On Tuesday, Politico reported on the latest chapter of what may turn out to be one of the more consequential and substantive governing debates going on in the Trump Administration. That may be a low bar, but this one is worth keeping an eye on if you care about the state of our constitutional system.
On its face, the question at issue seems impossibly dull: Should the Treasury Department’s tax regulations be subject to oversight and control by the Office of Management and Budget, just as regulations by other cabinet agencies are? And the Politico article, like some others on this subject, seems intent on making it yet another personal fight among Trump appointees, this time pitting OMB director Mick Mulvaney against Treasury Secretary Steven Mnuchin. But this debate runs deeper than that.
The centralized coordination of regulations by the White House became formalized at the beginning of the Reagan Administration under an executive order that put OMB’s Office of Information and Regulatory Affairs (OIRA) in control of the process. The order was a big step forward for constitutional administration, because it clearly reaffirmed the principle that the president is in charge of what happens in the executive branch.
But since 1983, the Treasury Department has been largely exempted from this process of centralized coordination. Thanks to a formal agreement between Treasury and OMB, only a small number of especially significant IRS rules get reviewed by OIRA and the IRS is basically on its own as a regulator. In this one respect, the IRS resembles the so-called “independent” regulatory agencies—which claim not to be directly answerable to the president.
From the National Labor Relations Board and the Consumer Product Safety Commission to the Securities and Exchange Commission, the Federal Communications Commission, the Federal Deposit Insurance Corporation, and the rest of the dozen or so commissions that regulate the national economy, these agencies are generally considered independent because there is a limit on the president’s ability to remove their leaders. But as a practical matter, they are also generally independent of the review and coordination process by which the president and his senior appointees oversee the regulatory function of the executive branch.
The Treasury Department is of course not independent in the former sense, but it is in the latter sense, and the move to bring Treasury more fully into the OIRA review process may well signal a broader move to do the same to the other economic regulators that are now largely exempted from that process.
That this is appropriate in principle and is a good idea in practice has long been asserted not only by conservative administrative-law types and Republican administrations but also by the last two Democratic presidents (in executive orders 12866 and 13563, respectively). For conservatives in particular, bringing the independent agencies into the fold of OIRA points in the direction of bringing them more generally into the fold of the constitutional system, which has only three branches of government and no fourth super-branch of regulators.
The Hoover Institution’s Adam White laid out the case for reining in those independent agencies in National Affairs a few years ago, here. And Neomi Rao, who is one of the brightest stars in the constellation of conservative regulatory lawyers and now runs OIRA, had expressed interest in moving in this direction at least with regard to the regulatory review process before she started that job.
So to me at least, this move to bring the IRS under greater OIRA oversight both seems justified in itself (since tax regulations now routinely involve enormously consequential policy questions) and suggests that a further move in this direction with regard to the independent agencies may be in the offing. Such a move would be likely to endure through future administrations of both parties, as no president would be inclined to give up the power it would give the White House, and so could be a lasting legacy in regulatory reform for this administration—unlike, sad to say, much of what has so far happened on the regulatory front.
Lasting deregulation requires structural institutional reform, and there hasn’t been much of that yet. This fight suggests some may be coming. Let’s hope so.