Tuesday, September 21, 2010

Environmental Regs Drive Regulatory Costs Up For Small Firms

Sep 21: Small businesses still face a disproportionate burden when it comes to costs of Federal regulations, compared to larger firms according to a study released by the Small Business Administration, Office of Advocacy. The report titled The Impact of Regulatory Costs on Small Firms, was released and presented by its author W. Mark Crain at the Office of Advocacy's symposium celebrating the 30th anniversary of the Regulatory Flexibility Act. The purpose of the study was to look at the overall cost of Federal regulation on small business, not to evaluate the benefits of Federal regulations. The findings are consistent with previous studies on this topic conducted by the Office of Advocacy.

    Winslow Sargeant, Chief Counsel for Advocacy said, "Small businesses still face higher costs when they encounter government regulations compared to larger firms. Today's report shows that on a per employee basis it costs small firms $2,830 more than larger firms to comply with government regulations. That is a 36% difference and that is an unfair burden to place on American small business." The cost of environmental regulations appear to be the main driver when determining the severity of the disproportionate impact on small firms. Compliance with environmental regulations costs 364 percent more in small firms than in large firms. The cost of tax compliance is 206 percent higher in small firms than the cost in large firms.

    This report details the distribution of regulatory costs for five major sectors of the U.S. economy: manufacturing, trade (wholesale and retail), services, health care, and other (a residual category containing all enterprises not included in the other four). The sector-specific findings reveal that the disproportionate cost burden on small firms is particularly stark for the manufacturing sector. In addition the "other" category also indicates a high level of disproportionally between small and large firms. The compliance cost per employee for small manufacturers is more than double the compliance cost for medium-sized and large firms. In the service sector, regulatory costs differ little between small businesses and larger firms. The distribution of the regulatory burden across firm sizes in the other major business sectors falls somewhere between these two cases.

    According to the executive summary of the report, "The annual cost of federal regulations in the United States increased to more than $1.75 trillion in 2008. Had every U.S. household paid an equal share of the federal regulatory burden, each would have owed $15,586 in 2008. By comparison, the federal regulatory burden exceeds by 50 percent private spending on health care, which equaled $10,500 per household in 2008. 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)." 

    Access a release from the OA (click here). Access a research summary (click here). Access the complete 83-page report (click here).