially 
reviewable. So codifying the Executive Orders for benefit-cost 
analysis, which, as Professor Pierce has said, have really been 
in effect since 1981 with some modest changes, I think that 
could be valuable because it would have that benefit-cost 
analysis cover independent agencies, and it would subject them 
to judicial review, which could be valuable. Plus it would put 
your imprimatur on it. It would show that Congress also 
believes that what Senator Stabenow was calling ``common-sense 
regulation'' is the practice that we would like.
    Chairman Enzi. I would encourage us to work together a lot 
more. Professor Pierce.
    Mr. Pierce. I agree completely with Professor Dudley. I 
think having all of this--every regulation go through the same 
process--if it is a major regulation, you do not want to take 
it down to things that are not major because cost-benefit 
analysis itself is quite expensive and resource-intensive, and 
it would not make sense. Requiring it for minor actions would 
not pass a cost-benefit test. It is certainly true that 
Executive Orders do not have to pass a cost-benefit test, but 
they cover so many different things that it is hard to imagine 
how you would apply cost-benefit analysis to all of them. And 
the ones we have discussed require cost-benefit analysis, so I 
do not--and every President has agreed that, with minor 
changes, they should remain in effect.
    I think one of the first things that a transition team 
does--in fact, they do it before the transition--is look at all 
of those Executive Orders and decide which ones they disagree 
with, and so far no President has disagreed with any of the 
Executive Orders we have discussed.
    Chairman Enzi. So you would not see any need for 
codification then of Executive Orders, particularly the ones 
that are going to have a lasting effect? Again, repeating that 
these do not go through the same process that a regulation goes 
through, meaning that they are put out in advance, that people 
can comment on them, that the comments are supposedly looked at 
and reviewed and even responded--there is even a requirement 
about responding to them, although I have seen some of the 
responses which say, ``No response necessary,'' which I do not 
really consider to be a response to my constituents who are 
writing in heartfelt comments about some regulation. But there 
is not that opportunity on an Executive Order.
    Mr. Pierce. That is true, but Executive Orders, as 
Professor Dudley noted, apply only to the executive branch. I 
mean, the President does not have the power to tell people 
outside the executive branch what to do, and his power to tell 
people within the executive branch what to do is limited by 
statute, and each of the Executive Orders that we have 
discussed begins with, ``To the extent permitted by law,'' and 
usually repeats that two or three other times in recognition 
that Congress can override anything that the President 
unilaterally says on these matters.
    Chairman Enzi. Unless the President has a majority in 
Congress. But at any rate, I think that some extra--we need to 
take an extra look at some of the Executive Orders, 
particularly as we wind down the last 6 months of anybody's 
administration. I noticed some of the ones coming through at 
the end of President Clinton's, and that was some effort to do 
ergonomics, and we do have some mechanism for reversing that, 
but it requires the signature of a President. But we changed 
Presidents and got the signature of a President.
    Going back to Mr. Clement, you have already implemented 
this Red Tape Reduction Plan this spring in law. Do you have 
plans to try and build on it? Do you have some successes so 
far? What are your plans with it now?
    Mr. Clement. Thank you, Senator. I think that is a very 
important question. We do plan to build on it. We continue to 
have a mechanism whereby stakeholders like small business 
organizations get to be part of the process by which we review 
how we are doing and make recommendations on how to proceed. So 
usually, my experience anyway in Ottawa has been when 
government is reviewing its activities, it reviews its own 
activities and says what a bang-up job it has done and produces 
a very nice report saying how wonderful everything has been.
    So what we did in this case was slightly different. I 
created a review committee to track each year our progress on 
reducing red tape, particularly for small business, and we 
invited the stakeholders in to the committee, so they are 
actually at the table with government doing an independent 
review that is chaired by a small business representative, 
doing an independent report card, as we call it, of government 
attempts to reduce red tape, particularly for small business. 
They publish that, and I then, as the spokesperson and the 
representative of the government, have to respond to that.
