Why Bush Crusade Against Red Tape Is Unlikely to Succeed

For paper work-weary businesses, a simple phone call to verify a new worker’s Social Security number will replace a special form that now must be sent to Washington.

Some monthly surveys from savings and loan associations will be collapsed into quarterly reviews.

And a report that could drastically limit logging activities to preserve the northern spotted owl has been temporarily delayed.

These are all small manifestations of the White House’s election-year crusade against government red tape. In his State of the Union address on Jan. 28, President Bush announced a 90-day moratorium on new regulations that could “hinder growth.”

Much has been made about the Administration’s regulatory initiative, but the reality is that it is unlikely to have a major effect on the massive regulatory apparatus built by Washington in the past three decades. The regulatory reach of the President is limited and some areas are simply too politically sensitive to meddle in.

Still, Deputy Treasury Secretary John E. Robson, who is helping lead the charge on curbing regulation, says federal programs will be “stripped down to their skivvies” in search of rules, decrees and forms that can be modified or canceled entirely.

“There’s a hell of a lot of stuff the government asks for but doesn’t need,” says Robson.

Adds one assistant Cabinet secretary: “It’s clear that this is the top job we have right now.”

The three-month freeze on new regulations means that the paper work burden will be lightened somewhat in the area of financial reporting. Bank, thrifts and securities regulators are all enthusiastically searching for ways to cut costs.

For example, Securities and Exchange Commission Chairman Richard C. Breeden says his agency will offer small businesses simpler and cheaper disclosure rules when they want to issue stock. And the IRS plans to develop a single form for withholding taxes from employees’ wages to replace the cumbersome separate reports for the federal government and the states.

But for several reasons, these changes are likely to have limited impact. The President’s regulatory moratorium applies only to the part of the government under his control--the Executive Branch. Most rules relating to health and safety are off limits, and independent agencies don’t have to follow the White House lead. Also exempted are the rules prepared specifically to implement an act of Congress.

Perhaps most important of all, George Bush is no Ronald Reagan when it comes to regulation.

Bush signed major bills with significant additions to regulation covering the environment and the rights of disabled Americans. Businesses will spend an additional $25 billion a year to change their equipment and manufacturing processes to comply with the Clean Air Act, and $2 billion to modify rooms and facilities for the Americans with Disabilities Act.

By contrast, Reagan froze regulations for his first 60 days in the White House, and, even more important, put zealous officials in charge of agencies to carry out his mandate to curtail government activities.

Bush is unwilling to take this kind of strong action, says William Niskanen, chairman of the conservative Cato Institute, who worked in the Reagan White House as chairman of the Council of Economic Advisers.

Bush “has got to take stronger action,” he says wistfully. “This particular flip-flop (on regulations) is fine, but I am skeptical whether it will be sustained.”

An Administration official agrees with this analysis, saying: “Reagan and Bush are both Republicans, but there’s a big difference. Reagan said in essence that environmentalists were silly because trees cause pollution. Bush wants to be the environmental president, and he is much more sympathetic with these concerns,” says the official, speaking privately.

The recession has cut into the political appeal of environmental issues. One of the hottest controversies involves the law calling for the government to issue a plan for the full recovery of the northern spotted owl, an endangered species. For businesses in the Pacific Northwest, the issue becomes a choice of the bird or jobs: If more forests are declared off limits for logging, jobs will suffer.

The Interior Department’s report on restoring the spotted owl’s habitat was scheduled for release early this year, but will be held up by the regulatory freeze. During the interim, Secretary Manuel Lujan Jr. has directed his staff to come up with a new plan to “preserve owls and protect jobs,” says Ed Cassidy, the deputy chief of staff.

But he admits that this plan might not meet the Congressional mandate of arranging full recovery for the owl. In that case, Lujan could only enact his plan by asking a hostile Democratic Congress to change the law, prompting a tough political fight.

Another area of concern is in banking. John LaWare, a member of the Federal Reserve Board, will be leading an effort to trim the complexities of bank regulation. But here too, the Administration is tightly constrained by the law.

LaWare says the detailed reports required by the truth-in-lending and truth-in-savings laws, and the Community Reinvestment Act, all should be reviewed for the burdens they impose on financial institutions.

A small group representing the nation’s financial regulatory agencies will review the burden of the bank legislation, along with the forms banks must prepare for the Treasury on cash transactions, to help the government trace drug money.

Reviewing the rules is “a massive job” for the small staff assigned to the task, LaWare acknowledges. Even if the group can decide which rules should be altered or abolished, it may be impossible to carry out the reforms “without making a revision to the statutes,” he admits.

In the area of small business, SEC Chairman Breeden has quickly emerged as one of the most determined advocates of streamlining regulations and paperwork. This, he argues, would make it easier for small businesses to raise capital.

“Under the current system, a company may have to spend $200,000 or more just to prepare the mandated disclosure forms and financial statements without knowing whether there would be any investor interest in the company,” he said in a recent speech.

This week, Breeden proposed a series of reforms to lure hesitant entrepreneurs into the capital markets, including new simplified forms for companies to make their initial stock offerings, and then to sell additional shares later. This could be available to firms with a market capitalization of $20 million to $25 million.

Breeden also wants his agency to adopt “junior” or slimmed-down versions of the 10-K and 10-Q financial reporting documents. These documents are periodic disclosures of a company’s financial condition and events “material,” or important, to its fiscal health.

“While these forms would still require the use of audited financial statements and disclosure of all material information, the complexity of the form will be streamlined to reduce significantly the filing costs for smaller companies,” he said.

But a verbal warning shot was quickly fired at Breeden by Rep. John D. Dingell, (D-Mich.), chairman of the House Energy and Commerce Committee, which has jurisdiction over securities legislation. Breeden’s haste to join the President in freezing regulations could threaten to erode the SEC’s role as an independent agency and would “possibly be inconsistent with the law and the public interest,” Dingell said in a letter to Breeden, asking for details on the agency’s contacts with the White House.

Breeden is determined to press forward with the reforms, but could be blocked by Dingell, who played a major role in stopping the Administration’s ambitious effort last year to provide new powers to banks.

With all these obstacles, the President’s proclamation to fight regulation may need far more than 90 days to show any major successes.

Some Administration officials even admit that the major impact of the moratorium may simply be a political boost for the President.

“This plays very well to a constituency,” said one official. “The vice president (Dan Quayle) gives speeches all the time before enthusiastic audiences, talking about beating back the out-of-control regulators. But how can you beat back your own appointees?”