President Biden accelerated the regulatory state on his first day in office by ordering agencies to consider aspirational but vaguely defined goals and benefits when imposing new rules on businesses large and small.
The order greenlighting regulations even when the benefits “are difficult or impossible to quantify” sent shudders down the spines of CEOs. They fear business growth will be smothered in pursuit of vague objectives such as “human dignity” and “the interests of future generations.”
“It is the most aggressive thing I’ve ever seen by an administration,” said Doug Holtz-Eakin, president of the American Action Forum, a right-leaning economic think tank. “It’s one thing to put out a bunch of regulations, but this changes the way regulation is done. It allows you to jam through any regulation you want regardless of the impact [on] the private sector.”
The order, which tosses out the government’s traditional cost-benefit analysis before approving a regulation, is among a slew of executive actions Mr. Biden has signed to curb the power of businesses.
Mr. Biden‘s regulations provide a road map for his plans to transform business and what he sees as anti-competitive business practices. Without the regulations, Mr. Biden said, businesses can stifle competition, raise prices and limit consumer choice. The regulations are also designed to give workers more power to demand higher wages and mobility, the president has said.
Conservatives say the red tape will impose too many costs on businesses, hurting the economy and destroying job growth. Burdening businesses with more regulations as the nation’s economy restarts after COVID-19 shutdowns is too risky, they say.
Through the first nine months of his presidency, Mr. Biden issued more than 297 rules considered “economically significant.” That means the rule could have an annual impact of $100 million or more, according to the Federal Register, the government’s journal of rule-making.
In 2020, President Trump issued 261 rules deemed to be economically significant. Of those, 36 were deregulatory, reducing the total number of regulations adding costs to 225, the Federal Register showed.
During his first year in office, Mr. Trump issued 199 such regulations, only 88 of which were completed.
More Biden regulations are on the way. The Unified Agenda of Regulatory and Deregulatory Actions found this spring that 72 federal agencies were reviewing 3,959 rules at active and long-term stages.
The rule-making frenzy is a shock to businesses after Mr. Trump, who boasted that his deregulation unshackled businesses, gave them the confidence to invest and hire. He created the “one in, two out” order, which mandated the elimination of two regulations for every new rule imposed. A study by the Competitive Enterprise Institute found that Mr. Trump ultimately eliminated 3.2 regulations for every new rule.
Businesses now worry that they will be overwhelmed by red tape.
In the waning days of the Obama administration, 20% of businesses said regulations were their single biggest problem. That fell to 11% in August 2020 under Mr. Trump. It ticked up to 14% after the 2020 election and has increased to 15% in the first months of Mr. Biden‘s presidency, according to data from the National Federation of Independent Businesses.
Economists have long debated the impact of regulations on businesses.
The U.S. Chamber of Commerce estimates that federal red tape costs the economy as much as $1.9 trillion a year in direct expenses, lost productivity and higher wages. It says the impact is 20% higher on businesses with fewer than 50 employees than on large corporations.
The Chamber also estimates that for every $1 increase in regulatory expenses, a small business must decrease its staff by 0.0156%. That number quickly adds up, with some regulatory costs reaching millions of dollars.
A 2017 University of Pennsylvania study, however, concluded that regulations created as many jobs as they eliminated across the entire economy. The study found that regulation-induced costs resulted in higher wages and more job creation in sectors such as clean energy, though it did not provide exact numbers.
“Regulations often benefit some corporations while hurting others,” said Jeff Hauser, of the Center for Economic and Policy Research, a liberal think tank. “There will always be winners and losers, and the question is: Are the right people winning relative to existing law?”
The Labor Department in May rescinded a Trump-era rule that made it easier for companies to hire freelance workers but made it harder for contract workers to claim overtime pay and benefits.
Some businesses whose models relied on contract workers grumbled that the change would force them to lay off freelancers. Labor advocates said the overhaul prevented businesses from reducing costs at the expense of workers.
In March, Mr. Biden suffered stinging criticism for overhauling the way COVID-19 relief funds were doled out to small businesses. The Small Business Administration revised rules so that self-employed and “one-person businesses” that already received aid weren’t eligible for more.
The change also made it easier for first-time applications to receive relief funds.
In July, Mr. Biden ordered the Federal Trade Commission to write a rule curtailing the use of noncompete agreements that businesses use to restrict workers from jumping to competitors. The administration said the action created a pathway for higher wages.
Business organizations said employers would be more willing to provide better training and protect intellectual property if workers were less likely to leave.
Mr. Hauser said such fears are overblown and businesses should embrace the rules because they spur innovation.
“Regulations typically end up costing businesses far less than they project at the time because they figure out a way to comply with the regulation at less cost than they anticipated,” he said. “A business can’t emit a fume. Now they have an economic incentive to figure it out. With that incentive comes great innovation.”
Mr. Holtz-Eakin sees it differently. He said the red tape combined with the administration’s rhetoric has created a “negative business environment.” He views Mr. Biden‘s talk and actions as a two-pronged approach to getting business to bend to the administration’s will.
Last month, Mr. Biden‘s agriculture secretary and top economic adviser accused the meat industry of illegal price-fixing and blamed it for soaring food prices. They vowed to investigate and restrict the industry in the name of protecting consumers.
An industry trade group accused the administration of scapegoating meat producers. It said the prices increased because of a nationwide labor shortage.
“I think that was relatively unprecedented,” Mr. Holtz-Eakin said of the attack on the meat industry. “There have been other industries singled out by presidents, but that one was a surprise.”
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