    So it is a very public process, and, quite frankly, their 
first report card from last year measured some successes, but 
also said there has to be some improvements in X or Y or Zed--
that is how we say Z. And so, consequently, I was able to 
respond to that and say, ``Thank you for your points. We intend 
to do A, B, and C in order to respond to that.''
    So what I am trying to get across is it is an ongoing 
dialogue, and that is what makes it so powerful. And it is not 
just dependent upon me being, the Cabinet Minister in charge. 
If and when I go, the process of that continues, and I think 
that is very important.
    Chairman Enzi. Thank you. Senator Perdue.

              OPENING STATEMENT OF SENATOR PERDUE

    Senator Perdue. Well, thank you, Mr. Chairman, and I really 
appreciate the witnesses' testimony here today and their 
willingness to help us out.
    I am just a business guy, and as an outsider looking at 
this process, my experience has been that nothing damages small 
businesses more than overregulation. I have been involved in 
small businesses. I have been blessed to be involved with some 
of our country's larger businesses. And I remember Sarbanes-
Oxley and a few others, and now we are dealing with Dodd-Frank. 
It just seems to me that small businesses today in this 
recovery in the United States are really having trouble getting 
going, and they are, as we know, the employment engine behind 
our economy.
    As a matter of fact, 2 months ago, Goldman Sachs Global 
Investment Research Group published a report--I am sure you 
have seen it--calling this economy ``a two-speed economy.'' 
Some large firms are prospering, outperforming market 
expectations. Meanwhile, employment and growth in small firms 
is substantially lacking industry averages and certainly larger 
companies.
    The most telling, though, is the number of small firms have 
declined in the last 5 years. This is the first time since 
1970. I am really troubled by that dynamic because I see it in 
my home State. I see it manifested from the workers of those 
small companies who are really burdened now by reduced working 
hours and so forth. So the people and families of Georgia are 
really hurting because of the overregulation. The No. 1 topic I 
hear when I travel back to my State among business people is 
that regulations are taking the life out of our free enterprise 
system.
    So with that, I just have a couple of questions. It just 
seems like, first of all, there are no innocent parties in 
Washington. This is not something that just happened. It has 
been ongoing for the last 50 years. But we now get to a point 
where it really is hurting our competitiveness around the 
world.
    As Justice Breyer said, ``well-meaning, intelligent 
regulators, trying to carry out their regulatory tasks 
sensibly, can nonetheless bring about counterproductive 
results. The single-minded pursuit of a particular goal results 
in regulatory action that imposes high costs, sometimes without 
achieving significant additional safety benefits.''
    It seems like we have gotten to the point now where our 
Federal Government wants regulators to take all the risk out of 
our lives at the expense of our free enterprise system.
    So the question I have--I have a couple. I understand that 
the regulations that we have in the United States are divided 
into four big categories: economic, environmental, tax, and the 
Occupational Safety and Health Administration (OSHA) and 
Homeland Security. The question I have is: Has there been any 
attempt to standardize an approach to this cost-benefit 
analysis approach across these regulatory agencies? And has 
there been an attempt to standardize how we calculate the costs 
these regulations bear from each of these categories. I will 
throw it to Professor Pierce first. I would like all the 
panelists to respond, if you will.
    Mr. Pierce. I think that there have been a lot of efforts 
of that type, Senator, and there is a professor who is on the 
University of Virginia faculty named Michael Livermore who has 
done a wonderful study of the way the cross-fertilization works 
between, for instance, OIRA and EPA, that each of them looks at 
the literature all the time, and then often EPA will hire 
consultants to help them figure out how to do this, and a lot 
of the methodology developed in a regulatory agency is shared--
in fact, I think virtually all of it--with OIRA, and a lot of 
the methodology that OIRA wants agencies to use is shared with 
the agencies.
    Your reference to Sarbanes-Oxley, though, does take us back 
to most of those agencies are independent agencies. They are 
not subject to any of this. And so this excellent approach 
simply does not apply to some agencies.
    Senator Perdue. Could I add, as you mentioned Sarbanes, 
could I also ask you about CFPB since it is not under 
congressional oversight at this point?
