Regulations could top taxes as enemy of small business

This commentary originally appeared in Investor's Business Daily on June 9, 2015.

A populist tide may swamp expectations for the 2016 presidential campaign. This current is running in both camps, as many candidates seek to distance themselves from Wall Street, big business and banks.

Americans have long been skeptical that their interests align with business. Less well-known and understood is that many big businesses are comfortable with big government — in fact, much of the time, big business works hand-in-glove with big government, using legions of lawyers (especially tax attorneys) and lobbyists to shape government tax and regulatory policy to their advantage.

Small businesses can't afford attorneys and lobbyists. For instance, a 2009 study commissioned by the California legislature estimated the total cost of legal compliance for every small business in the Golden State was $134,122 annually.

The federal government imposes plenty of rules as well. A few days ago, the Occupational Safety and Health Administration issued a four-page edict on transgender bathrooms, writing that "gender identity is an intrinsic part of each person's identity and everyday life."

The Feds suggest that businesses let employees use whatever restrooms they feel like using. The implied threat is that if they don't, they may get sued.

For a large business, complying with regulations is often just a minor cost of doing business. For a small business, regulatory compliance can be an enterprise-killer.

Government Unions

A gauge of small-business sentiment across the nation could serve as a bellwether for freedom from burdensome regulations.

Thumbtack.com, a firm that links consumers to businesses, just completed such a small-business survey in March, with responses from more than 10,000 entrepreneurs. A clear pattern emerges in entrepreneurial attitudes: government employee unionization and burdensome regulations appear associated with depressed small-business outlook more so than taxes on business.

Looking at the 20 most populous states where Thumbtack received the most responses, four large states make it into the top 10 for small-business attitudes: Georgia, Maryland, Texas and Michigan.

At first glance, there doesn't appear to be much in common with these four states. But looking at dozens of objective factors shows that Georgia, Maryland and Texas have a lighter regulatory burden on business than the national average, according to the Economic Freedom of North America study published yearly by the Fraser Institute.

And Michigan, under Gov. Rick Snyder, has made huge gains in economic freedom since 2011, with a signature right-to-work law passed in late 2012.

Conversely, there are six states among the 20 most populous where entrepreneurs were among the 10 least optimistic: Washington, New York, California, Pennsylvania, Ohio and Wisconsin. The Fraser Institute ranked all six as having a business regulatory climate more burdensome than the national average.

The bottom six states for small business also had heavily unionized government employee workforces. New York had the highest union representation in the nation in 2013, with 73% of the state and local government workforce represented by a union. Only 10% of the government workforce was unionized in No. 1, Georgia.

Hidden Costs

Perhaps a heavily unionized government workforce feels emboldened to hassle mere small business owners. After all, what union code enforcers will get fired if they step over the line?

The Competitive Enterprise Institute takes an annual look at federal regulations in its "Ten Thousand Commandments" report. It notes that 2014's Federal Register, the book of new federal rules, features 77,687 pages, the sixth-highest ever. In fact, five of the six highest page counts occurred under the Obama administration.

The Competitive Enterprise Institute estimates that the Obama administration issued 81 major regulations per year for more than six years, more than one and a half per week, at a compliance cost exceeding the combined total of individual and corporate federal income taxes by $160 billion.

The tax burden, even when complex, is visible and fairly well understood — if not on one's pay stub, then on April 15. Not so for regulations, whose costs are hidden and woven into the cost of doing business or, in many cases, the cost of not doing business at all.

DeVore is vice president of policy at the Texas Public Policy Foundation in Austin.