The incoming Trump administration’s commitment to reduce extremely costly regulatory burdens will feature the new Department of Government Efficiency’s (DOGE) evaluation of federal overregulation. But economic research indicates that harmful regulatory bloat exists at the state level, as well. The new administration may wish to propose solutions to state regulatory overreach that harms many Americans.
Generic Overregulation at the State Level
The Mercatus Center, a nonprofit economic-research organization at George Mason University, has studied the excessive burdens imposed by generic state overregulation. As a 2024 Mercatus report explains, “research indicates that regulatory accumulation [or ‘regulatory creep’] worsens economic conditions, inadvertently increasing poverty rates, destroying jobs, and raising prices.”
Mercatus recommends that state governments consider two specific solutions to regulatory creep:
- Setting a regulatory budget: “[p]lacing a cap on the number of regulations the state can have at one time with a target lower than the current stock of regulations.”
- Setting a regulatory sunset: “a requirement that all regulations be removed after a time unless explicitly renewed by the legislature. This standard establishes an implicit periodic review of rules.”
Relatedly, states may choose to attack regulatory accretion by establishing state regulatory-review offices. A 2023 Mercatus article described Virginia’s establishment of an Office of Regulatory Management under Gov. Glenn Youngkin, tasked with overseeing “full benefit-cost analysis for new regulations and a 25 percent regulatory requirement reduction.”
Specific State Anticompetitive Market Distortions
A separate sort of problem arises from specific government regulatory schemes that distort markets, often by imposing economically unjustified burdens on competitors. These ACMDs, which frequently stem from special-interest pleading, generate huge economic costs.
Some ACMDs that directly affect interstate movement and implicate federal interests may be addressed by federal legislation. Others that are primarily intrastate in character might best be addressed initially through state statutory reforms. Two examples of regulatory programs that illustrate these categories are occupational licensing and certificate-of-need programs.
Occupational-licensing restrictions
An important example of state-level ACMDs involves laws that impose excessive occupational-licensing requirements. In addition to the “learned professions” (medicine, law, accounting), states typically subject a long list of occupations (e.g., barbering, cosmetology, interior design, guide services) to costly educational and training requirements. Occupational-licensing excesses have been subject to bipartisan criticism.
A 2015 Obama White House report highlighted the rapid growth of state occupational licensing in recent decades, generating restrictions that far outweigh their benefits. The report explained that carefully crafted occupational-licensing requirements would in appropriate cases beneficially raise health and safety standards. It then went on to describe the economic harm flowing from the rapid growth in flawed licensing requirements:
- By imposing additional requirements on people seeking to enter licensed professions, licensing can reduce total employment in the licensed professions, reduce overall job opportunities for excluded workers, and raise consumer prices.
- Licensing requirements vary substantially by state, creating barriers to workers moving across state lines and inefficiencies for businesses and the economy as a whole.
The Federal Trade Commission (FTC) has a long history of studying and recommending reforms to occupational-licensing provisions.
Licensing-reform legislation has been introduced in Congress, which could prove to be a model for state reforms. The ALLOW Act, for instance, would allow spouses of service members to travel from one state to another and use on any military base whatever license they received elsewhere. It would also eliminate excessive licensing restrictions in the District of Columbia.
Despite all of these efforts, licensing burdens have continued to grow.
Certificate-of-need laws
State certificate-of-need (CON) laws require state government approval before new health-care facilities are built. A 1974 federal law required states to adopt CONs in order to avoid losing certain federal funding. The original notion was that these laws would allow state regulators to prevent “wasteful” expenditures on unneeded hospitals and clinics by refusing to issue CONs.
Rather than bringing down health-care costs, as was intended, CONS’ primary effect has been to distort competition and harm the economy. Both the FTC and the U.S. Justice Department (DOJ) have repeatedly urged states to repeal CON laws, stressing that “[b]y interfering with the market forces that normally determine the supply of facilities and services, CON laws can suppress supply, misallocate resources, and shield incumbent health care providers from competition from new entrants.”
As of 2024, 35 states still maintained CON statutes, despite the concerns raised by the federal antitrust agencies. This may well reflect the fact that hospitals possessing local monopoly power have every incentive to lobby in favor of retaining laws that block new entry by competitors.
A stark example of the potential harmful impact of CON laws is the Phoebe Putney case. In that matter, the FTC sought to restore competition by unwinding an anticompetitive merger of two hospitals that created a regional monopolist in Georgia. The FTC concluded in 2015 that it would be unable to require the acquiring hospital to sell off the acquired hospital, because Georgia would deny a CON to any buyer that agreed to operate the second hospital independently.
What the New Administration Might Consider Doing
There is no single “magic bullet” to cure overregulation. The new administration may wish to consider adopting multiple complementary strategies designed to address regulatory overreach at the state level. Use of the White House “bully pulpit” might play a key role. Three possible approaches that might help “jump start” state reforms are put forth by way of example.
Generic state regulatory creep might be combated by promoting the success of federal deregulatory initiatives. The example of states that have successfully adopted reforms could also be highlighted. Key recommendations might include, for example:
- Adopting a “regulatory budget” that places a limit on the total cost of regulations that each agency is allowed to impose.
- Recalibrating cost-benefit analysis to make it more effective in estimating regulatory burdens.
- Establishing a process for identifying and minimizing ACMDs in the regulatory review process.
Second, state-level ACMDs might be targeted by publicizing research that reveals the harm they impose on individual Americans. Occupational-licensing restraints that destroy job opportunities, and CON restrictions that raise medical costs, are obvious examples. Communicating with the public directly (say, through social media and podcasts) might prove far more effective in generating support for state-law reforms than mere FTC and DOJ competition-advocacy letters directed at state officials.
Third, the new administration may wish to consider working with Congress to support federal legislation that attacks ACMDs having a major impact on interstate commerce. Occupational licensing is an obvious example, but others merit exploration, as well.
In sum, if it chooses to focus on combatting excessive regulation at the state level, the Trump administration may be able to magnify the benefits of its federal regulatory initiatives. The end result could be even faster American economic growth and enhanced economic efficiency, benefiting U.S. consumers and businesses alike.