Reviving the Regulatory Flexibility Act

An idea for the Trump Administration

(Note: This is going to be a little technical, but maybe it’s not the worst day for that. Please do not fall asleep.)

In the United States, a lot of economic growth, job creation, and sheer ingenuity come from small businesses and startups. As everyone ought to know, many small companies, and many startups, are stymied by state and federal regulation (including “sludge,” in the form of frustrating administrative burdens).

But there is some good news, in the form of a potentially important law that no one seems to know about: The Regulatory Flexibility Act, originally enacted in 1980.

If the new administration starts to pay close attention to it, it could give the Regulatory Flexibility Act a big boost — and promote important economic goals in the process. One reason is that the law is addressed to both the stock of existing regulations and the flow of new ones.

Let’s back up a bit.

The law focuses on “small entities” — small businesses, of course, but also small nonprofits and small governmental units such as towns and school districts. It recognizes the following:

- small entities often bear little or no responsibility for health and safety problems that give rise to regulation;

- regulation can deter potential entrepreneurs from innovating;

- treating small entities the same as large ones can reduce productivity;

- regulation is often a barrier to entry; and

- it can be not-so-tough for big companies, and tough for small ones, to comply with expensive federal mandates.

Now for the current stock of regulations: To reduce the problem, the Regulatory Flexibility Act directs federal agencies to identify and reassess existing rules that have “a significant economic impact upon a substantial number of small entities.”

The legal requirement is simple: Ten years after rules are finalized, agencies have to determine whether they are having such an impact, and must decide whether they should be amended or rescinded. (Wow.)