The Impact of Regulatory Costs on Small Firms

One of my favorite professors, W. Mark Crain, when I was at George Mason University has released a new study published by the Small Business Administration examining regulatory costs (with co-author Nicole V. Crain).  In economic terms, compliance with regulations act as a form of non-transparent taxation.  Aside from the regulations themselves, the economic benefits of regulatory compliance are dubious.  The goal of clean streams and rivers may be laudable, but if businesses have to file thousands of pages of paperwork to comply with that regulation then is it worth it?

From the executive summary:

The annual cost of federal regulations in the United States increased to more than $1.75 trillion in 2008. Had every U.S. household paid an equal share of the federal regulatory burden, each would have owed $15,586 in 2008. By comparison, the federal regulatory burden exceeds by 50 percent private spending on health care, which equaled $10,500 per household in 2008. While all citizens and businesses pay some portion of these costs, the distribution of the burden of regulations is quite uneven. The portion of regulatory costs that falls initially on businesses was $8,086 per employee in 2008. Small businesses, defined as firms employing fewer than 20 employees, bear the largest burden of federal regulations. As of 2008, small businesses face an annual regulatory cost of $10,585 per employee, which is 36 percent higher than the regulatory cost facing large firms (defined as firms with 500 or more employees).

It would be far more useful if, during this “Great Recession,” Uncle Sam spent more time streamlining the regulatory costs of existing regulations rather than adding thousands of more pages of regulations contained in the recent healthcare and financial bills.  And folks wonder why businesses aren’t hiring . . .