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Policy: Economy

Insuring regular regulatory relief is as vital to economic growth as tax cuts

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Op-Eds,Taxes,Federal Budget,Big Government,Economy,Analysis,North Carolina

RALEIGH, NC — As the only state the Obama reelection campaign actively fought for but lost in 2012, North Carolina has become something of a fixation for the left in 2013. Republicans now control the governorship and the legislature for the first time since Reconstruction, and since January have used their newfound influence to pursue one of the nation's most sweeping sets of free-market reforms.

In response, liberal commentators and activists within North Carolina and across the country have tried to make the state "the new Wisconsin," complete with political spectacles, national media attention, overheated rhetoric, and thousands of protestors.

The effort to block Republican Gov. Pat McCrory and legislative leaders from enacting their agenda didn't work. North Carolina made great strides on multiple fronts, including school choice and tax reform. While the state's new flat tax deservedly drew praise from national conservatives, North Carolina took major action on another pro-growth agenda item, regulation.

For states trying to strengthen their economies, there are strong reasons to believe that state regulatory burdens matter at least as much as state tax burdens. Unintentionally running afoul of a complicated environmental rule or failing to get the required permit to site a new location can make or break a growing business.

According to a recent John Locke Foundation analysis of academic research on state economic growth, studies of state regulatory burdens were more likely to find negative effects on the economy than studies of state taxes were. So even as North Carolina's new elected officials have pursued spending restraint, tax reform, and other goals, they have made regulatory reform an ongoing priority.

In 2011, the Republican-led legislature passed tort reform, medical malpractice reform, and workers' compensation reform. They capped it off with the Regulatory Reform Act of 2011, overriding Democratic then-Gov. Bev Perdue's veto to rein in overreach by the state's environmental agencies.

Among other provisions, the bill required new rules to meet tests of legal authority and cost-effectiveness, while blocking environmental agencies from adopting rules more stringent than federal standards without clear legislative approval.

The following year, lawmakers produced the Regulatory Reform Act of 2012, which required certification that proposed new rules adhere to the new state rulemaking principles before they could be published.

This year, the North Carolina legislature enacted a third Regulatory Reform Act. Its most important provision requires review of all existing state regulations on a 10-year cycle. If a rule is no longer legally authorized, necessary, or capable of delivering benefits greater than its costs, it will automatically sunset.

This was another example of applying sound empirical research to the legislative process. In 2012, the Mercatus Center at George Mason University published a study of state regulatory policies. The only rules-review process shown to have a "robustly statistically significant" effect in reducing a state's regulatory burden was periodic review and sunset of existing regulations. The effect was large enough that states could expect economic benefits from adopting it.

Both in state capitals and in Washington, the topic of regulatory reform isn't as politically sexy as tax reform. But it is absolutely critical to rejuvenating our stalled economic recovery. It allows businesses and entrepreneurs more time to spend on productive activities, removes impediments to business openings and expansions, and creates a welcoming climate for more jobs and investment.

Nationally, regulations are expanding at an alarming rate. Leaders in Washington would be wise to follow North Carolina's example in reining in overregulation. Regulatory reform based on sound research is every bit as vital as tax reform to boosting the economy.

Jon Sanders is director of regulatory studies at the John Locke Foundation, a state policy think tank in North Carolina.

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