Independent Agencies Get a Second Opinion

Trump v. Slaughter may force independent agencies to provide more rigorous justifications for new rules.

For over a century, independent regulatory commissions occupied an odd corner of the administrative state. They write rules with the force of law, and they investigate and enforce these rules, but these independent agencies sat outside the ordinary chain of presidential accountability that governs the rest of the executive branch. On the second-to-last day of its latest term, the U.S. Supreme Court in Trump v. Slaughter changed all that. It overruled its 1935 decision in Humphrey’s Executor v. United States and held that the Federal Trade Commission’s (FTC) for-cause removal protection for its Commissioners violates the Constitution’s separation of powers. Chief Justice John G. Roberts, Jr., writing for a six-justice majority, concluded that any officer who exercises executive power, which the FTC “unquestionably” does, must be removable by the President at will.

The policy consequences of this decision are mixed and potentially troubling, as the dissent, authored by Justice Sonia Sotomayor, and the concurrence by Justice Neil Gorsuch explain. I return to those briefly below. But one positive outcome is that the decision affirms a President’s ability to oversee the regulations of independent agencies, just as he does executive branch agencies.

The U.S. Congress for decades has delegated to regulatory agencies broad authority to write binding regulations, and the number, significance, and scope of those regulations has grown over the years. To provide some accountability for these agencies’ rules, presidents since at least 1981 have exercised control over how executive branch agencies develop and issue their regulations to ensure they are consistent with law, address a compelling public need, and provide net social benefits.

President Bill Clinton’s Executive Order 12,866, still in effect today, requires executive branch agencies to submit to the Office of Information and Regulatory Affairs (OIRA) in the Office of Management and Budget (OMB) significant proposed and final rules before publication, along with assessments of alternatives and expected benefits and costs. However, Executive Order 12,866, and its predecessor Executive Order 12,291, signed by President Ronald Reagan, carved out from those requirements independent regulatory commissions, including the FTC, the Consumer Product Safety Commission, and others. The legal rationale for the carve-out was never airtight, but it rested in part on the same premise Humphrey’s supplied—namely, that these agencies’ insulation from presidential removal meant they should likewise be insulated from presidential review of their substantive policy choices.

This week’s Supreme Court opinion overturning Humphrey’s affirms what President Donald J. Trump said last year in Executive Order 14,215, entitled “Ensuring Accountability for All Agencies,” that “these regulatory agencies currently exercise substantial executive authority without sufficient accountability to the President, and through him, to the American people.” He required them, for the first time, to follow the analysis and review requirements of Executive Order 12,866.

As a former OIRA economist and later its administrator, I think this oversight will lead to better policy. Over the years, there have been bipartisan calls to extend Executive Order 12,866 to independent regulatory agencies, including from the American Bar Association and Congress. This is because the requirement to conduct benefit-cost analysis adds discipline and rigor to the regulatory process. OMB review provides what President Barack Obama called “a dispassionate and analytical second opinion” on agencies’ analysis and serves to coordinate policies across federal agencies. Experts agree that independent agencies’ regulations have broad social impacts and do not differ substantively from regulations issued by executive branch agencies. Yet, because they have largely been exempt from Executive Order 12,866, the analysis supporting independent regulatory agency regulations have tended to be less robust.

That said, the Slaughter opinion may have unintended consequences. Justice Gorsuch’s concurrence is worth reading on this point. He agrees with the removal holding but worries that it transfers to the President, rather than eliminates, the vast legislative and adjudicatory powers—in addition to executive power—that these agencies hold. Justice Sotomayor’s dissent defends the multimember, bipartisan commission structure as a calculated judgment by Congress about which decisions should sit outside of partisan control. She warns that unwinding agency independence will reduce the continuity and stability of government and make policies more subject to “presidential whim.”

I think these are legitimate concerns. Going forward, I will be watching how this week’s Slaughter decision—which, by giving presidents greater control over agency regulations, may lead to greater swings in policy direction between administrations—interacts with the Roberts Court’s major questions doctrine and the Loper Bright Enterprises v Raimondo opinion—which pushed in the other direction. The major questions doctrine requires agencies to point to clear congressional authorization when regulating on issues of vast economic and political significance, while, in Loper Bright, the Court removed lower courts’ obligation to defer to agencies’ reasonable interpretations of ambiguous statutes. Those opinions, by constraining the executive’s ability to unilaterally interpret and make law without clear congressional direction, explicitly tried to reduce the policy swings each new presidency brings. Whether the net effect of these doctrines is more accountable policy or just more volatile policy remains to be seen.