Feb 17, 2017 - 2:00pm

Small Businesses Really Get Thwacked by Regulations


Senior Editor, Digital Content

A House Energy and Commerce Subcommittee hearing examined modernizing federal environmental and energy laws.

Tom Sullivan, a long time small business advocate, served as the Chief Counsel for Advocacy at the Small Business Administration, and is now the U.S. Chamber’s  vice president of Small Business Policy, testified about how small businesses were especially susceptible to regulations’ ill effects:

Research published in 2010 by Nicole Crain and W. Mark Crain of Lafayette College represents the latest of four government studies on the impact of federal regulations on small business. The total cost of complying with federal regulations was estimated above $1.75 trillion. Four years later, Professors Crain and Crain updated their research for the National Association of Manufacturers and estimated the burden at $2.028 trillion, an amount that equaled 12 % of GDP. The latest Crain study found that small businesses shoulder costs that are 2 ½ times more per employee than their larger business competitors. Firms with fewer than 50 employees paid $34,671 per employee per year and firms with 100 or more employees paid $13,750 per employee to comply with federal regulations. The cost difference is most severe when the study examined environmental regulations, where firms with fewer than 50 employees paid more than 3 times the amount per employee than those with 100 or more employees.

Sullivan linked the regulatory burdens small businesses face with the decline in business creation:

The United States has experienced a decline in start-ups over the past decade and that trend threatens a full economic recovery. According to data from the U.S. Census Bureau, there were 700,000 fewer net businesses created from 2005 to 2014 than from 1985 to 1994. More worrisome is recent evidence that suggests the number of transformational startups, those that contribute disproportionately to job and productivity growth, has been in decline since 2000. At the same time start-ups are struggling, regulation is a growing concern for small businesses. A quadrennial survey of 20,000 small business owners in August found that “unreasonable government regulations” is the second-most pressing concern, up from 5th in the last survey taken in 2012. Regulation’s placement as the second most serious issue for small business is the issue’s highest ranking in the 34-year history of the survey. Last month, the National Small Business Association (NSBA) released its survey and found that more than half of small business owners held off hiring a new employee due to regulatory burdens.

In offering a state perspective, Kevin Sunday, director for government affairs for the Pennsylvania Chamber of Business and Industry told the subcommittee that while his energy-rich state is enjoying the fracking boom, federal regulations and permitting delays have stifled business and economic growth in his state:

The lack of infrastructure and burdensome regulatory requirements has also discouraged new investment into our state. Pennsylvania also recently lost out on a $500 million investment in a petrochemical facility in southeastern Pennsylvania due to a lack of pipeline infrastructure and regulatory delays. This is not the only situation where we have lost investment due to delays getting infrastructure permitted; an untold number of other projects have been lost in response to a combination of regulatory obligations that continually increase and a lack of certainty regarding the implementation of these obligations.

It goes back to William Kovacs’ post on Monday. We need to get our rules right so businesses can grow and create jobs.

More Articles On: 

About the Author

About the Author

Sean Hackbarth standing in front of oil pumps near Baker, Montana.
Senior Editor, Digital Content

Sean has written for various Chamber properties since 2012. In 1999, Sean launched a “weblog” and never looked back, becoming a self-proclaimed pioneer of the medium.