    Mr. Pierce. It, too, is not subject to the requirement of 
conducting cost-benefit analysis to take a major action. So it 
is one of the many independent agencies that are not subject to 
the Executive Orders that Professor Dudley and I have discussed 
today.
    Senator Perdue. OK. Professor Dudley.
    Ms. Dudley. Yes, so I agree with your concern and with 
Professor Pierce's response. There are guidelines that have 
been adopted through notice and comment. They are long, they 
are hefty. They are generally recognized as solid guidance. But 
they are not always followed, and that is partly because there 
are statutes that preclude consideration of some important 
tradeoffs. So that is part of the problem. And independent 
regulatory agencies are not covered.
    If agencies do not do it well, they rarely face judicial 
review for that. There are some statutes that allow it, but the 
Executive Orders that require benefit-cost analysis are not 
judicially reviewable.
    So I think there are several reasons why you are right that 
agencies are not really doing as robust a benefit-cost analysis 
as they could, which might get back to Senator Enzi's 
suggestion that maybe we should be codifying the Executive 
Orders that require that type of analysis.
    Senator Perdue. Minister.
    Mr. Clement. Senator, I will just confine myself to a 
couple of basic points.
    One is Prime Minister Harper of Canada has called red tape 
the ``silent killer of jobs,'' and I think he is absolutely 
correct. That is why this was part of our previous election 
platform that we have implemented over the last 4 years to 
reduce that burden on small businesses.
    The other thing I would say is something that you already 
know, but that if you do not measure it, it does not count. In 
government, if you do not have a means by which you are 
assessing the costs and benefits, then it becomes just a moot 
debate. And so I do--certainly, my experience has been as we 
have measured this more and more closely and more and more 
precisely, it creates the dynamism necessary to actually get 
something done that is different.
    Senator Perdue. In Canada, have you guys been able to 
standardize across your various platforms as well?
    Mr. Clement. So we use something called the ``standard cost 
model,'' which is an internationally recognized calculation--it 
is a formula, basically, that assesses the administrative 
burden on business, looking at the number of hours it takes to 
fill out the forms times the number of people necessary to do 
so times the number of businesses affected. I am very much 
simplifying it, but that is the basis of it, and as I say, it 
is an internationally accepted methodology, and it seems to be 
working.
    Senator Perdue. Great. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Johnson [Presiding.] Thank you, Senator Perdue. 
Senator Ayotte.

              OPENING STATEMENT OF SENATOR AYOTTE

    Senator Ayotte. Thank you, Chairman. I thank all of you for 
being here.
    I had a question about small businesses, and small 
businesses are obviously responsible--I happen to be married to 
a small business owner--for nearly two-thirds of job growth in 
this country, and I think the challenges for regulation has 
become even greater with small businesses. Their ability to 
move forward right now with 3,000 regulations currently in the 
workers, just even as a small business owner, knowing what 
those regulations are and how to apply them seems to me to be a 
big challenge in terms of wanting us to allow small businesses 
to drive growth. And I was wondering, Mr. Clement, how Canada 
has been successful at reducing the regulatory burden, 
particularly on the smaller businesses. And I would also ask 
Ms. Dudley as well, while you were OMB Administrator, what do 
you think in terms of dealing with small businesses that would 
be more effective? Minister Clement.
    Mr. Clement. Thank you, Senator. It is an honor to be here 
and to respond to your concerns. I have been mostly focusing my 
remarks on what we call the ``one-for-one rule'' for new 
regulations being put into place. An equal number or a larger 
number of regulations in terms of the administrative burden 
have to be removed from the books so the net impact on small 
business is either neutral or positive. And so that has been 
the focus of a legislative package that I had passed through 
Parliament earlier this year.
    We also do things, which I understand from the testimony 
are done here as well, forward regulatory plans so that each 
regulating department or agency has to project 2 years into the 
future and publish, ``Here is what we plan to do; here is what 
we think the impact on small business is going to be. Small 
Business, what do you say? Is this something that you can meet, 
or should we be changing our plans in some way to meet the 
public policy goal without creating the burden,'' and starting 
that dialogue early.
