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Trump’s claim his deregulatory actions are saving American households $3,000 a year

libadmin August 15, 2019
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August 15 at 3:00 AM

“We’ve eliminated a record number of job-killing regulations, giving the average American household $3,000 more to spend every single year.”

— President Trump, remarks during a campaign rally in Cincinnati, Aug. 1, 2019

“Our record-breaking regulatory reduction campaign has saved every American household an average of $3,000 per year.”

— Trump, remarks during a campaign rally in Orlando, June 18, 2019

In compiling our latest update of The Fact Checker’s database of President Trump’s false and misleading claims, we noticed the president has a fresh talking point he’s been using at his campaign rallies — that the administration’s war on regulations is giving each American household an additional $3,000 a year.

We’re always suspicious when we see any president tout a number like this. We traced this particular figure to a 31-page report issued in June by the White House Council of Economic Advisers, titled: “The Economic Effects of Federal Deregulation since January 2017: An Interim Report.” We’ve spent a couple of weeks digging into the report, communicating with the CEA and talking to outside experts. Here’s our assessment of Trump’s claim.

The Facts

The first thing we noticed is that the president apparently does not understand the nuanced presentation of this number in the report. The estimate in the report is that after five to 10 years, the administration’s freeze on new regulations and rollback of Obama-era regulations will raise real incomes by $3,100 per household per year.

At his campaign rallies, Trump speaks as if this pile of money is already landing in a household’s pocket.

CEA gamely tries to argue that some of the deregulatory steps are already making a difference, but the fact is the president is presenting this figure in a misleading way.

But what of the figure itself? Well, it depends on a lot of assumptions and some cherry-picking. Depending on which economist you consult, some of the analysis is defensible. But others think it goes too far.

In a play for the history books, the report argues the combined net aggregate benefits of the 20 deregulatory actions examined in the report exceed 0.6 percent of national income. It favorably compared that to the effect of the deregulation of airlines and trucking four decades ago during the Carter administration, which amounted to 0.5 percent. The report in this passage cited research by Clifford Winston of the Brookings Institution, so we contacted him to see what he thought of this comparison.

Winston, who said he’s an advocate of deregulation, was not impressed. “That’s just stupid,” he said. “These things take decades to accumulate. They don’t understand the benefits of regulation if they make a statement like this.” He dismissed the analysis as “just crazy” and “anti-academic.”

Howard Shelanski, who was administrator of the White House Office of Information and Regulatory Affairs under President Barack Obama, was a bit more diplomatic. But he agreed that “one of the oddest claims in the report is that we have enough time since the repeal of the rules to empirically measure what the effect would be.”

The report is relatively short, and several experts said they had trouble understanding how the numbers were developed with such certainty. An administration is expected to weigh the possible costs of a regulation against the benefits — a classic example is requiring automakers to provide seat belts — but some analysts say the report appears to overemphasize the cost side of the equation.

The report “used the best data available at that time to estimate the impacts of the Trump administration’s new approach to Federal regulation,” CEA spokeswoman Rachael S. Slobodien said. She said enough time has passed to measure market outcomes for some of the actions. “Given the rate of technological change in newly deregulated sectors including the Internet, it is tempting to speculate that CEA might have also failed to predict innovations and consequently underestimated the benefits of the Trump deregulatory agenda.”

(Given the complexity of this subject, for interested readers we have provided a link to our full exchange of questions and answers with the CEA so readers can see Slobodien’s lengthy responses in full. The CEA’s answers total about 3,500 words.)

Now let’s unpack the $3,100 figure. About $1,200 is derived from an estimate of slowing the pace of regulations that were being issued during the Obama administration. The rest, $1,900, supposedly comes from the impact of 20 deregulatory actions that are examined in the report. The total impact of those deregulatory actions on real incomes is deemed to be $235 billion a year when fully implemented.

Six of the actions, primarily having to do with data privacy and health care, constitute 70 percent of the savings, according to CEA. These include two actions by the Federal Communications Commission (repealing “net neutrality” and an “opt-in” system for data privacy), one action by the Food and Drug Administration (speeding up generic drug approvals) and three related to health insurance, such as in effect eliminating the individual mandate in the Affordable Care Act and removing limits on short-term insurance.

We were puzzled why the CEA did not include rollbacks to environmental rules, as more than half of the regulations in the past decade were issued by the Environmental Protection Agency, the Energy Department and the EPA with the Transportation Department. (Short answer from Slobodien: The administration is still trying to roll back the Clean Air Act.) We also did not understand why several statutory actions, such as reducing the individual mandate to zero, were included. More than one-tenth of the claimed savings stemmed from rolling back the individual mandate. (Short answer: Major deregulatory steps often come from statutes, not rulemaking.)

Still, it shows this is a careful selection of deregulatory changes. The claimed effect on real incomes from each of these individual actions depends on the assumptions made by the CEA. Some of the numbers struck analysts as inflated, suggesting the CEA minimized the possible benefits that can flow from regulations, despite the costs.

For instance, CEA concluded eliminating the individual mandate would raise real income by $28 billion a year, but the annual payments for the penalty are an order of magnitude lower ($1.7 billion in tax year 2014 and $3.1 billion in tax year 2015).

“The CEA finds that the health insurance deregulatory reforms will generate cost savings that are larger than the reductions in Federal spending,” Slobodien said. She said the Congressional Budget Office found that these deregulatory efforts on health care will reduce the budget deficit by $185 billion over 10 years.

The CEA also disputed previous cost-benefit estimates made by the Obama administration as wrong or inadequate.

