FEDS: Regulations Hurt Small Businesses more than Big Business

[Washington, DC] A report on how poorly conceived regulations affect economic growth in Wisconsin reveals how small businesses are disproportionately affected by regulations, and another report by the federal government agrees.

“According to the Small Business Administration, regulation adds thousands of dollars in employer cost per worker and regulation is 80% more costly to small employers than large,” the 2013 Wisconsin Regulatory Review Report reads.

The Small Business Administration has conducted its own studies on how regulations affect small businesses. In 2010, it released a report, The Impact of Regulatory Costs on Small Firms, that expands on the imbalance between small and large businesses.

“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),” the report reads.

How much more a small business pays depends on the type of regulation. When it comes to environmental regulations, small businesses pay $4,101 per employee, while large businesses end up spending $883 per employee.

“The underlying force driving this differential cost burden is easy to understand. Many of the costs associated with regulatory compliance are ‘fixed costs,’ that is, a firm with five employees incurs roughly the same expense as a firm with 500 employees. In large firms, these fixed costs of compliance are spread over a large revenue, output, and employee base, which results in lower costs per unit of output as firm size increases,” the report explains.

The report explains how in 2008, compliance with federal regulations cost $1.78 trillion. That’s 14 percent of US national income. The report admits “Milton Friedman put the estimated burden of government mandates and regulations at roughly 10 percent of U.S. national income in 2003.”

The report also warns that that 14 percent is just the cost of complying with federal regulations.

“Regulatory agencies in the 50 American states have promulgated hundreds of thousands of regulations that are superimposed on federal regulations. Consider state-level environmental regulations as just one example. The sections of the State Administrative Codes that regulate the environment consist of 18 million words. The costs of complying with hundreds of thousands of state regulations are not explicitly considered here, but clearly add to the nation’s total regulatory compliance burden,” the report states.

In Wisconsin, Governor Walker and the legislature are working to lessen the burden from state regulations on the economy.

State agencies have already changed 218 chapters of the administrative code, eliminating 40 chapters altogether.

Assembly Speaker Robin Vos now has assembly committees picking up where the agencies left off. Many of the changes state agencies recommended would require legislative action.