Texas House of Representatives Judiciary and Civil Jurisprudence Committee
Greetings Chair Leach, Vice Chair Johnson, and members of the committee. Thank you for the opportunity to testify before this committee.
My name is Dustin Chambers. I am a professor of economics at Salisbury University and a senior affiliated scholar at the Mercatus Center at George Mason University. My research focuses on income inequality, economic growth, and the excessive burden of regulation on lower income households. Any statements I make reflect only my opinion and do not reflect the opinions of Salisbury University or the Mercatus Center.
My testimony today focuses on three points related to HB 791:
- Red tape reduces living standards for most Texans, especially the poor.
- Poorly crafted regulations harm the Texas economy in general, particularly small businesses.
- The reforms proposed in HB 791 are consistent with best practices adopted by other government agencies and jurisdictions to reduce red tape.
RED TAPE HARMS THE MOST VULNERABLE TEXANS
As of 2022, Texas was the fifth most regulated state in the nation, exceeded only by California, New York, New Jersey, and Illinois. Texas’s administrative law included 273,106 regulatory restrictions and an astonishing 19.3 million words.
According to peer-reviewed research published in numerous academic journals, higher levels of regulations are associated with increased levels of poverty, income inequality, and mortality.2 Specifically, a 10 percent increase in federal regulations that apply to industries in each respective state is associated with:
- 2.5 percent increase in the state’s poverty rate
- 5.3 percent increase in the state’s mortality index
- 0.5 percent increase in income inequality
Based upon these findings, the Mercatus Center has published estimates of how many Texas residents experienced harm from federal regulations. It should be noted that these are underestimates of the negative impact of regulations, as they do not include state and local rules and ordinances. As of 2019, the growth of federal regulations is associated with:
- 717,425 additional people living below the federal poverty line (3,870,944 actual residents versus 3,153,519 in the absence of regulation growth); and
- 4.55 percent increase in income inequality in the state.
RED TAPE HARMS THE TEXAS ECONOMY AND SMALL BUSINESSES
One highly cited study finds that US federal regulations trimmed the growth rate of the US economy by about 0.8 percentage points per year between 1977 and 2012.5 Although this change in economic growth may seem small, the effects compound over time. For example, if the total number of regulations had been frozen over this period between 1980 and 2012, the US economy would have been $4 trillion (or 25 percent) larger in 2012. This is equivalent to just under $13,000 in lost output per person per year.
Focusing on the impact of industry-level regulations on the total number of firms and employment within that industry, multiple studies have found that higher levels of regulations are associated with fewer total firms and lower levels of employment. Focusing on Texas specifically, the Mercatus Center has published estimates of the amount of harm Texas entrepreneurs and workers face as a result of federal regulations. As noted above, these are underestimates of the negative impact of regulations, as they do not include state and local rules and ordinances. As of 2017, the growth of federal regulations is associated with an annual loss of:
- 698 small businesses; and
- 9,861 jobs.
BEST PRACTICES FOR REFORM
With increasing evidence showing that regulations have profound and wide-reaching unintended consequences, there is a growing movement among US states to streamline their administrative laws and purge unnecessary red tape. To that end, Alabama, Arizona, Idaho, Kentucky, Ohio, Rhode Island, and Virginia have initiated comprehensive reviews of their existing regulations and have set regulation reduction targets ranging from 15 to 30 percent. In addition to regulatory budgeting rules, such as President Trump’s 1-in-2-out rule (Executive Order 13771), states have used sunset provisions to compel the mandatory review of existing regulations, and in the case of Idaho, to reform the state’s entire body of administrative laws:
“In 2019, Idaho did something that no other US state had ever done: it allowed all its existing regulations (which have sunset provisions) to expire. In one stroke, over 1,800 pages of regulations were eliminated. After reauthorizing legally necessary and critical regulations, the Gem State had eliminated 75 percent of all regulations, thus surpassing South Dakota as the least regulated state in the nation. Governor Brad Little also signed two key executive orders, which instituted a 1-in-3-out rule for new regulations and greatly eliminated occupational licensing restrictions.”
Considering the federal government’s poor track record of conducting periodic reviews as required by the 1980 Regulatory Flexibility Act, and given Idaho’s successful use of sunset provisions, the US Department of Health and Human Services (HHS) announced a regulation titled “Securing Updated and Necessary Statutory Evaluations Timely,” or SUNSET on January 8, 2021. The proposed rule, which was later scuttled by the Biden administration, would have caused any regulation not reviewed within 10 years of its introduction—as already required by federal law—to expire.
HB 791, like the HHS SUNSET proposal, simply holds executive agencies accountable for following existing Texas law. It stipulates that reviews of existing rules must the conducted in a timely manner and the analysis must be transparent (i.e., the agency must publicly share its methodology, data, etc.). This bill promotes good governance, transparency, and accountability as well as creating incentives to identify red tape in a timely manner and remove it if warranted vis-à-vis the sunset mechanism.
Texas has far more regulations than any other state in the South, boasting nearly 100,000 more regulatory restrictions than the next most-regulated southern state (Louisiana) and 60 percent more regulations than Florida and 146 percent more regulations than Georgia. If the “Texas miracle” is to live on, the Lone Star State needs to take active steps to trim red tape.