There’s a problem, and it’s getting worse. Government at all levels is making it harder for small businesses to operate, and it is having direct consequences on economic growth.
The U.S. Chamber of Commerce Foundation just released a comprehensive study showing the damaging results of regulations. The study found that every increase in regulatory spending results in a decrease in the number of small firms (between one and four employees). That’s partly because these small companies simply cannot afford the lawyers and accountants to comply with the new rules or the lobbyists to change them. In 2015 alone, there were 23 “economically significant” new rules passed that required small businesses to spend $4 billion on things like additional paperwork and compliance.
every increase in regulatory spending results in a decrease in the number of small firms (between one and four employees).
Opportunity Lives has interviewed a number of small business owners who confirm the study’s findings. The study spotlighted a few examples that help describe the overwhelming burden. For example, to start a small business in New York City will take, “at a minimum, $1,306 and … seven paperwork procedures over eight days.” What about Chicago? Be prepared to pay taxes 33 times per year.
“Small businesses are the foundation of our economy and the embodiment of the promise of American entrepreneurship,” said Carolyn Cawley, president of the U.S. Chamber of Commerce Foundation. “Their vitality is our nation’s vitality, so we care deeply about what they need to succeed. This important report assembles existing pieces of research into a compelling whole, and it points to the critical influence the regulatory environment has on a small company’s ability to launch, to grow, and to thrive.”
“Small businesses pay on average $11,700 per year per employee in regulatory costs, and the costs of regulation to smaller businesses with 50 employees or less are nearly 20% higher than they are for the average firm”
The problem is, this regulatory environment is especially not friendly toward small business owners and entrepreneurs. Small businesses bear a larger share of the burden than they should, and the result is more consolidation and centralization. “Small businesses pay on average $11,700 per year per employee in regulatory costs, and the costs of regulation to smaller businesses with 50 employees or less are nearly 20% higher than they are for the average firm,” concluded the study.
Unfortunately, it’s not just the federal government either. States are also imposing regulations, including occupational licensing laws that have nearly tripled in the last 50 years, making it harder for people to switch careers or learn a new skill without first going through an arduous and costly process.
Undoubtedly, some regulations are necessary – but federal officials in Washington, DC are often inoculated on how they play out in real life. “Critically, regulations—if necessary—must be implemented at the level and department of government that offers the best fit for effective, efficient implementation, reducing the negative costs to business and the economy,” said the report.
Daniel Huizinga is a columnist for Opportunity Lives covering business and politics. Follow him on Twitter @HuizingaDaniel.