Regulatory Burden on Small Businesses is Increasing

A report released this week by The Heritage Foundation highlights the staggering increase in the regulatory burden borne by Americans since President Obama’s inauguration in 2009. 

Over the last three years the federal government has unleashed 10,215 new federal regulations, 106 of which are “major” regulations (an estimated annual impact of at least $100 million per year) that increase the regulatory burden on private-sector activity by more than $46 billion annually.  This doesn’t include the hundreds of new regulations in the pipeline created by the Dodd-Frank financial regulation law, ObamaCare and EPA’s crusade against global warming. 

Prior to the President's regulation-palooza, the cost of federal regulations was pegged at $1.75 trillion per year, amounting to one of out every three dollars earned in the U.S.

Considering that very small firms, those with fewer than 20 employees, spend 36% more per employee than larger firms to comply just with federal regulations, this is not welcome news for the nation’s small businesses.  A firm with fewer than 20 employees spends about $10,585 per employee to comply with federal regulations, whereas a firm with over 500 employees spends only $7,755 per employee.  

The picture is even more grim for small businesses in Washington State.  In addition to these costly new federal regulations, state officials here adopted more than 4,000 new permanent regulations (this doesn’t include the thousands of temporary “emergency” rules) during the same three-year period.  Add those to the growing cost of federal regulations and the bill for small businesses increases exponentially. 

Regulations in our state fill 32 phone-book-size volumes, which together form a stack of paper over five feet high.  The staggering amount of regulatory red tape amounts to more than 100,000 requirements that a small business owner must know, understand and follow in order to run a business legally.

Compounding the problem is that many of Washington’s regulations, particularly those related to the environment, are often far more restrictive than federal standards require, and often go far beyond similar rules in other states.  This means our state’s businesses are forced to operate at a severe disadvantage compared to out-of-state firms.  

Washington State boasts the third highest business start-up rate in the nation—and the second highest failure rate.  While many factors account for this high failure rate, research shows the state's onerous regulations are particularly burdensome for small businesses.  A 2007 Department of Revenue study on the business survival rate in Washington found that “taxes and costs of complying with government regulations are factors that contribute to business failure because most small businesses are not profitable in the early years.” 

Small businesses are the engine that drives our national and state economies.  But the regulatory burdens placed on them by federal and state officials are preventing them from creating the jobs that will spur the economy out of the Great Recession. 

Washington Policy Center has long recommended our state reduce the regulatory burden on the state’s small businesses.  Doing so would remove what small businesses themselves have identified as significant obstacles to their goal of growing their company and creating jobs.  A survey conducted by the National Federation of Independent Business this month shows small business owners rank “regulations and red tape” as their second biggest problem, behind the number one problem of “poor sales.”

Some progress has been made with legislation such as HB 1150 and SB 5500, signed into law last year.  But there is still much to do in addressing regulatory reform in order to help Washington’s small businesses.