The review of tax regulations by the Office of Management and Budget’s Office of Information and Regulatory Affairs is back. The regulatory budget is back. Consternation over midnight rules is back.
These developments should have been expected from the second Trump administration and the current Congress, but they’ve come with notable new permutations. Importantly, the nondelegation doctrine is also back, along with increased talk of restoring the separation of powers. And Loper Bright Enterprises Inc. v. Raimondo, 603 U.S. 369 (2024), is set to be turbocharged by the new administration, which the Supreme Court might not have seen coming when it issued the opinion last summer.
What does all this mean for tax regulations? Initially at least, it will likely result in uncertainty. OIRA must adjust to its new-old role in reviewing tax regulations. Treasury and the IRS will have to decide how to deal with the mandate to eliminate 10 regulations for every new one. But perhaps the changes will prompt more careful legislative deliberation. Slow and steady is a reasonable goal, although achieving it will require the cooperation of Congress.
Administrative rulemaking, however, is within the purview of the president, and it appears to provide an opportunity for taxpayers thinking of bringing lawsuits under Loper Bright. The administration can avoid usurping congressional legislative power by self-policing, and it has some ability to nudge Congress, but it can’t require lawmakers to stop writing unconstitutional delegations of authority. The Trump administration’s commitment to nondelegation may soon be put to the test in the budget bill and the ensuing guidance process.
Ensuring that agencies stay within their bounds will be part of OIRA’s job. OIRA has an acting administrator but no nominee to fill the post, which may complicate the process.
However, if the past is any predictor, the vacancy could be filled in a few months. During Trump’s first term, he nominated current D.C. Circuit Judge Neomi Rao as administrator of OIRA in April 2017, and she was confirmed in July. (Bridget C.E. Dooling of Ohio State University has compiled the recent history of administrator nominations and confirmations in “Timeline for OIRA Nominees in New Administrations,” Yale J. on Regulation, Jan. 20, 2023.)
The new OIRA administrator won’t have to undo the June 2023 memorandum of agreement between Treasury and OIRA that resulted in OIRA entirely halting the review of tax regulations because Trump has already effectively done that in the executive order “Unleashing Prosperity Through Deregulation,” which reinstated the memorandum of agreement between Treasury and OMB from 2018.
But the new OIRA administrator will have plenty to do in implementing the new executive order that encompasses Loper Bright and nondelegation.
Nondelegation
Drafters of the new executive order, “Ensuring Lawful Governance and Implementing the President’s ‘Department of Government Efficiency’ Deregulatory Initiative,” are clearly connoisseurs of Supreme Court opinions. That’s an appropriate credential for presidential advisers.
The more encouraging revelation in the executive order is that the advisers have taken the Court at its word. Two branches of government taking separation of powers principles seriously is fine, but Congress is where the main danger lies in delegations, and it remains to be seen whether a majority of lawmakers are on board.
The nondelegation doctrine never really went away. It has lingered since the inception of the intelligible principle standard in J.W. Hampton Jr. and Co. v. United States, 276 U.S. 394 (1928), as more of a ghost of a doctrine than a constitutional tenet with teeth.
Its pitiful history includes only one application, less than a decade after its formulation, to strike down a delegation in Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935). There is a colorable argument that Congress hasn’t been disciplined enough in its law-writing to refute the charge that it has made all essential policy decisions and only delegated “filling in the blanks” to executive branch agencies in every statute passed since the 1930s.
The Chief Justice Made His Decision; Now Trump Will Enforce It
Turning on its head the famous, but likely apocryphal, statement by President Andrew Jackson about a Supreme Court ruling he didn’t like, “John Marshall has made his decision; now let him enforce it,” Trump announced in his executive order that he would enforce the opinion of Chief Justice John G. Roberts Jr. in Loper Bright. The case isn’t mentioned by name in the executive order, but it is implicit in the charge to agency heads to identify the following types of regulations:
(i) unconstitutional regulations and regulations that raise serious constitutional difficulties, such as exceeding the scope of the power vested in the Federal Government by the Constitution;
(ii) regulations that are based on unlawful delegations of legislative power;
(iii) regulations that are based on anything other than the best reading of the underlying statutory authority or prohibition.