    Senator Ayotte. So 2 years in advance?
    Mr. Clement. Two years in advance, 24 months in advance.
    The other thing that we do was add what we call a ``small 
business lens'' to every regulatory package. I am president of 
something called the ``Treasury Board.'' We mostly cut budgets, 
but we also deal with regulations. And so when a regulatory 
proposal is put before us by a minister or by an agency or by a 
department, they have to include within that package of 
information the likely impact on small business in particular. 
And the reason that that is important is because what I have 
noticed over time is that, quite frankly, the public service 
they have a lot of knowledge and a lot of experience. Not many 
of them have been involved in small business. That has not been 
part of where they have come from or what they have learned or 
so forth. So to force them to actually have the dialogue with 
small business, say, ``How will this affect you?'' and then 
include that in the package means that I as a decisionmaker, an 
elected politician, a Cabinet minister, I am now aware of some 
of the costs associated with that reform package, that 
regulatory package to small business, and that makes me more 
sensitized to that impact.
    Senator Ayotte. I do not know if anyone wanted to add 
anything to that.
    Ms. Dudley. Yes, I can just talk a little bit about how it 
is done in the United States. You had asked what OMB's 
responsibility is. OMB is responsible for looking at small 
business impacts, working with the Small Business Office of 
Advocacy, and they both have statutory responsibilities under 
the Regulatory Flexibility Act and the Small Business 
Regulatory Enforcement Fairness Act. And some agencies 
actually--OSHA, EPA, and the Consumer Financial Protection 
Bureau have to have earlier advance notice and evaluation o the 
rules.
    Another thing----
    Senator Ayotte. Sorry to interrupt you. As I understand it, 
that is because the Regulatory Flexibility Act allows that. I 
actually have a bill to expand that across all agencies.
    Ms. Dudley. Yes, it was kind of started as a pilot, but, 
yes, it might be appropriate to expand it across agencies.
    Now, also, the Reg Flex Act under Section 610 requires 
agencies to look at the economic impact of their regulations on 
small businesses retrospectively every 10 years. They are 
supposed to evaluate whether there are ways to do that that is 
better for small businesses. That has not been effective. It 
just has not been effective, which is why I think some of the 
incentives that you all are talking about here could make that 
more--it would provide incentives to really look back. As Mr. 
Clement said, looking back alone, you did not change the 
culture until you added the incentive of the one-for-one.
    Senator Ayotte. How do we deal with this issue of cost-
benefit analysis, cost impact? Because one of the feedbacks I 
get, particularly from smaller businesses, is that you can 
imagine that in a smaller business you do not have an army of 
lawyers and accountants, and, frankly, big business has an 
ability to comply with regulations in a way that small 
businesses do not, because they just do not have the personnel 
and people focusing on this. And I think sometimes, as I look 
at how the government does this cost-benefit analysis, it does 
not really truly take in the costs and the viability, 
especially on smaller entities. How can we improve that piece 
of it? Anyone who would like to weigh in.
    Mr. Pierce. As Professor Dudley described, we do a lot of 
that now. There are two statutes that require that. It is the 
responsibility, as I recall, of OIRA to administer those 
statutes.
    When you look at agency rules, many--in fact, I am pretty 
confident the vast majority have exceptions for small 
businesses. Now, there are a lot of problems with that because 
what happens a lot is that large businesses then try to game 
the system, and all of a sudden you discover that a large 
corporation has created 50 small businesses that they then say 
are--so it is actually quite difficult to try and figure out 
what businesses are subject to these exemptions, and you have 
to assume that there will be a lot of gaming of any exemptions 
by big business to get the advantages of the exemptions for 
small businesses. But we have a process now that applies to all 
of that, and it is required by law.
    Senator Ayotte. Well, my experience from hearing from folks 
on the ground is that that process is not fully effective, and 
almost like this idea that the people who are reviewing it and 
doing the cost-benefit analysis, they do not think about what 
it would take to be in this small business and do some of the 
things we are asking people to do. That is just feedback I hear 
from the ground, and, I hope my husband builds his small 
business, so I know how hard our small business owners are 
working just to survive every day.
