In government as in weather, not all “freezes” are the same.
In central Florida, where I like to spend much of my free time, a “hard freeze” warning is issued whenever forecasters expect the temperature to fall to 27 degrees or below for at least two hours. In Missoula, Montana, where I went to college, the exact same conditions usually prompt everyone to remark on what a beautiful day it is. They have freeze warnings in Montana, too, but these are apt to be issued around Memorial Day or Labor Day. Or, in a bad year, on Independence Day.
President Donald Trump ordered a freeze on new federal regulations as soon as he took office. This is typical of new administrations, especially when control of the White House shifts from one party to the other, but it is clear that Trump’s freeze is going to be harder and last longer than his predecessor’s. The Obama administration soon morphed into a regulatory hothouse, where new rules were lovingly nurtured until they burst on the scene like Audrey II in “Little Shop of Horrors.” The growing season in the Trump tenure promises to be more like the never-Christmas-endless-winter of “The Lion, the Witch and the Wardrobe.”
One early victim of Trump’s killing regulatory frost is the new gift and estate tax valuation regulations that the Treasury proposed last summer, which my colleague Ben Sullivan discussed in this space. Trump and his fellow Republicans in Congress want to repeal the estate tax altogether; whether they succeed, and whether this repeal will also extend to gift taxes, is unknowable right now. Regardless, the rules that would have artificially inflated the value of closely held business interests for tax purposes are now frozen so deeply they probably qualify as an experiment in cryogenics. They may need to await not only a day when a future administration wants to implement them, but possibly one in which there is a re-enacted tax for which they would even be relevant.
Another rule that I suspect is solidly frozen for the duration is a mandate that the prior administration timidly proposed last autumn – after years of prodding from the trucking industry – to require speed-limiting devices on most of the nation’s freight-hauling fleet.
This initiative accomplished the regulatory jiujitsu of uniting a divided industry. Drivers, already chafing under other Obama-era rules limiting their working hours in the interest of safety, rebelled against the idea of devices that might prevent them from speeding up if the situation demands, such as when impatient drivers behind them begin to act foolishly when caught behind a “rolling roadblock” of side-by-side trucks on a two-lane interstate. Drivers also feared that speed-limiters would be accompanied by electronic logs that would not take into account time spent resting in cabs while awaiting loading or unloading, and which might force a driver to keep pushing ahead despite fatigue in order to meet a delivery deadline.
Trucking companies liked the concept of speed-limiting devices because they would cut down on fuel consumption and, not coincidentally, tie up the fleet with longer haul times, thus reducing capacity and promoting higher shipping rates. The costs would have been borne mainly by drivers, who are frequently paid by the mile, and by the public, which would share the road with slower-moving trucks and which buys the goods that would take longer and cost more to ship. The freight lines even catered to the prior administration’s climate-change fetish by pointing out that lower fuel consumption would mean less carbon dioxide emissions. Carried to its extreme, this logic means we can cut emissions to zero by leaving the trucks parked at their depots.
The Obama proposal wasn’t quite that extreme, but it was bad enough and vague enough that even the trucking companies opposed it through their trade group, the American Trucking Associations. So now we are back to the starting line. I would not count on Team Trump to fire that pistol anytime soon.
Even if the new administration gives the speed-limiting regulation the green light, regulators will face another complication because the White House has mandated that for every new rule issued, two must be withdrawn – and together they must have an estimated dollar value at least as high as the burden calculated for the new regulation. Where will transportation regulators find rules to cut that can satisfy this demand? It’s anybody’s guess, but quite possibly nowhere.
An area where a bit of frostbite is welcome is that of biofuels. As I have written before, the ethanol mandate has survived to this point largely if not entirely due to Iowa’s significance to national politics. But regulatory delays have slowed it, and the general regulatory freeze may provide an opportunity to kill it for good.
Yet another rule that was frozen, or seemingly frozen, was the Obama Labor Department’s greatly expanded mandatory premium pay for overtime. Those rules were scheduled to have taken effect in December, but they were temporarily restrained by a federal district court after opponents sued on grounds that the department had overstepped its authority. It is unclear whether the rules would be subject to the Trump freeze if the courts drop their order, since technically they took effect before his inauguration. If they are not, the new administration might take steps to withdraw the rules – though administrative procedures would likely make that a time-consuming exercise, and in the meantime most affected employers will have already restructured their pay practices.
Seemingly in contradictory fashion, Trump has also ordered regulators to take affirmative steps to reduce what he considers some of the burdens of the Affordable Care Act. This, of course, will require the promulgation of new rules. We can expect the administration to provide whatever heat is necessary to countermand the general freeze in this specific area.
Not all the frozen rules are unnecessary or unwanted. An entire industry of commercial drone service providers is waiting to take off, awaiting rules from aviation regulators that will allow them to fly unmanned vehicles for paying clients. Those rules, too, are on hold. But my guess is that the hold will not last long, because there is not much reason to oppose the guidance (which will take care to keep drones out of airport flight paths and other dangerous places, and the commercial operators are the least likely to behave in an unsafe way) and so many benefits to be obtained by issuing it. I’m not even sure the green-eyeshade crowd will come up with a significant net economic cost. The Trump freeze in this area is likely to be no more than a passing light frost.
But win-win regulation is very much the exception these days. The expansion of the regulatory state in the past 80 years, and especially since 1970, long ago plucked the low-hanging fruit. The law of diminishing returns practically dictates that in most areas of the economy, with the sometimes-exception of emerging industries and technologies, new rules will carry significant costs that ought to be weighed against the perceived benefits. The Obama administration had its thumb on the scale in favor of regulation. The new regime has already reversed that. The extent to which it applies its weight in the other direction remains to be seen.
