There are plenty of ways to upend the workings of the federal government. There is the blunt-force approach: firing people, cutting budgets, eliminating agencies. That is what the Trump administration has been doing, and it has been generating plenty of headlines.
But there are more subtle approaches that often escape public attention, like tweaking policies in ways that can have far-reaching effects. The Trump administration is doing this, too. One of its targets is the process agencies employ to evaluate the benefits and costs of their regulatory or deregulatory actions.
Cost-benefit analysis is the primary tool that policymakers use in developing and assessing regulations. But the results are only as good as the information that is used to generate them. The Trump administration wants to change the data that’s used in these analyses to arbitrarily reduce the dollar benefit of rules intended to protect individual and public health, the environment and worker safety.
In 2023, while I was administrator of the government’s Office of Information and Regulatory Affairs, I supervised a revision of this analytic process, which had last been updated in 2003. A lot had happened over the past 20 years, and that older approach was no longer consistent with the most recent scientific and economic developments. Nor did it reflect current market conditions.
President Trump recently ordered the Office of Management and Budget to revoke the 2023 update and return to the 2003 approach. Motivation aside, this is bad management. It will deprive government decision makers of an up-to-date way to determine whether the deregulation the White House is pursuing will make Americans better or worse off. Important government decisions will be based on obsolete data and economics.
Perhaps the most significant change in the 2023 revision was to update what’s known as the discount rate — the measure that aims to value the consequences of a regulation today when its impact might not be felt until well into the future. The benefits of a regulation generally need to justify the costs. But assessing the value of a rule is tricky when costs, such as requirements that companies install pollution-control equipment, are borne in the near term, but benefits, including reductions in mortality, cancer or lost work days, often accrue over decades.
That’s where the discount rate comes in. The rate is fixed to an estimate of the long-term return on government debt, after adjusting for inflation, and helps policymakers measure the value of a regulatory benefit over time.
But choosing which discount rate to use can have a significant impact on the outcome. Lowering the discount rate makes future benefits look more valuable today and provides a more convincing argument for a regulation. Raising the discount rate, which the Trump administration is preparing to do, means the future benefits of a regulation will be considered less valuable today and makes it harder to justify. Let’s say a particular rule would offer a benefit of $100 million in 30 years. If the discount rate is 2 percent, the value of the benefit today would be considered $55 million. If it is 7 percent, today’s benefit would be valued at only $13 million.
The 2003 guidance, which Mr. Trump has embraced, advised agencies to use discount rates of 3 percent and 7 percent, with agencies given some discretion on whether to evaluate regulations using one or both rates. The 3 percent rate reflected the real rate of return on 10-year government bonds averaged over the prior 30 years. The 7 percent discount rate has become discredited in the economic literature. This higher rate was justified in part on the grounds that regulatory benefits would accrue at a time when societal well-being is higher. That is true sometimes, but in other cases, such as with government investments in emergency preparedness for earthquakes, hurricanes or pandemics, the opposite is true, and that calls for a lower discount rate.
The 2023 revision by the Biden administration kept the same formula but used bond yields for the most recent 30 years. This approach pointed to a discount rate of 2 percent. It also allowed for agencies to adjust it up or down, when appropriate, as opposed to automatically moving to 7 percent.
That approach was reviewed and endorsed by independent experts at top universities, and was lauded by two Nobel Prize-winning economists. What justification could there be to replace new data with stale data from the 1970s, as Mr. Trump wants to do, other than to diminish the value of long-term benefits of proposed rules that would protect health and the environment?
The law has a term for that approach — “arbitrary and capricious” — which is the standard courts use to strike down regulations that lack adequate analytical support. Any deregulatory actions that rely on this outdated analysis are likely to face such a fate.
This affront to science and rationality is not an isolated approach in the second Trump administration.
In an executive order issued during his first day in office, Mr. Trump also targeted the government’s use of the “social cost of carbon,” a measure to assess the impact of climate change. His administration called into question the measure’s “basis in empirical science,” even though it relied heavily on work by another Nobel Prize-winning economist, William Nordhaus of Yale.
This metric is an estimate of the dollar value of the long-term damage caused by a ton of carbon dioxide emissions in a given year on indicators including agricultural productivity, human health, property damage and energy costs. Policymakers use it to gauge the effects of potential policies that reduce or increase emissions. The courts have already held that the government cannot ignore the adverse consequences of climate change and struck down an effort in the first Trump term to use a value to determine the social cost of carbon value that ignored relevant impacts.
With moves such as these, the Trump administration is pursuing deregulation while working to understate the negative consequences of its actions on American health and well-being. During Mr. Trump’s first term, courts struck down a disproportionately high number of Trump administration regulations — higher than for any other prior presidential administrations of either party.
Right out of the gate, Mr. Trump and his allies in government are signaling that they will use the same playbook. We should expect and hope for the same outcome from the courts.
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