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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/ 

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 
(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

RON JOHNSON, Wisconsin Chairman 

JOHN MCCAIN, Arizona 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

JAMES LANKFORD, Oklahoma 

MICHAEL B. ENZI, Wyoming 

KELLY AYOTTE, New Hampshire 

JONI ERNST, Iowa 

BEN SASSE, Nebraska 

THOMAS R. CARPER, Delaware 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

TAMMY BALDWIN, Wisconsin 

HEIDI HEITKAMP, North Dakota 

CORY A. BOOKER, New Jersey 

GARY C. PETERS, Michigan 

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 

JEFF SESSIONS, Alabama 

MIKE CRAPO, Idaho 

LINDSEY O. GRAHAM, South Carolina 

ROB PORTMAN, Ohio 

PATRICK TOOMEY, Pennsylvania 

RON JOHNSON, Wisconsin 

KELLY AYOTTE, New Hampshire 

ROGER F. WICKER, Mississippi 

BOB CORKER, Tennessee 

DAVID A. PERDUE, Georgia 

BERNARD SANDERS, Vermont 

PATTY MURRAY, Washington 

RON WYDEN, Oregon 

DEBBIE STABENOW, Michigan 

SHELDON WHITEHOUSE, Rhode Island 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

TAMMY BALDWIN, Wisconsin 

TIM KAINE, Virginia 

ANGUS S. KING., Jr., Maine 

ERIC UELAND, Republican Staff Director 

SUSAN ECKERLY, Director of Regulatory Review Budget Committee 

WARREN GUNNELS, Minority Staff Director 
(III) 

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 

(1) 

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 41⁄2 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, 
2 

1The prepared statement of Senator Johnson appears in the Appendix on page 35. 

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

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 
3 

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. 
4 

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. 
5 

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 
6 

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 topto-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. 
7 

1The prepared statement of Mr. Clement appears in the Appendix on page 46. 

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. 

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-toitiveness 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: 
8 

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. 
9 

1The prepared statement of Ms. Dudley appears in the Appendix on page 53. 

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. 

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 
10 

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 
11 

1The prepared statement of Mr. Pierce appears in the Appendix on page 65. 

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. 

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. 
12 

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 
13 

1Mr. 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. 

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. 

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 
14 

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 regula-
15 

tions 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 
16 

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 onefor-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 backand-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 
17 

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. 
18 

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 
19 

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 
20 

1Mr. 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. 

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 Court1 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. 

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 
21 

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 benefitcost 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 topto-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. 
22 

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 Adminis-
23 

tration 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? 
24 

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 
25 

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 
26 

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, 
27 

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 
28 

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. 
29 

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. 
30 

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-forone. 

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 
31 

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. 
32 

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 goto point is you either legislate or you regulate. That is kind of how 

the place was built. 
33 

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. 
34 

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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