Federal Regulations: A Modest Proposal

money-48103_640I have a friend who occasionally jokes that if the United States wants to decrease poverty and encourage wealth creation, the government should use the same strategy it does when it wants to encourage a certain behavior and discourage another.

For example, we give tax breaks to people willing to install solar energy in their homes because we want more of that and we tax the heck out of a pack of cigarettes because we want fewer people to smoke.

If we want to be consistent, he says, we should raise taxes on the poor and lower them on the rich.

He doesn’t expect his proposal to get very far, but this is exactly what we have been doing with small businesses through regulations for years. According to a 2012 report, regulations are 80 percent more costly to small businesses than they are to big businesses. An earlier study (2008) found that the annual regulatory cost per employee to small business was nearly $11,000, which was 36 percent higher on a per employee basis when compared to larger businesses.

EPA costs high

When the study broke it down to various types of regulations, if found that environmental regulations costs small businesses $4,101 per employee while that number is just $883 per employee for large businesses.

The reason, of course, is the costs of various licenses, permits and even reports are fixed so their costs represents a much smaller percentage for larger companies.

To flip my friend’s “tax the poor to end poverty” upside down and apply it to small business, how about reducing the currently-fixed costs of regulation for small businesses? Make those costs reflect the current way we do taxes – give breaks to those on the lower end of the income scale.

Be doers not talkers

I’m speaking rhetorically here, but there are things Congress and the president can do. The most important of these is to stop talking about small business and its regulatory burden and actually be willing to do something about it.

The recent “budget” that Congress passed may be a signal that we will see some movement on this front – or at least some real debate. Republicans in Congress managed to push through rescinding an irrigation ditch and farm pond water rule the EPA was about to enforce under the Clean Water Act. Also rescinded was a Department of Transportation regulation that would have required more rest for truck drivers.

President to fly solo?

President Obama has vowed to act without legislation to move the country forward on various fronts and during the next two years he will be facing an even more hostile group of legislators.

This could get interesting.

There will have to be some compromise on both sides, as there was with the budget deal. The question is whether there will be any easing of the regulatory burden. If it happens, I expect small business would greet it enthusiastically. Business formation would increase and expansion would be renewed.

Stay tuned.

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