President Trump’s Executive Order Seeks to Reduce Federal Regulation

President Trump’s January 31, 2025, Executive Order (EO) titled “Unleashing Prosperity Through Deregulation,” is a part of the new Administration’s broader policy to reduce federal regulation.  The EO finds that federal regulations impose significant costs and complexities on American citizens and businesses that hinder economic growth, innovation, and global competitiveness – and it is the Administration’s policy to alleviate these burdens.  This marks a policy change from the approach of the prior administration and is a broader effort than the regulatory reforms of the first Trump Administration.

Here are five takeaways from the EO:

1. The Regulatory Cap for Fiscal Year 2025 – the “10 for 1.”
   The EO requires agencies to identify at least 10 existing regulations for repeal when proposing a new regulation.  This “10 for 1” tradeoff goes well beyond the “2 for 1” EO 13771 issued during the first Trump Administration.  The EO renews a policy of the first Trump Administration that new rules should not impose a net increase in costs on the economy, to the extent allowed by law.  To accomplish that, the EO states that the incremental costs of any new regulation may be offset by repealing existing rules.  The EO further directs that the total incremental cost of all new regulations being finalized this fiscal year (FY) 2025 must be “significantly less than zero”—a more ambitious requirement than EO 13771’s directive that the total incremental cost of all new regulations not exceed zero.  This directive to achieve a net reduction in regulatory costs in the first year of the administration reflects a more aggressive effort to reduce regulation.  The EO tasks the Director of the White House Office of Management and Budget (OMB) with providing guidance to agency heads on implementing these requirements, including standardizing the measurement and estimation of regulatory costs and determining what qualifies as new and offsetting regulations.
2. Annual Regulatory Cost Submissions
   Starting with FY 2026, the head of each agency must identify and report the total costs or savings associated with new and repealed regulations.  These submissions will be included in the Unified Regulatory Agenda that agencies prepare each year, and no regulation can be added to or removed from this agenda without OMB approval.  The OMB Director will also set a total incremental cost allowance for each agency—in essence, a regulatory budget—which will dictate the permissible regulatory costs for each fiscal year.
3. Exemptions
   The EO applies to a “regulation” or “rule,” which is broadly defined in the order to include “regulations, rules, memoranda, administrative orders, guidance documents, policy statements, and interagency agreements, regardless of whether the same were enacted through the processes in the Administrative Procedure Act.”  The EO specifies that certain regulations are exempt from these requirements, including those related to military, national security, homeland security, foreign affairs, immigration, and agency organization or personnel.  The OMB Director is also authorized to exempt regulations that impose minimal costs or burdens on the private sector or as requested by White House Chief of Staff or Deputy Chief of Staff for Policy.  This contrasts with EO 13771, which provided for exemptions but did not specify categories as clearly.
4. Reinstatement of Longstanding Guidance on Cost-Benefit Analysis
   The EO also revokes the 2023 update to OMB Circular A-4—the seminal guidance for federal agencies’ analysis of regulatory costs and benefits—and directs OMB to reinstate the prior version issued in 2003.  The 2023 Circular A-4 update^[1] made significant changes to the methodologies and approaches agencies take to cost-benefit analysis.  See Sidley Alert, “New Circular A-4: A Revolution in Cost-Benefit Analysis” (Nov. 20, 2023).  One of the most important changes was the reduction of the discount rate to 2%, a change in assumptions that significantly increased the value put on faraway and speculative benefits from regulation.  The EO reinstates the prior discount rates of 3% and 7%.  Another important change from revoking the 2023 Circular is to remove the directive that agencies consider the effects outside of the United States, a policy that supported expanded greenhouse-gas regulations.  In addition, the 2023 Circular placed a strong emphasis on the distributional effects of regulations, including weights to favor rules whose benefits accrue to lower-income neighborhoods.  By directing a return to the 2003 Circular, the EO reflects a policy emphasis on the overall economic costs and benefits of a given rule.
5. Implementation and Potential Challenges
   

• • Reduced regulation.
    The EO establishes a stringent regulatory budgeting process that requires agencies to offset new regulatory costs by eliminating existing ones.  If applied, this would likely lead to a substantial reduction in federal regulation, as agencies will need to identify and repeal multiple existing regulations for each new one proposed.  It certainly would pose challenges for agencies in balancing the need for new regulations with the requirement to repeal existing ones, potentially impacting the development of new policies and programs.  However, at the same time, this is required “to the extent allowed by law,” so it remains to be seen how it would be applied in practice when rules are required by statute.
  • Potential challenges.
    Circular A-4.  OMB promulgated the 2023 Circular after notice and comment and a peer review of the proposals.  Stakeholders favoring the 2023 Circular thus may seek to challenge its rescission, because the rescinding EO did not employ the same procedures used to promulgate the Circular.  It is not clear, however, that notice and comment is necessary for a Circular, which is a guidance document and not a regulation.  Moreover, while the Regulatory Right to Know Act^[2] requires peer review, the 2003 Circular was itself peer-reviewed in keeping with the Act.Stakeholders may also seek to challenge rules promulgated under the 2023 Circular, arguing, for instance, that the discount rates, global scope, or distributional analysis used by the agency was arbitrary and capricious.  The rescission of the 2023 Circular may not make those challenges dramatically stronger, as the Circular takes positions on several highly technical questions on which judges typically do not engage in a searching review, such as discount rates.10 for 1.  The “10 for 1” direction may be challenged, as was the previous “2 for 1” order.  But both challenges to the previous order were unsuccessful.  In Public Citizen v. Trump, the district court ultimately ruled that the NGO-plaintiffs lacked standing, finding they had not shown the order had caused the delay in any rule and that the alleged future harm was speculative.  Public Citizen, Inc. v. Trump, 435 F. Supp. 3d 144 (D.D.C. 2019).  In California v. Trump, several states challenged the order, but the court rejected the states’ assertion of greater interests, finding they likewise lacked standing, as the states had not shown the order caused or was likely to cause a material delay or repeal of a specific rule.  California v. Trump, 613 F. Supp. 3d 231 (D.D.C. 2020).

In sum, the second Trump Administration’s approach to reducing federal regulation, which focuses on lowering regulatory compliance costs, is expected to significantly impact how federal agencies prioritize and implement their respective rulemaking agendas.  In some cases, such as Circular A-4, this means reverting to policies in place prior to the Biden Administration.  In other cases, this means changing budgetary policy calculations for existing and future rules and regulations.  While these changes may face litigation challenges, some of these directives may lie outside the realm of the courts.  Stakeholders should watch closely as these changes are implemented across the federal government.

[1] Public Law 106-554, section 624, 114 Stat. 2763A-161 (codified at 31 U.S.C. 1105 note); see Request for Comments on Proposed OMB Circular No. A-4, “Regulatory Analysis,” 88 Fed. Reg. 20915 (Apr. 7, 2023); Issuance of Revised OMB Circular No. A-4, “Regulatory Analysis,” 88 Fed. Reg. 77615 (Nov. 13, 2023).

[2] Consolidated Appropriations Act, 2001, Pub. L. No. 106-554, § 624, 114 Stat. 2763 (2000).

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