Free small businesses from excessive regulations

Kmele Foster's picture

Capitol Hill is inching closer to passing landmark regulatory reform that will help encourage investment and create jobs.

The REINS Act would require that Congress review and approve any new regulation expected to cost more than $100 million. In 2010 alone, despite the weak economy, the Obama administration issued 3,752 new rules — and 224 of them cost more than $100 million. The REINS Act would go a long way toward stemming the tide of costly and regressive regulatory policies coming from Washington.

Economic recovery has been anemic this year. The most recent jobs figures from the Department of Labor put the national unemployment rate at 9.2 percent, with 14 million Americans still out of work. A big reason for lagging job creation is the mounting regulatory burden on private enterprise.

Right now, there are roughly 170,000 federal business regulations currently on the books. Written in fine print, single-spaced and double-columned, they fill about 150,000 pages of text.

In 2008 alone, regulations cost the U.S. economy $1.75 trillion, according to a report from the Small Business Administration. That’s equal to a whopping 14 percent of the nation’s gross domestic product.

Add that to the nation’s tax burden, and it’s easy to see how the federal government is stifling businesses, undermining employment growth and handicapping America’s global competitiveness.

Surely, not all of Washington’s regulations can be said to improve workplace safety or public health. Unaccountable bureaucrats continue to establish new hurdles for business owners to jump through without regard for the costs imposed. Managers get buried under paperwork that often provides little to no value to their workforces or the public.

Small businesses suffer the most. The average firm with fewer than 20 employees faces regulatory costs 42 percent higher than businesses with up to 500 employees. The average regulatory compliance costs for each employee of a small business now exceed $10,000 per year, according to the SBA report.

Small companies tend to run on very thin profit margins. So even small upticks in operating costs can force them to take drastic measures, like reducing new hires, imposing layoffs or even declaring bankruptcy.

In my experience as the principal of a technology consulting firm, compliance with the standard battery of employment and tax rules at all levels of government easily consumes 20 percent of my time in any given year.

Many of our clients are small to midsize business in heavily regulated industries like health care and finance. In these industries, regulatory challenges are among the most often-cited factors in investment and procurement decisions.

The global marketplace is already turbulent and hyper-competitive. Business owners shouldn’t have to worry about their decisions running afoul of needless regulations.

Without congressional action, these regulations show no sign of letting up.

The president’s healthcare law contains roughly 100 new regulatory provisions. The 2010 financial reform law imposes nearly 500 new rules and more than 120 reports and studies. And the Environmental Protection Agency is pursuing 31 new rules that will each cost industry at least $100 million.

This out-of-control rule-making has to stop. Federal officials are severely hampering the private-sector dynamism proven to generate prosperity and economic opportunity. That’s why, even if the REINS Act passes, lawmakers must launch a broader effort to scale back unnecessary rules on industry.

To start, officials need to establish nonpartisan, independent review processes to examine new and existing regulations and determine their actual costs and benefits. Currently, agencies can often impose new rules on industry without ever having to justify them or examine their economic consequences.

Some economic sectors are now suffocating under layers of redundant regulation, as separate rule-making authorities have each imposed the same restrictions without checking first to see if similar statutes already existed. This confusion and regulatory overlap contributes to the uncertainty dampening investment and employment.

The American economy is an intensely complicated place. A cursory understanding of a given industry often isn’t enough to effectively regulate it. Worse still, when regulatory actions are driven by political concerns, there tend to be significant economic costs.

Finally, officials need to reform the permitting process to allow new businesses to quickly get through the paperwork and start growing. Too often, valuable new business ideas die off while stuck in the approval process.

Today, government micromanagement is smothering private business and slowing recovery. Unless Congress steps in to cut down on the regulatory thicket, the economy will continue to stagnate and could fall back into recession. Policymakers need to reform the nation’s regulatory system — fast.

[Kmele Foster is the cofounder and vice president of TelcoIQ, a telecommunications consultancy. He is also the chairman of America’s Future Foundation.]

albion
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PTCO I share some...

of your cynicism, however I'm not ready to throw in the towel. While the choices on the ballot may be dubious, the ballot box has not been taken away.

Opinionating won't change anything. I donate time and money to candidates and causes I believe in. I may be delusional, but I feel like it makes a difference. If nothing else I have the satisfaction of actually doing something.

For me it truly is a matter of thinking globally and acting locally. I don't do it enough, but I have dished out food at shelters, assisted in building homes for HFH and performed other acts of community service.

I'm not tooting my own horn here, I just find that these kind of actions are meaningful, gratifying and impactful. These things help to offset my cynicism.

Ninja Guy
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Gosh, Albion you make

too much sense to post on this esteemed forum! I hope you don't get drug down to our level! Stay Strong!

PTC Observer
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albion - I

agree we should never give up, only we need to base our good works on the recognition and the enormity of the corruption of our political system.