The Obama administration determined that placing limits on consumers’ options to purchase short-term health insurance was not economically significant. But the CEA says repealing it will raise real incomes by $13 billion, citing a CBO estimate that 2 million people will enroll in the plans.

Similarly, the FCC’s opt-in rule was deemed by the Obama administration and the Government Accountability Office (GAO) to be “non-major,” i.e., with costs of less than $100 million per year. But the CEA estimated that reversing the rule would have a $22 billion effect on annual real income savings.

“The Obama FCC was notorious for its lack of economics,” Slobodien said. “… Therefore CEA needed to carefully examine the FCC’s assertion that its rule was non-major; when the CEA did so, we found the assertion to be in error.”

The CEA attributes a sharp decline in prices for wireless and wired Internet service in March 2017 to Congress considering a resolution of disapproval that would nullify Obama’s opt-in rule. (The bill was introduced on March 3 of that year, and Trump signed it into law on April 3.) “Wireless service prices fell at the same time that Congress was considering the resolution of disapproval and wires Internet prices fell a couple of months later,” the report said.

But market competition may have also been a factor. A major price war broke out among wireless carriers after Verizon announced it would join in offering unlimited data plans first advanced by T-Mobile. Numerous articles at the time attributed the drop in prices to the price war; none mentioned the repeal of the opt-in rule. The Wall Street Journal quoted an analyst as saying the steep drop in the cost of wireless service was because of “the price war that has broken out among cell-phone service providers, with all the big providers now offering unlimited data plans at cheaper rates.”

The price war has continued, but the CEA says that is the result of deregulation. “The data show that U.S. consumers enjoy a lasting price reduction, which suggests that something has occurred to permanently enhance competition or reduce costs,” Slobodien said. “Economic theory predicts and economic history has shown the deregulation can do exactly that. As you know, a price war, or at least a price cut that lasts permanently, does not happen just on a whim of one of the companies. It is the result of deregulation.”

The biggest number in the report — $54 billion in real income — stems from the FCC’s reversal of the Obama administration’s “net neutrality” rule. The report cites research by Thomas W. Hazlett and Anil Caliskan. Hazlett has been a critic of the FCC’s cost assumptions. But he also thinks the CEA may be pushing the envelope.

“As for the CEA report using Hazlett-Caliskan (2008) as an analogy: that is, in my opinion, correct, and I think it gets the direction of change (in consumer welfare) right,” Hazlett said in an email. “There are strong assumptions required to produce the empirical estimate of the gains that the report offers, however, and those can be criticized as overly aggressive.”

Here are some other examples of the gap between CEA’s estimates and previous ones:

  • The “Stream Protection Rule” has a $2 billion effect on real income, according to the CEA, but less than a $100 million effect according to the Office of Management and Budget (OMB) and GAO.
  • “Savings Arrangements Established by States for Non-Governmental Employees & Qualified State Political Subdivisions for Non-Governmental Employees” has a $13 billion effect on real income, according to the CEA, but less than a $100 million effect according to OMB and GAO.
  • “Rescission of Rule Interpreting ‘Advice’ Exemption in Section 203(c) of the LMRDA* (Persuader Rule)” yields cost savings of $93 million per year, according to the regulation, but $15 billion according to CEA.

Even if one accepted all of CEA’s numbers, the report does not look at the other side of the ledger — actions taken by the administration that have reduced household income. For instance, Federal Reserve Bank of New York officials peg Trump’s tariffs as already costing the typical U.S. household $831 a year. David Henderson of the Hoover Institution, who otherwise praised the report, made this observation: “I wonder, though, what the numbers would look like if they included the negative effects on real income of increased restrictions on immigration and increased restrictions on trade with Iran.” (He did not count the tariffs because he considers them to be taxes, not regulation.)

Joseph Aldy, a former Obama administration official who is faculty chair for the regulatory policy program at the Mossavar-Rahmani Center at Harvard University’s Kennedy School, faulted the report for what he said was a lack of transparency on how it achieved such sharply different numbers. “The regulatory actions analyzed in this report were subject to public comment and review — including of their benefit-cost analyses — but this report lacks the same transparency,” he said. “There is not enough information here to understand what key assumptions are driving the results.”

He noted that in 2017, the Trump White House reported to Congress that every dollar of regulatory cost delivered $3 to $7 of benefit to the American people. “Comparing benefits and costs is the appropriate way to evaluate whether regulations are making our people better off,” he said.

The Pinocchio Test

It is beyond the scope of this fact check to settle disputes among economists. CEA clearly believes its analysis is correct, and we appreciate the effort that went into answering our questions.

But readers should realize these numbers are not set in stone — they are estimates based on assumptions that have been challenged or are certainly open to question.

We’ve been in Washington a long time, so forgive us for appearing cynical. The report has the air of an effort to give the president a shiny new talking point. But this is a talking point he keeps bungling. Even if one accepted the estimate, the supposed $3,100 in additional real income per household may not materialize until after the president finishes his hoped-for second term. Yet he’s barnstorming around the country telling audiences he’s already been giving them this money.

Our advice: Don’t bank on it. Moreover, remember the various ways administration policies are also reducing household incomes. The president may be proud of his deregulatory agenda, but there’s no reason to be so misleading. He earns Three Pinocchios.

Three Pinocchios

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https://www.washingtonpost.com/politics/fact-checker/trumps-claim-his-deregulatory-actions-are-saving-american-households-3000-a-year/2019/08/15/a2364d58-8f5c-48ed-870c-b6e1300fd4ce_story.html

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