Hard Realities Put Regulatory Assumptions Under a Microscope

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Hard Realities Put Regulatory Assumptions Under a Microscope

The focus of this month's issue of Trends is "restoring America's economic vitality." The engines of American economic growth are small business and the entrepreneurs who turn those into medium and large businesses.

On the other hand, government simply provides the context in which businesses and consumer create wealth. Ironically, our best estimates indicate that businesses with 20 or fewer employees now spend an average of $10,000 to $12,000 per employee per year to comply with government regulations.1 Roughly 40 percent of the money spent on compliance is specifically related to "environmental regulations" that have grown dramatically since the early 1970s.

Distribution of Regulatory Compliance Costs by Firm Size in 2008

Distribution of Regulatory Compliance Costs by Firm Size in 2008

Until recently, it appeared that new environmental regulations intended to fight anthropogenic climate change would add another layer of growth-sapping costs. However, as the Trends editors predicted over 18 years ago, this new layer of regulations is so onerous that it won't be implemented until the public is convinced that these regulations are economically indispensable.

To date, that has not happened. In fact, the entire popular movement on which this regulatory juggernaut depends has, as predicted, lost momentum. Furthermore, the ongoing reevaluation of our climate-change response is actually setting in motion the forces that will lead to a new regulatory paradigm: one that relies upon a hard-nosed cost-benefit analysis rather than an emotional response to vague evidence and unverified assumptions.

Before we go there, consider just two hard numbers:2

  • First, federal agencies issued 3,573 final rules in 2010 alone. These were decisions delegated to bureaucrats, not made by our elected officials.
  • Second, regulatory compliance costs for U.S. businesses in 2010 totaled $1.75 trillion. That amounts to nearly 12 percent of U.S. GDP. And, amazingly, it's nearly double the total of all the individual income taxes paid in 2010.

As mentioned before, businesses with 20 or fewer employees now spend an average of $10,000 to $12,000 per employee each year on compliance, and roughly 40 percent of that spending is specifically related to environmental regulations...

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