Regulations that fall into those categories, as well as four others, are to be put on OIRA’s list for rescission or modification. Although the subtitle of section 2 says it is about “Rescinding Unlawful Regulations and Regulations That Undermine the National Interest,” the text is far less drastic. It doesn’t eliminate any regulations.
It only requires additional review, to “focus the executive branch’s limited enforcement resources on regulations squarely authorized by constitutional Federal statutes,” as the order’s stated purpose explains. Modification to conform a regulation to the law and administration policy is a stated alternative to rescission and presumably will be the one most frequently deployed. The last sentence of the purpose section in the executive order identifies restoring the constitutional separation of powers as a priority.
As a practical matter, the number of tax regulations likely to end up on OIRA’s modify-or-rescind list will probably be small. But it is notable that the Trump administration has decided to proactively implement Loper Bright by conforming the executive branch’s regulatory approach to the Supreme Court’s guidance up front, instead of allowing the decision to run its course through the courts. It’s the opposite of the Jacksonian posture of “now let him enforce it.”
The Trump approach provides a new option for taxpayers. Instead of filing an Administrative Procedure Act challenge in district court, taxpayers that feel aggrieved by specific regulations might want to appeal to the Treasury secretary to put those rules on the rescind-or-modify list. This might also mean a reduced Loper Bright-inspired docket for the Justice Department. Further, prior regulations that were upheld under Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837 (1984), are now potentially subject to revision. That is a change from the holding in Loper Bright that preserved decisions made under Chevron.
But the executive order doesn’t stop at adopting the holding of Loper Bright as policy. It speaks to concerns about the separation of powers expressed in the dissents of Justices Clarence Thomas and Neil M. Gorsuch by suggesting that the executive branch will no longer seek to exercise powers that weren’t given to it by the Constitution.
Another category of regulations that OIRA will scrutinize is “regulations that are based on unlawful delegations of legislative power.” It won’t be such a bad thing if Congress is forced to do its duty. Lawmakers might find it more expedient to write clearer statutes.
An interesting question raised by the Trump directive is how Treasury will identify regulations that could violate the Constitution, or that fall into one of the other categories. Those categories are:
(iv) regulations that implicate matters of social, political, or economic significance that are not authorized by clear statutory authority;
(v) regulations that impose significant costs upon private parties that are not outweighed by public benefits;
(vi) regulations that harm the national interest by significantly and unjustifiably impeding technological innovation, infrastructure development, disaster response, inflation reduction, research and development, economic development, energy production, land use, and foreign policy objectives; and
(vii) regulations that impose undue burdens on small business and impede private enterprise and entrepreneurship.
Treasury and the IRS might take a page from the Inflation Reduction Act playbook and crowdsource the first draft of the modify-or-rescind list by issuing a notice inviting comments. Taxpayers contemplating a lawsuit under Loper Bright could instead take the far more cost-effective approach of submitting a comment letter explaining why they think the regulation isn’t the best reading of the statute.
After Midnight, We’re Gonna Disapprove All Regs?
Congress has been thinking about regulations in a slightly different way. In the Midnight Rules Relief Act (H.R. 77), which passed the House on February 12, a joint resolution of disapproval could include more than one rule, in contrast to the current Congressional Review Act disapproval process, which requires a separate resolution for each rule. It would also relax the 60-legislative-day window for rules submitted during the final year of a president’s term.
Republicans have tried to pass a version of this before, including in 2017. That the sledgehammer approach wasn’t passed during Trump’s first term in office might be an indication of its prospects this time around. The CRA scalpel has been proposed by Sen. Ted Cruz, R-Texas, for the digital asset reporting rules in S.J. Res. 3.
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