We all need to work to correct it through legal and peaceful means. Let's see how 2012 turns out. ;-)

albion
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Regulation...not a bad word

Regulations are commonly demonized as excessive and or prohibitive. Like many things in this world there are trade-offs to consider.
Some regulations give us food safety, transportation safety, environmental protections etc., etc.

Regulations are often born of a sincere and well-meaning desire to make living and working conditions better and safer. Sometimes business profits are affected. Sometimes new industries are born and new jobs are created by entrepreneurial types recognizing regulatory opportunities.

It's quite possible that deregulation has cost America more than the estimated costs of new or existing regulations.

Deregulation of the Savings and Loan industry, the banking and insurance industries, prisons, fishing, transportation, credit cards, education, energy, media and even entire countries has burdened us all with unintended consequences.

There is a balance to be had here. Regulations written by industry and special interest groups should be prohibited. I don't know how, but I know why. The jury is in on this.

We live in a world where we literally need to be protected from the damages inflicted by multi-national corporations. Companies paying no taxes and writing the rules.

Asserting that un-named bureaucrats are sitting around dreaming up ways to stifle business is baseless and ridiculous. Why would that happen? Who are these business haters? The lack of specificity in this opinion piece begs some obvious questions. Where does this spurious data come from?

Periodic regulatory audits and reviews for redundancy are good and healthy practice, but throwing the baby out with the bath water is ill advised.
The lack of enforcement of existing regulations may be more costly than we know and can only be understood in the wake of a disaster. When it's too late.

BHH
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"Free Small Business From Excessive Regulation" is

the title of the article and not "Free All Business From All Regulation".

This will promote competition and not stifle it.

The deregulation of the telephone service in Georgia has been a farce which only resulted in closer regulation driven, based and controlled by AT&T's (or BellSouth's) legal departments, giving them the continuing competitive edge in the strictest sense of the word.

"Asserting that un-named bureaucrats are sitting around dreaming up ways to stifle business is baseless and ridiculous. Why would that happen? Who are these business haters? The lack of specificity in this opinion piece begs some obvious questions. Where does this spurious data come from?"

Your President is the most prominent "un-named bureaucrat" dreaming up ways to stifle business.

It happens so that he can stir up the poor and unprosperous voters to side with him.

phil sukalewski
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Regulations: How big business raises the cost for competitors

Suggest watching the HJ Heinz biography.

The Heinz company lead the way in using clear jars to show haw their sanitation methods (which added cost) produced a better product. They became the largest packaged food company in the world.

In the 1930's Upton Sinclair's book "The Jingle" supposedly showed the lack of sanitation in meat packing facilities. (Note that Sinclair later admitted the story was a complete fiction). Thus the demand for the establishment of the FDA was given a push.

At first, Heinz fought against it and it was about to be voted down; but then the son saw that Heinz's competitors would be forced to incur higher costs to meet the standards that Heinz already operated on. Heinz abruptly changed & supported the FDA act and it passed; putting many of heinz's smaller competitors out of business.

roundabout
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pHIL

This above comment is odd about Heinz.

I was under the impression that you were against regulations of business.
(By the way we still have health problems in the meat business)

PTC Observer
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albion - A good

well reasoned argument. A question for you to ponder.

Can we link citizen wealth with economic freedom?

Economic Freedom is in part the ability of markets to be free of government interference in transactions between citizens.

Here's a link that may help you in determining an answer.

http://www.heritage.org/Index/Ranking

albion
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Free market economic theory

like many theories, does not work as hypothesized when reduced to practice. We are not, will not and probably should not ever be a true free market society. Even with existing laws and regulations, corruption and graft have been institutionalized. Take the rules away and we return to a robber baron society.

fwiw, I'm well aware of what Heritage has to say. I prefer to assess the objective facts and the data, wherever they come from and form my opinions accordingly. Too much faith in one source of information = an unwillingness to roll with the changes.

PTC Observer
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albioon - Oh

Oh yes I forgot about those "Robber Barons".

http://www.youtube.com/watch?v=dmzZ8lCLhlk

Watch this as another piece of information for you to make a reasoned assessment.

BHH
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It's not just the feds, but state and local regs too.

Good observation.

Why do small businesses have to pay property tax on equipment and inventory the same as if it were real estate which includes school taxes?

This is an undue heavy burden on small business.

By the reasoning that allows this tax, it could be applied to the value of every person's property other than real estate if the local officials were just of a mind to apply it.

Why do people allow this injustice?

I suppose it's because so many people think that every business is very profitable.

roundabout
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BHH & Ninja guy: Inventory tax

You pay it for the same reason you pay tax on your home. You own it.

But here is the problem: Most businesses estimate their inventory and equipment worth. There are a hundred ways some do that.

I don't know what kind of business can get by on zero--no equipment, nothing to sell.

I suppose also that the same old scams currently exist that always have.
One I remember was jewelry stores---they took most of their valuable inventory to a friendly place out of the county for one day (Jan 1)--so none was on property at counting day!

