Our federal system of regulation inflicts various and unnecessary costs and uncertainties on individuals and businesses.

It's common for Congress to pass rather broad, often vaguely written laws, while a regulatory agency then gets to write and enforce the actual rules and regulations meant to carry out those laws. Of course, this is a recipe for regulatory overreach and abuse.

The U.S. Supreme Court just issued an opinion on June 19 dealing with this phenomenon. Unfortunately, the Court splintered in Rapanos v United States, which dealt with regulatory enforcement of wetlands protection under the Clean Water Act. The regulators involved effectively were told that they went too far by five of the nine justices, and the lower court was told to reconsider its decision against two landowners involved in or seeking to backfill parts of their property. But the majority could not agree on a standard for what the law covers. This leaves the door open for continued uncertainty and further litigation.

In terms of trying to determine what waters are covered by the Act, the crux of the issue at hand, Justice Anthony Kennedy joined the plurality of Justices Antonin Scalia, Clarence Thomas, Samuel Alito, and the Chief Justice, John Roberts, in deciding that the Army Corps of Engineers had gone too far. But in trying to determine or detect a standard, Kennedy apparently thought the plurality was too narrow and the dissent too broad.

In reality, the dissent, written by Justice John Paul Stevens and joined by Justices David Souter, Stephen Breyer, and Ruth Bader Ginsburg, would provide regulators with overly broad discretion. Kennedy's concurring judgment, however, clarifies little. For example, he writes: "Absent more specific regulations, however, the Corps must establish a significant nexus on a case-by-case basis when it seeks to regulate wetlands based on adjacency to nonnavigable tributaries. Given the potential overbreadth of the Corps' regulations, this showing is necessary to avoid unreasonable applications of the statute." Unfortunately, "significant nexus" is not mentioned in the statute itself, and is not clearly defined by Kennedy.

Writing for the plurality, it is Scalia's decision that is on target in light of regulatory realities, the legislation itself, and Court precedent. Early in the opinion, he writes: "In deciding whether to grant or deny a permit, the U.S. Army Corps of Engineers (Corps) exercises the discretion of an enlightened despot..."

Scalia goes on to explain the expanding regulatory reach under the Clean Water Act:

"The enforcement proceedings against Mr. Rapanos are a small part of the immense expansion of federal regulation of land use that has occurred under the Clean Water Act - without any change in the governing statute - during the past five Presidential administrations. In the last three decades, the Corps and the Environmental Protection Agency (EPA) have interpreted their jurisdiction over ‘the waters of the United States' to cover 270-to-300 million acres of swampy lands in the United States - including half of Alaska and an area the size of California in the lower 48 States. And that was just the beginning. The Corps has also asserted jurisdiction over virtually any parcel of land containing a channel or conduit - whether man-made or natural, broad or narrow, permanent or ephemeral - through which rainwater or drainage may occasionally or intermittently flow. On this view, the federally regulated ‘waters of the United States' include storm drains, roadside ditches, ripples of sand in the desert that may contain water once a year, and lands that are covered by floodwaters once every 100 years. Because they include the land containing storm sewers and desert washes, the statutory ‘waters of the United States' engulf entire cities and immense arid wastelands. In fact, the entire land area of the United States lies in some drainage basin, and an endless network of visible channels furrows the entire surface, containing water ephemerally wherever the rain falls. Any plot of land containing such a channel may potentially be regulated as a ‘water of the United States.'"

Scalia concludes: "The only natural definition of the term ‘waters,' our prior and subsequent judicial constructions of it, clear evidence from other provisions in the statute, and this Court's canons of construction all confirm that ‘the waters of the United States' in [the Clean Water Act] cannot bear the expansive meaning that the Corps would give it." He later adds that "the Corps has stretched the term ‘waters of the United States' beyond parody."

For good measure, there is the matter of simply reaching far beyond federal powers. Scalia observes: "Regulation of land use, as through the issuance of development permits sought by petitioners in both of these cases, is a quintessential state and local power... The extensive federal jurisdiction urged by the Government would authorize the Corps to function as a de facto regulator of immense stretches of intrastate land - an authority the agency has shown its willingness to exercise with the scope of discretion that would befit a local zoning board... We ordinarily expect a ‘clear and manifest' statement from Congress to authorize an unprecedented intrusion into traditional state authority... [T]he Corps' interpretation stretches the outer limits of Congress's commerce power and raises difficult questions about the ultimate scope of that power."

Finally, Scalia's opinion offers a basic and sound definition guiding how far the federal government can reach in this case: "In sum, on its only plausible interpretation, the phrase ‘the waters of the United States' includes only those relatively permanent, standing or continuously flowing bodies of water ‘forming geographic features' that are described in ordinary parlance as ‘streams[,] ... oceans, rivers, [and] lakes."

In the end, the plurality of Scalia, Thomas, Alito and Roberts seeks to bring this particular regulatory issue back to the text of the legislation and its fundamental meaning and the appropriate federal powers per the U.S. Constitution, as opposed to the view that the legislation can say whatever regulators want it to say. Unfortunately, at least four members of the current Supreme Court sided with overreaching regulators.

In the end, the regulatory process would be made much saner, less costly and less litigious if Congress wrote clearer laws in the first place, and were forced to approve all rules and regulations emanating from federal agencies. The blatant regulatory abuse under the Clean Water Act as summarized in Justice Scalia's opinion should make the need for regulatory reform evident to all.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.