NAM Study: Federal Regulation is Crushing Small Businesses

By SBE Council at 2 November, 2023, 6:40 pm

by Raymond J. Keating –

Regulatory costs are enormous, and negatively impact every person in the nation. At the same time, since most regulatory costs are hidden from consumers, these burdens are more insidious than, for example, various taxes that people can more plainly see.

Therefore, politicians are far more apt to take credit for imposing this or that regulation, while pretending that the costs of such rules and mandates simply don’t exist. After all, voters tend to get testy about taxes, so, why not just regulate?

If anyone doubts the real and significant costs that come with government regulation, just talk to most small businesses owners, as they have to confront the reality of these burdens each day.

But, really, how significant can regulatory costs really be? Well, the National Association of Manufacturers (NAM) has just released the findings of an updated study by economists Nicole V. Crain and W. Mark Crain titled “The Cost of Federal Regulation to the U.S. Economy, Manufacturing and Small Business.” Their findings are nothing less than breathtaking – in a very bad way.

Consider the following findings:

● “The total cost of federal regulations in 2022 is an estimated $3.079 trillion (in 2023 dollars), an amount equal to 12% of U.S. GDP and larger than the manufacturing sector’s entire economic output.”

● The annual federal regulatory cost per employee for all U.S. firms registered $12,800 (in 2023 dollars). The per employee costs of regulations registered $14,700 for small businesses with fewer than 50 employees, $13,800 for firms with 50-99 workers, and $12,200 for firms with 100 or more employees. That means that the per employee costs of federal regulations are 20.5 percent higher for small businesses (fewer than 50 employees) versus larger businesses (100 or more employees).

● Not surprisingly, regulatory costs for manufacturing businesses are particularly high. Consider that the annual federal regulatory cost per employee for all U.S. manufacturing firms registered $29,100 (in 2023 dollars). The per employee costs of regulations registered a staggering $50,100 for small manufacturers with fewer than 50 employees, $28,000 for manufacturers with 50-99 workers, and $24,800 for manufacturers with 100 or more employees. That means that the per employee costs of federal regulations is 102 percent higher for small manufacturers (fewer than 50 employees) versus larger manufacturers (100 or more employees).

● It also was reported: “For manufacturing firms, the cost of federal regulations is roughly $350 billion, which is 26% higher than the inflation-adjusted cost of $277 billion borne by manufacturers in 2012. The regulatory burden on the manufacturing sector is larger than the economies of 29 American states.”

Finally, it must be noted that the manufacturing sector is overwhelmingly populated by small businesses. According to the latest Census Bureau data (2020), 59.2 percent of employer firms in manufacturing had fewer than 10 employees, 74.4 percent fewer than 20 employees, and 93.1 percent fewer than 100 employees.

Serious Regulatory Reform and Accountability Needed

These updated estimates regarding the costs of federal regulation point to the desperate need for Congress to undertake serious regulatory reforms with the objective being to rein in and roll back burdensome, unnecessary regulations. The following four reforms would be transformative for the U.S. regulatory process, and a dramatic positive for small and large businesses in manufacturing and every other sector of our economy:

First, establish independent congressional regulatory analysis. Congress needs an independent means to analyze new and existing rules and regulations, such as subjecting them to rigorous cost-benefit analysis.

Second, Congress should approve all rules and regulations generated by federal agencies before such measures take effect.  Congress not only has incentives to pass regulatory measures, but also to leave the actual details of creating and imposing rules, mandates and regulations to agency bureaucrats. Therefore, it’s critical to establish full responsibility for regulating with Congress by requiring that all rules and regulations be subject to votes in Congress before being imposed.

Third, all rules and regulations should be sunset. All new and existing rules and regulations should have a limited lifespan, so that Congress is required to re-evaluate regulations after a certain period of time to see if they still make sense.

Fourth, and finally, supermajority votes by Congress should be required regarding bills that impose major regulations on businesses, entrepreneurs and investors. Given the tremendous costs of regulation, as we’ve noted, on businesses and entrepreneurs – and therefore on workers, investors and consumers – requiring a supermajority vote (such as 60 percent in each chamber of Congress) to pass bills imposing major regulations would be a reasonable check on the bias to regulate.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.