The Biden administration has overhauled how the federal government assesses the costs and benefits of regulation and some government spending programs, clearing a path for more aggressive efforts to fight climate change and help the poor.
Officials at the White House Office of Information and Regulatory Affairs, a branch of the Office of Management and Budget, finalized a new and complicated set of rules on Thursday. They would change how federal agencies tally and weigh the potential value and harm of new regulations related to climate change, taxation, the distribution of disaster relief assistance and more.
The federal government has long used so-called benefit-cost analysis when setting regulations that cover business activity, environmental pollution and much more. Its rules guiding those regulations were last changed during the George W. Bush administration, prompting many economists to complain that officials were not taking updated economic data and cutting-edge research into account when issuing regulations that can have vast consequences immediately and in the future.
The newly issued changes to the guidelines will require regulators to pay more attention to economic inequality, the shifting economics of a warming planet and other data sources that progressive economists have long complained are missing from the government’s cost-benefit analyses.
But the simplest way to sum up their effects is generationally: They would enable the government to impose more costly regulations for Americans today, in hopes of saving money and lives in the future.
Administration officials and many economists who specialize in the area say the proposals correct years of bad government math on regulations by adjusting for rising prices and the relatively low interest rates of the last 30 years.
“A revision that provides greater clarity and detail, that incorporates more recent theoretical, methodological, and empirical insights, and that better reflects fundamental valuation principles, is long overdue,” a dozen M.I.T. economists wrote in a public comment earlier this year on the proposed revision. “The potential for improving the quality of regulatory decision‐making and thereby increasing social welfare cannot be overstated.”
Critics say the changes will make it easier for federal officials to impose on Americans’ lives and economic activities, piling new costs on business owners.
“Adjusting how cost-benefit analysis is conducted in a way to make it easier to issue heavy-handed and costly regulations is unwise at anytime, particularly when Americans continue to suffer under punishingly high inflation,” Senator James Lankford, Republican of Oklahoma, wrote in a comment on the proposed rule.
The finalized rule flows from an executive order Mr. Biden issued shortly after taking office and reflects a sustained push by O.I.R.A.’s administrator, Richard Revesz, who has used his position to strengthen a host of environmental regulations. He said in a statement that the updated guidance “means lower costs for consumers; cleaner food, air, and water; less fraud and exploitation; increased workplace safety; more innovation; and a stronger economy.”
The final rule updates a pair of government guidelines that are meant to steer federal agencies in assessing the benefits and costs of new regulations, which many economists called outdated. .
That critique has focused in part on how the government weighs the trade-offs between costs today and benefits down the line — for example, would it make sense to impose a $1 million tax this year to reduce pollution and create $10 million of benefits a decade from now?
Economists calculate those trade-offs using something called a discount rate. The higher that rate is, the harder it becomes for policymakers to justify imposing costs today to produce a future benefit. The rate is particularly important for issues like climate change, where the current costs of reducing fossil fuel emissions are weighed against future benefits of limiting temperature rise.
Mr. Biden’s rules reduce the discount rate to 2 percent; previously it had been 3 percent in some cases and 7 percent in others. The new rate is pegged to an updated estimate of the long-term return on government debt, after adjusting for inflation. It has the effect of justifying more aggressive climate regulations by giving more weight to the benefits of reducing economic damage from global warming in the future.
The new rules also allow federal agencies to better factor economic inequality into their decisions. That applies to issues like how federal grants, such as emergency funds for natural disasters, are doled out. Often, aid dollars end up flowing to places with the most expensive damage — which is to say, the highest property values — because regulations seek to maximize the efficiency of every dollar spent.
The guidance allows officials to change that calculation. They could steer more aid to lower-income people, even if their homes are worth less than high earners.
“If you’re doing policy analysis right, it’s not all about efficiency. You also have to think about equity,” said Jeffrey Liebman, an economist at Harvard’s Kennedy School of Government, who served in the Obama administration and has long championed updates to government cost-benefit analysis.
Democrats have long pondered changes to the regulatory guidelines but failed to follow through until now. Shortly after joining the Obama administration in 2009, Mr. Liebman and the then-budget office director, Cass Sunstein, who both favored changing the guidelines, debated whether to make that effort a top priority, at a moment when the administration was expecting to issue waves of new environmental and health regulations.
After conducting their own sort of cost-benefit analysis, they decided the overhaul wasn’t the best use of their time.