Regulations, just as with high tax rates, deter economic growth and create roadblocks for an individual’s right to earn a living or for an entrepreneur to start a business.
Governments have the instinct of a vegetable, according to President Herbert Hoover. Iowa’s own Oval Office resident explained that “they keep spreading and growing.” This is an accurate description, especially as it relates to the administrative state.
Since 2018, Governor Kim Reynolds has placed a priority on enacting pro-growth policies that will make Iowa’s economy more competitive. Governor Reynolds has embraced a growth agenda that is based upon fiscal conservatism, tax reform, and reducing the regulatory burden. This growth agenda is based on empowering main street and creating economic opportunities throughout Iowa. Although Iowa’s historic tax reform often receives the most attention, reducing the regulatory burden is just as important to encouraging economic growth.
Regulations are not only complex, but they have “eternal life,” as demonstrated by the growth of Iowa’s code overtime. Regulations are not just simply rules that individuals and business must comply with, but they are a hidden tax, that is, they come with a cost. The Mercatus Center has measured the number of regulatory restrictions within the code of each of the states, and Iowa has over 160,000 restrictions. Based on the analysis by Mercatus, Iowa has the 15th highest number of restrictions in state code in comparison to other states.
Source: The Mercatus Center
It is for this reason that Governor Reynolds and the legislature have enacted a series of regulatory reform measures that are starting to reduce the “red tape” burden. Patrick McLaughlin, Director of Policy Analytics and a Senior Research Fellow at the Mercatus Center at George Mason University, argues that the states that have recently enacted regulatory reforms are actually performing better in terms of economic growth.
“Reform states experienced average annual growth of 2.09 percent, whereas status quo states grew at 1.87 percent on average,” stated McLaughlin. The states that have recently enacted regulatory reforms include Idaho, Kentucky, Missouri, Nebraska, Ohio, Oklahoma, Virginia, and Iowa. McLaughlin predicts that these states will soon achieve a 5 percent reduction in regulatory restrictions within their respective state code.
Specifically, Iowa has enacted several regulatory reforms that are helping to reduce “red tape” and remove barriers to economic opportunity. This effort started with occupational licensing reform, which reduced barriers for Iowans trying to enter into various occupations. This reform is also important for attracting new people to Iowa, so they do not have to work through costly occupational licensing fees and regulations.
In January 2023, Governor Reynolds issued an executive order on regulatory reform requiring a review of state regulations. The objective was to eliminate not only obsolete regulations, but costly and unnecessary rules. During this year’s legislative session, the legislature passed a comprehensive regulatory reform measure, which requires a cost benefit analysis for new regulations to determine their economic impact.
The reform also establishes greater legislative oversight over regulations by establishing a sunset process and an extensive review and renewal process for regulations every five years. Finally, as part of the larger state government reform initiative, the legislature passed a measure that eliminates and consolidates some of Iowa’s numerous boards and commissions. It also established a legislative review process to review boards and commissions.
Iowa is making progress in reducing the regulatory burden. Going forward, other regulatory reforms could be enacted. The legislature could build upon the recent United States Supreme Court decision in Chevron v. Natural Resources Defense Council. The Chevron decision was a major victory against the bureaucracy. Prior, if a federal court was hearing a dispute over an agency rule, the court deferred to the agency’s interpretation of the rule. With the Chevron doctrine now overturned, courts can interpret the rule based on the law and not on the guidelines from the agency.
At present, Iowa law dictates that judge’s ruling on legal challenges to state agency decisions give deference, or prioritization, to state agency rulings when considering challenges to agency decisions; this unfairly tips the scales of justice in favor of the government over the individual. Iowa code could be changed to require de novo (Latin for “of new”) judicial review over the current agency deference standard, restoring the scales of justice back to a neutral stance and ensuring the right of the individual to a fair and impartial judicial outcome.
Additional reforms Iowa should consider include abolishing the obsolete Certificate of Need (CON) laws. CON laws actually work to empower existing health care providers and limit new providers who may want to enter the market. In addition, some states are also encouraging economic growth and entrepreneurship through the creation of regulatory sandboxes.
A regulatory sandbox seeks to resolve this problem by creating a safe and transparent avenue for businesses and entrepreneurs to innovate without being restricted by regulations. The objective of a regulatory sandbox is to help regulators determine what regulations are burdensome and which need to be repealed.
These are just a few regulatory reform ideas that would help further reduce the regulatory burden and create further economic opportunities and make Iowa more competitive. Regulations, just as with high tax rates, can deter economic growth and create roadblocks for an individual’s right to earn a living or for an entrepreneur to start a business. Businesses, whether large or small, are also impacted by regulations and a heavy regulatory burden will impact not only their cost, but also how many people they can employ. The cost of regulations is also passed onto the consumer.
This is why it is imperative the policymakers do not become complacent on further regulatory reforms or allow special interests to undermine reform. Reducing the regulatory burden is an essential part of pro-growth economic policy.
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