IRS rulemaking should follow HHS model
Senior officials from the Office of Management and Budget and the Treasury Department will appear before a Senate subcommittee Thursday in what some have portrayed as a battle between two government titans. At issue is an obscure question of whether a Reagan-era agreement that exempted IRS regulations from OMB review should be retained.
OMB and its supporters argue that the IRS has abused the exemption, which was originally intended to apply only to technical rules interpreting discrete provisions of the tax code. Treasury counters that its regulations are different enough from other agencies’ that it deserves special treatment. Legislators have lined up on either side of the issue, and commentators are speculating whose side the White House will ultimately take in the dispute.
But, this need not be a win-lose issue — both arguments have merit and a compromise would provide a constructive path forward.
For almost 40 years, presidents of both parties have called on OMB to review significant regulations before they are published. OMB provides what President Obama called “a dispassionate and analytical second opinion” on draft regulations, both by coordinating interagency review and by ensuring that agencies have weighed the rule’s likely positive and negative consequences.
Treasury supporters do not deny the value of this review, but raise several concerns. First, they argue that IRS rules merely interpret the tax code legislated by Congress, so that any effects stem from the underlying law — but this argument could be made by virtually any agency implementing a statute enacted by Congress.
More legitimate concerns stem from the fact that subjecting IRS rules to OMB review would significantly delay regulations that taxpayers depend on to submit their returns — an especially urgent need in the wake of last year’s tax reform law. These concerns are based on three factors.
First, IRS would be responsible for developing regulatory impact analyses to satisfy OMB analytical requirements, and those would take significant time and staff resources.
Second, OMB can take three months or more to review a regulation, both before it is proposed and before it is finalized, potentially adding six months to the timeline for issuing a rule.
Third, OMB’s regulatory oversight office is small (fewer than 50 career staff), and it doesn’t have the expertise or capacity to review dozens of new IRS rules each year.