Small Businesses Decry Regulation
Thursday, July 07, 2011
Small Businesses Decry Regulation
By: Sarah E. Needleman, Wall Street Journal
Federal regulations are designed to protect workers, the public
and the environment from unsafe or unfair business practices. But
they can sometimes have the unintended consequence of stifling
growth.
According to research released last year from the Small Business
Administration's Office of Advocacy, it costs about $2,830 more for
firms with less than 20 employees than those with 500 or more
employees to comply with government regulations on a per-employee
basis. In specific areas such as tax and environmental compliance,
firms with 20 to 499 employees also pay significantly more than
large firms.
While some economists dispute the magnitude of the disparity,
they all agree that small businesses bear a greater burden than
larger ones in adhering to government regulations.
"Small firms don't have the resources in-house to figure out how
to comply," says Radwan Saade, a regulatory economist for the SBA's
Office of Advocacy. "Economies of scale dictate that it's easier
for large businesses to comply."
U.S. businesses of all sizes have long been required to comply
with federal regulations in areas such as taxes, employment, the
environment and economic output. They range from product- and
workplace-safety laws to employee health-care rules added recently
by the Patient Protection and Affordable Care Act. Small businesses
also typically must comply with a host of state, county and city
government regulations.
Last year, the Environmental Protection Agency enacted a ruling
designed to protect consumers from lead-paint poisoning, which can
lead to nerve disorders and memory loss. It requires companies that
repair or renovate homes and schools built before 1978 to test for
lead and use plastic sheeting, respirators and other lead-safety
materials, among other practices.
An analysis of data from the U.S. Government Accountability
Office by the Heritage Foundation, a Washington think tank, finds
43 of the 100 "major" rules published in the Federal Register last
year burden the private sector, compared with 23 in fiscal 2009. A
"major" rule is defined as one that has an annual effect on the
economy of $100 million or more, stifles competition and results in
higher costs.
Economists attribute the increase to a number of factors,
including a perceived need for greater government oversight
following the financial crisis of 2008.
To be sure, many federal regulations don't apply to all types of
businesses, and some exempt the smallest of firms. In a nod to the
burden placed on the business community, President Obama in January
issued an executive order for a government-wide review of existing
rules to remove outdated and redundant regulations. In April, he
signed a measure to repeal a provision in the new health law that
would have required businesses to file paperwork every time they
bought more than $600 worth of goods or services.
The so-called 1099 provision was included in last year's
health-care law to help cover the cost of the new plan. In
November, President Obama called it "too burdensome for small
businesses" adding that "it's probably counterproductive."
But, despite the review, many small-business owners say federal
regulations are holding back growth. For Allen Ash, co-owner of
novelty-toy maker Almar Sales Co., the costs of complying with
federal product-safety rules included in laws such as the Consumer
Product Safety Improvement Act and the Federal Food, Drug, and
Cosmetic Act have negated any gains in profits that the 135-person
company has seen as a result of the improving economic
environment.
The new requirements have more than doubled the amount of work
required to get the company's goods on store shelves. To meet
current standards, the small New York manufacturer of children's
costumes and party trimmings now tests each of its products five
times, up from two a few years ago.
Mr. Ash hired a compliance director in 2008 just to keep up with
government requirements. The next year, even as he laid off 20% of
the company's staff due to slumping sales, he added three more
compliance workers to oversee strategies for satisfying federal
product-safety rules.
"A large business might already have a department to handle
paperwork burdens," while a small business is likely "to take
someone off another task" to fulfill government obligations, says
James Gattuso, a senior fellow at the Heritage Foundation. "It
costs you more to stop doing what you're doing and fill out
paperwork."