    Mr. Clement. Senator, one of the things we do in Canada is 
this standard cod model where we actually involve the small 
business representatives in calculating the cost of the new 
proposed regulation on small business--How many hours does it 
take to comply? How long do they have to sit in their office 
filling out the forms? What is the opportunity cost of that?--
as opposed to going out and creating wealth and working on 
their business.
    So we actually created a formula based on international 
practice to measure that cost of compliance, but it is not 
just, somebody in Ottawa in some office somewhere applying the 
formula. They have actually got to talk to the small business 
stakeholders to make sure the formula is being applied in the 
particular case of the proposed regulation in an appropriate 
manner.
    Senator Ayotte. All right. Thank you.
    Chairman Johnson. Professor Dudley, did you want to respond 
to Senator Ayotte? It looked like you might have.
    Ms. Dudley. Thank you very much. Yes, just one more point 
on that. Often the costs that really affect the small 
businesses, especially the innovators, they are not direct 
costs. They are hard to measure. And so if you are innovating 
some new ideas, you really cannot bring them to market without 
just selling your ideas to a larger company. So I think part of 
the problem is that those costs are just hard to measure.
    Chairman Johnson. Thank you, Professor Dudley and Senator 
Ayotte.
    Professor Pierce, you have been involved in this issue for 
quite a few years, I think my intro said for 38 years. From my 
standpoint, the reason you have the rule of law, one of the 
reasons, is to create certainty, to lay out the rules of the 
road, things like the Uniform Commercial Code--extremely 
valuable. You have, national standards to govern interstate 
commerce.
    Do you think the regulatory environment today creates a 
higher level of certainty than it did 38 years ago in your 
experience? Have we improved certainty?
    Mr. Pierce. That is a hard question to answer.
    Chairman Johnson. I can answer it.
    Mr. Pierce. I am not at all sure that we have.
    Chairman Johnson. Let me ask it a different way. Do you 
think it is easier or harder to start a company, to build a 
company, to create jobs? Is it easier or harder 38 years later?
    Mr. Pierce. I do not know.
    Chairman Johnson. Well, I can tell you, talking to 
countless business executives who have told me independently, 
they were coming up to me and saying, ``Ron, there is no way I 
could start my business and build it the way I have if I had to 
start it in this regulatory environment.'' And that is from 
multiple people, very successful, just taking a look at what is 
happening.
    Professor Dudley, it seemed like you wanted to weigh in on 
this.
    Ms. Dudley. I do not have statistics on it. I know surveys 
of small businesses say that it is harder, but I do not have 
data.
    Chairman Johnson. Mr. Clement, you were an entrepreneur 
yourself. Again, Canada is different than the United States. By 
the way, has anybody conducted a study in Canada in terms of 
the overall cost of the regulatory burden of your 129,000 
regulations, some estimate?
    Mr. Clement. So we have a study done by the Canadian 
Federation of Independent Business, which we rely on. They are 
an independent body representing small business owners in 
Canada, and their costing of the impact of regulation of all 
levels of government, not just the Federal level but 
provincial--we have a provincial like your State level--and 
then the local municipal level, is about $30 billion in the 
Canadian economy.
    Chairman Johnson. OK.
    Mr. Clement. So it is quite substantial, similar to what 
some of the numbers you were mentioning here in the United 
States of America. And, clearly, as Prime Minister Harper has 
said, that is the silent job killer that we have to start 
talking about and taking seriously.
    Chairman Johnson. It would be interesting to compare, 
because studies we have--Senator Enzi was talking about $1,880 
billion, or I like to say close to $2 trillion. So it would be 
real interesting to compare those different studies to find out 
what the real comparison is.
    Mr. Clement, you also made an interesting comment about the 
fact that regulators have never been involved in the private 
sector. I want you to expound on that a little bit more, 
because certainly that is what I find, too. I mean, if you do 
not understand the burden, if you are just here thinking of all 
these wonderful benefits of your agency's new regulation, you 
really do not have much sympathy for really the compliance 
burden, do you?
