Update: Commenters note that this form is specifically intended in lieu of a birth certificate with a passport application; but as the FA suggests, the circumstances in which people unable to provide a birth certificate will be given this form (rather than the traditional bureaucratic investigation) are not spelled out; further, the form itself remains a Kafkaesque impossibility for most people to complete.
It seems likely that only some, not all, applicants will be required to fill out the new questionnaire, but no criteria have been made public for determining who will be subjected to these additional new written interrogatories. So if the passport examiner wants to deny your application, all they will have to do is give you the impossible new form to complete.You've got the rest of today to submit your comments on this proposal. Lots of additional material at the link below.
It's not clear from the supporting statement, statement of legal authorities, or regulatory assessment submitted by the State Department to the Office of Management and Budget (OMB) why declining to discuss one's siblings or to provide the phone number of your first supervisor when you were a teenager working at McDonalds would be a legitimate basis for denial of a passport to a U.S. citizen.