PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

STATE SPOTLIGHT: Regulatory Restrictions by State

By at 11 December, 2019, 8:48 am

by Raymond J. Keating-

States that impose weighty tax burdens tend to inflict heavy regulatory burdens as well.

This is evident in the data in SBE Council’s “Small Business Policy Index 2019: Ranking the States on Policy Measures and Costs Impacting Entrepreneurship and Small Business Growth,” which ranks the 50 states according to 62 different policy measures, including assorted tax, regulatory and government spending measures.

The Mercatus Center recently made a valuable contribution to the state regulatory discussion by quantifying and comparing a broad measure of regulations by state. Mercatus was able to analyze 46 states and the District of Columbia. Unfortunately, four states were not included due to data limitations. Those were Arkansas, Hawaii, New Jersey, and Vermont.

As for the remaining states, Mercatus explained its process:

“To gain a better understanding of the reach of state-level regulation in the United States, the Mercatus Center at George Mason University launched the State RegData project and has gathered and analyzed the regulations of 46 states plus the District of Columbia… Mercatus researchers then used text analysis and machine learning algorithms to quantify how many words and regulatory restrictions each state’s regulations contain as well as to estimate which sectors and industries of the economy those regulations are likely to affect. As in all RegData datasets, regulatory restrictions are a metric designed to act as a proxy for the number of prohibitions and obligations contained in regulatory text, as indicated by the number of occurrences of the words and phrases ‘shall,’ ‘must,’ ‘may not,’ ‘required,’ and ‘prohibited’ in each state’s regulations.”

The Mercatus results are in the following graphic:

The Most Burdensome States

On the most burdensome end, Mercatus reported: “California’s regulations contain the most regulatory restrictions, with almost 396,000 in total. New York is second, with just over 300,000. Rounding out the top 5 are Illinois (approximately 260,000), Ohio (approximately 246,000), and Texas (approximately 227,000).”

The big surprise among these five is Texas. Texas always ranks very favorably, for example, on the “Small Business Policy Index,” including ranking as number one among the states in the 2019 edition.

Meanwhile, California ranked 49th, New York 47th and Illinois 35th on the Index. Each has earned a reputation for inflicting costly regulations and taxes.

As for Ohio, it has made great progress in improving its competitiveness among the states in recent years – coming in at 13th on the Index – but that came after a long stretch of misguided policymaking. So, Ohio being among the five worst states according to Mercatus is not surprising.

The Least Burdensome States

At the other end of the regulatory scale, Mercatus noted:

“South Dakota has the least restrictive regulations, with almost 44,000 restrictions. Alaska, Arizona, Idaho, Kansas, Montana, Nevada, and North Dakota are other states with fewer than 75,000 restrictions.”

Of those eight states, two rank among the top four states on SBE Council’s Index – Nevada at #2 and South Dakota at #4 – along with Arizona at #9, and a total of seven of these eight state rank in the top 26 states. Only one state ranked somewhat poorly on the Index – Montana at 32nd.

For consumers, it’s too easy to put aside any concerns regarding over-regulation. After all, regulations overwhelmingly are hidden from consumers. But make no mistake, regulatory costs are just as real and damaging as are taxes. And that is the case with federal, state and local regulations.

Entrepreneurs, and the owners and managers of small, mid-size and large businesses, understand the realities of regulation, as they are left trying to figure out how to deal with significant regulatory costs imposed by politicians and their appointees. So when it comes to regulatory policy, a light touch environment is always the most ideal for business growth, investment, entrepreneurship and quality job creation.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

 

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