The Hidden Tax

With tax day not yet a distant memory, it’s wise for business owners to face the hidden tax they have to deal with every day: government regulations. A new report entitled 10,000 Commandments from the Competitive Enterprise Institute shows that regulations are burdensome to all business, but particularly to small businesses that have fewer resources to deal with them. Some key findings:

  1. Of the 4,043 regulations now under consideration by federal agencies, 758 affect small business.
  2. Of the regulations being considered, 44% of them are generated by the Departments of the Treasury, Agriculture, Commerce and the Interior, along with the Environmental Protection Agency.
  3. Regulatory costs are the equivalent to 63% of all 2007 corporate pretax profits of $1.89 trillion.
  4. Nearly 60,000 rules have been issued since 1995.

Significance of regulations

Shifting the responsibility for making rules from Congress to federal agencies essentially means that non-elected people are governing your business life. The report notes: “Congress can escape accountability by blaming the agency that issued the unpopular rule.”

Regulations hit small businesses hardest. The report says “per-employee regulatory costs for firms of fewer than 20 workers can be more than 40% greater than for larger firms.”

What to do?

Entrepreneurs and small companies can’t opt to ignore government regulations; such action risks fines and penalties as well as hours of hassling with bureaucrats. Here are some actions that can be helpful:

  • Watch the size of your payroll. Many government mandates and rules apply only to companies with more than a certain number of employees. For example, the Family and Medical Leave Act, which requires employers to give up to 12 weeks of unpaid leave time, applies only to companies with 50 or more employees (for more details, see What Happens When You Add to Your Staff?).
  • Tell government what you think about regulations. For example, as part of the Open Government initiative, the Department of Labor has created a page where you can share your ideas. Your comments can relate to DOL research, OSHA, Project GATE (Growing America Through Entrepreneurship), and some other matters.
  • Follow efforts by the SBA Office of Advocacy. As part of its mission, the office of Advocacy “works to reduce the burdens that federal policies impose on small firms.” It also posts regulatory alerts on proposals affecting small businesses.

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