    Mr. Clement. Right. So in our case, Senator, what I can say 
is there is a little bit of entering and exiting the private 
sector world at the senior levels of the bureaucracy, but that 
is usually with larger businesses. That is certainly the 
evidence that I have found, is that they usually go to larger 
firms who have large compliance departments, armies of lawyers 
and accountants and what-not who can help the company deal with 
the compliance costs of doing business.
    It is not usual, at least in our political culture, for 
senior public servants or any public servants to back that 
experience with small business. I am not condemning them for 
that. It is just the way it is. And so what we have tried to do 
was at least sort of build that into the consultation process 
because it was not natural in the culture of the place before 
we started this initiative.
    And just to expound on it very briefly, we are legislators. 
We are legislators, and because I am part of the executive 
branch, we have the executive part of our business as well. So, 
the whole system is erected so that if you face a problem--
which we all want to solve. That is why we are in politics in 
the first place. We want to solve problems and make sure our 
country does better. So the first go-to point is you either 
legislate or you regulate. That is kind of how the place was 
built.
    And so what we are trying to do is change the culture so 
that they realize that there are other mechanisms and tools 
available that maybe the only way, as Senator Stabenow--in some 
cases, the only way forward is legislation and regulation. I am 
not denying that. But in many cases, there are other more 
creative ways that can be found that can deal with the public 
policy issue that does not involve legislation and regulation. 
And we have to do more nudging and less using the hammer in all 
situations.
    Chairman Johnson. Trust me, the bias is toward addition, 
writing new--I mean, after all, we are legislators so we tend 
to legislate. So we need to have something subtractive.
    Chairman Johnson. Professor Pierce, you made an interesting 
comment about how, when we exempt small businesses from some of 
these regulations, then the large corporations game the system. 
Do you have any good example of that? Because I think we see 
that all the time.
    Mr. Pierce. I have seen many examples of it described in 
the literature. One that I recall offhand is FCC auctions where 
small businesses are given preferences, and then when you look 
at what the small business is, it is not so small. It has 
100,000 employees, and they have just created a subsidiary for 
the purpose of participating in the auction, getting the 
benefit.
    Unfortunately, we see the same kinds of problems fairly 
frequently with respect to preferences for minority-owned 
businesses and female-owned businesses. As soon as you provide 
any benefit, there are going to be people who hire good lawyers 
to figure out how to take advantage of the benefit, and that 
creates a real problem for you; it creates a real problem for 
the people who write the rules in the agencies. I do not have a 
real easy fix for that problem.
    Chairman Johnson. I think one of the things we have to do, 
if we are going to do a regulatory budget, is we have to 
calculate the cost of the unintended consequences, which is 
really kind of the definition of Washington, D.C.
    One last question for Professor Dudley. Because you have 
been involved in this issue for quite some time as well, and we 
have the Administrative Procedures Act. What is your sense in 
terms of Executives--Presidents--the executive branch following 
that Administrative Procedures Act? Is there greater compliance 
or less compliance? Or is it pretty much about the same?
    Ms. Dudley. I am not sure of the answer to that. I think it 
is about the same because it is required by law, and we are 
such a litigious society that if agencies do not follow the 
procedures and solicit notice and comment, they can be sued. I 
have seen a couple things lately I am very curious about. The 
trans fat announcement that was made just this week, I do not 
think that went through notice and comment. So there are some 
things that I am curious about, but----
    Chairman Johnson. We do know that President Obama's 
executive amnesty has been basically--there is a stay because 
he did not follow the Administrative Procedures Act as well, so 
there are certainly different examples of that.
    Chairman Enzi, do you have any further questions?
    Chairman Enzi. I have some questions that I will send in 
that will become a part of the record later, I hope.
    Chairman Johnson. OK.
    Well, with that, again, I just want to thank our witnesses 
for your taking the time, your thoughtful testimony, your 
thoughtful answers to our questions.
    This hearing record will remain open for 15 days until July 
8 at 5 p.m for the submission of statements and questions for 
the record.
    This hearing is adjourned.
    [Whereupon, at 11:55 a.m., the Committees were adjourned.]

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