Posted by Larry M. Elkin, CPA, CFP®
In government as in weather, not all “freezes” are the same.
In central Florida, where I like to spend much of my free time, a “hard freeze” warning is issued whenever forecasters expect the temperature to fall to 27 degrees or below for at least two hours. In Missoula, Montana, where I went to college, the exact same conditions usually prompt everyone to remark on what a beautiful day it is. They have freeze warnings in Montana, too, but these are apt to be issued around Memorial Day or Labor Day. Or, in a bad year, on Independence Day.
President Donald Trump ordered a freeze on new federal regulations as soon as he took office. This is typical of new administrations, especially when control of the White House shifts from one party to the other, but it is clear that Trump’s freeze is going to be harder and last longer than his predecessor’s. The Obama administration soon morphed into a regulatory hothouse, where new rules were lovingly nurtured until they burst on the scene like Audrey II in “Little Shop of Horrors.” The growing season in the Trump tenure promises to be more like the never-Christmas-endless-winter of “The Lion, the Witch and the Wardrobe.”
One early victim of Trump’s killing regulatory frost is the new gift and estate tax valuation regulations that the Treasury proposed last summer, which my colleague Ben Sullivan discussed in this space. Trump and his fellow Republicans in Congress want to repeal the estate tax altogether; whether they succeed, and whether this repeal will also extend to gift taxes, is unknowable right now. Regardless, the rules that would have artificially inflated the value of closely held business interests for tax purposes are now frozen so deeply they probably qualify as an experiment in cryogenics. They may need to await not only a day when a future administration wants to implement them, but possibly one in which there is a re-enacted tax for which they would even be relevant.
Another rule that I suspect is solidly frozen for the duration is a mandate that the prior administration timidly proposed last autumn – after years of prodding from the trucking industry – to require speed-limiting devices on most of the nation’s freight-hauling fleet.
This initiative accomplished the regulatory jiujitsu of uniting a divided industry. Drivers, already chafing under other Obama-era rules limiting their working hours in the interest of safety, rebelled against the idea of devices that might prevent them from speeding up if the situation demands, such as when impatient drivers behind them begin to act foolishly when caught behind a “rolling roadblock” of side-by-side trucks on a two-lane interstate. Drivers also feared that speed-limiters would be accompanied by electronic logs that would not take into account time spent resting in cabs while awaiting loading or unloading, and which might force a driver to keep pushing ahead despite fatigue in order to meet a delivery deadline.
Trucking companies liked the concept of speed-limiting devices because they would cut down on fuel consumption and, not coincidentally, tie up the fleet with longer haul times, thus reducing capacity and promoting higher shipping rates. The costs would have been borne mainly by drivers, who are frequently paid by the mile, and by the public, which would share the road with slower-moving trucks and which buys the goods that would take longer and cost more to ship. The freight lines even catered to the prior administration’s climate-change fetish by pointing out that lower fuel consumption would mean less carbon dioxide emissions. Carried to its extreme, this logic means we can cut emissions to zero by leaving the trucks parked at their depots.
The Obama proposal wasn’t quite that extreme, but it was bad enough and vague enough that even the trucking companies opposed it through their trade group, the American Trucking Associations. So now we are back to the starting line. I would not count on Team Trump to fire that pistol anytime soon.
Even if the new administration gives the speed-limiting regulation the green light, regulators will face another complication because the White House has mandated that for every new rule issued, two must be withdrawn – and together they must have an estimated dollar value at least as high as the burden calculated for the new regulation. Where will transportation regulators find rules to cut that can satisfy this demand? It’s anybody’s guess, but quite possibly nowhere.
An area where a bit of frostbite is welcome is that of biofuels. As I have written before, the ethanol mandate has survived to this point largely if not entirely due to Iowa’s significance to national politics. But regulatory delays have slowed it, and the general regulatory freeze may provide an opportunity to kill it for good.
Yet another rule that was frozen, or seemingly frozen, was the Obama Labor Department’s greatly expanded mandatory premium pay for overtime. Those rules were scheduled to have taken effect in December, but they were temporarily restrained by a federal district court after opponents sued on grounds that the department had overstepped its authority. It is unclear whether the rules would be subject to the Trump freeze if the courts drop their order, since technically they took effect before his inauguration. If they are not, the new administration might take steps to withdraw the rules – though administrative procedures would likely make that a time-consuming exercise, and in the meantime most affected employers will have already restructured their pay practices.
Seemingly in contradictory fashion, Trump has also ordered regulators to take affirmative steps to reduce what he considers some of the burdens of the Affordable Care Act. This, of course, will require the promulgation of new rules. We can expect the administration to provide whatever heat is necessary to countermand the general freeze in this specific area.
Not all the frozen rules are unnecessary or unwanted. An entire industry of commercial drone service providers is waiting to take off, awaiting rules from aviation regulators that will allow them to fly unmanned vehicles for paying clients. Those rules, too, are on hold. But my guess is that the hold will not last long, because there is not much reason to oppose the guidance (which will take care to keep drones out of airport flight paths and other dangerous places, and the commercial operators are the least likely to behave in an unsafe way) and so many benefits to be obtained by issuing it. I’m not even sure the green-eyeshade crowd will come up with a significant net economic cost. The Trump freeze in this area is likely to be no more than a passing light frost.
But win-win regulation is very much the exception these days. The expansion of the regulatory state in the past 80 years, and especially since 1970, long ago plucked the low-hanging fruit. The law of diminishing returns practically dictates that in most areas of the economy, with the sometimes-exception of emerging industries and technologies, new rules will carry significant costs that ought to be weighed against the perceived benefits. The Obama administration had its thumb on the scale in favor of regulation. The new regime has already reversed that. The extent to which it applies its weight in the other direction remains to be seen.
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