Shifting regulatory sand hurts small business, delays economic recovery

Show me a strong recovery, and I’ll show you small businesses that are growing and hiring. After all, I’m from the Show Me State. When the reports from Main Street match those from Wall Street, the recovery will be gaining momentum. We’re not there yet.

The government’s role has been a big part of the problem, particularly for struggling small businesses. One fiscal crisis after the other, in addition to tax increases, threats of more taxes and rising healthcare costs all contribute to an anemic recovery. But an often overlooked and equally paralyzing dilemma facing small businesses is the aggressive regulatory environment of the Obama administration. 

Small business owners are not anti-government; they are embracing the American dream. They aren’t seeking a free pass from the federal government’s regulatory agenda, but rather a fair shot at success. Small businesses do not want to be micromanaged by federal bureaucrats. 

So what is the reality? It’s 3,000 to 4,000 new regulations, every year, touching seemingly every area of private enterprise.

Last week, the House Small Business subcommittee on Investigations, Oversight and Regulations delved into the spotty record of federal agencies in meeting their statutory obligation to seek ways to reduce regulatory burdens on small businesses. There’s a never-ending tension between the federal tendency to spit out an endless stream of new rulemaking and the Regulatory Flexibility Act (RFA), which Congress wrote in 1980 specifically to make sure agencies take the time to analyze and consider ways to reduce the impacts of their rules on small businesses. 

Small firms bear an annual regulatory cost of $10,585 per employee, which is 36 percent higher than the cost of regulatory compliance for large businesses, according to a 2010 Small Business Administration study, and compliance with environmental regulations costs small businesses four times more than large firms. Small companies don’t have the resources of large firms to sift through regulations, understand them and constantly adjust their business plans.

Regulations that discourage small-business growth undercut the economy. Small businesses make up nearly half of the private-sector economy, employing 49 percent of private-sector employees and accounting for 42 percent of the private-sector payroll. When it comes to job creation, small businesses are the drivers of new jobs in this country. Since 1993, small businesses have created 64 percent of net new jobs.

With that track record, it should be easy to get Washington to move beyond lip service and genuinely work to free up small businesses from the regulatory burden and regulatory uncertainty that is holding them back. Under this administration, it just hasn’t been a priority. No matter what is said, the facts tell the real story. A recent National Federation of Independent Business report still shows low optimism among small-business owners. Of those surveyed, 11 percent added jobs, while 9 percent cut jobs. Those are not yet strong recovery numbers — not even close. 

A solution to this regulatory problem would be to strengthen the RFA to deny agencies’ use of loopholes, and strengthen the Small Business Administration’s Office of Advocacy so it can prevent unnecessarily burdensome rules. Last Congress, the House passed the Regulatory Flexibility Improvements Act of 2011 (H.R. 527), a bill authored by the Small Business Committee. The bill would close loopholes used by agencies to avoid compliance with the RFA, require a better assessment of the impacts that regulations will have on small businesses, force agencies to perform better periodic review of rules, and grant the chief counsel for advocacy at the Small Business Administration greater powers for enforcement of the RFA. Senate Majority Leader Harry Reid (D-Nev.) never brought the bill up for a vote.

The Obama administration seems to operate on the presumption that America’s resilient economy will eventually come back enough to mask the anti-growth small-business policies that have hampered the last four years. A better approach would be a commitment to the spirit of the RFA so that undue burdens on small businesses are reduced wherever possible. Our committee will keep working to hold agencies accountable to the RFA, because the federal government shouldn’t be small businesses’ worst nightmare. 

Graves is the chairman of the House Small Business Committee.