Also, a lot of used and new autos were handled in the same way--in case someone did check.

Also, the owner says what he thinks his stuff is worth. Can you imagine the oil companies paying property taxes on all of the oil they own? RIGHT!

The honest people always get screwed, as usual.

Taxes should be based on net profit only. No special deductions. Or, gross wages for individuals, no deductions.
Of course the tax rate would decrease due to no deduction allowed.

I suppose we would still have cheating on net and gross.

The sales tax only people and no corporate taxes can't imagine just what all would happen to those huge intakes of cash every year at tens of thousands of collection places!
It would amount to the federal budget: Trillions!
Man those armed store robbers would then have quite an incentive to armed rob those taxes.

Ninja Guy
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BHH, I Have Never

understood that one either! Why tax inventory? That is why I run my business based on a zero inventory model! Anyway, get a good accountant and taxes don't matter!

Go PricewaterhouseCoopers!

PTC Observer
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Ninja?

As a consultant why would you have inventory? Things must be slow these days,

Why tax inventory? Because they can do anything they want. That's why.

You're right about getting a good accountant, that's another problem isn't it? Taxes should be simple, we should write a check each month for our taxes just like rent. It should be a flat tax that everyone pays and if you don't pay, then the government just seizes your assets, throw people out on the street.

If the government sent a monthly bill we could include an estimate of how much each person owes on the national debt. In fact, as you enlarge your family we would send each member of the family a balance that they owe on the debt. The government could do this for every generation, until of course it comes due.

Ninja Guy
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PTCO, BHH, and Inventory Tax

True, they cannot tax the inventory of intellectual assets stored in my head, yet! However, I hear they are working on scanners for that! Also, SugarFoot and I are setting up an off-shore joint venture to manufacture anatomically correct life-sized 'comfort' dolls in the image of Civil War heroes to satisfy frustrated Daughters of the Confederacy! So far, pre-orders for the Nathan Bedford Forrest doll are way out in front, followed by the one-armed version of Stonewall Jackson! Interest in General Lee dolls is not that high, but we are getting some inquiries about a Traveller version!

Because of the inventory tax in, we will probably keep inventory in the Bahamas until shipment!

No Confederate dollars please!

NFL kicks off tonight! Packers vs. Saints--I'm taking the Packers!

PTC Observer
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Ninja - Like I said

your business must be slow. It could be your empty inventory situation.

albion
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They cannot do anything "they" want

Congress established tax legislation which has since be codified by the IRS. They don't make it up as they go. And fwiw "they" are us. We elect the people that make the laws and they in turn hire and appoint others to write and revise the codes.

So NO "they" cannot "do anything they want"!

You should not ever be put in charge of tax collection, unless of course you also run the pauper's prison. Then it would certainly make "cents" ;)

PTC Observer
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albion - really?

Really?

Are you sure they can't do anything they want?

The "they" isn't me nor us, it might be you however.

Special interests elect the Congress, then they pass laws to help their buddies and then Congress turns the implementation and interpretation of these laws over to an independent bureaucratic system. Congress abdicates its power to bureaucrats. Bureaucrats in turn answer to and populate the bureaucracy from the special interests. Lobbyists become bureaucrats and bureaucrats become lobbyists.

Congress gets re-elected, lobbyists get what they want and the bureaucracy grows and grows. Everyone wins! Except of course the taxpayer, the economy and the middle class.

albion
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We have a couple of options

Run for office, or vote for the people who will change what we don't like, and sponsor legislation that we do like.

The system today has significant flaws, and with the SCOTUS ruling on Citizen's United, corporate money won a huge "speech is money" victory. So the regulation writers get to provide virtually unlimited funding for more of the same. Supreme Court and Federal Court appointments are why presidential elections are so important.

Federal Court vacancies are being opposed by corporate lobbying groups who have our elected officials in their pockets. There are few elected officials willing to step off of the wheel of money.

With regard to regulations and deregulation it's simply a matter of following the money trail.

PTC Observer
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albion - Running

Running for office is not an option, at least for me. No one can get elected unless they are in the pocket of special interests. The higher you go into the political system the more those running become corrupted by special interests.

Voting for people who will change what we don't like is not an option, see point one above. They all talk a good game but when push comes to shove they always cave to their special interests "friends". It's where the money comes from to get re-elected.

Those that don't play this game are those that don't get elected, it is as simple as that.

roundabout
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Yes PTCO, agreed, but

........most of us belong to one of those special interests or have loyalty to them.

Either the democrats, republicans, TEAS, libertarians, socialists, newspapers, corporate hierarchy, labor unions, teachers unions, pilots unions, (however they are special above all else), developers, bankers, Wall Street, Madison Avenue, poor people, Christians, other than Christians, or those who can make us get more money in one of many ways!

"It is the worst system there is except for all of the rest."