PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Biden’s Ever-Growing List of Regulatory Burdens for Small Businesses

By at 11 March, 2024, 11:41 am

by Raymond J. Keating –

It’s hard to keep up with the ever-growing list of regulatory costs either proposed and/or inflicted by the administration of President Joe Biden. Make no mistake, such costs fall heaviest on small businesses.

Of course, the Biden White House, and its supporters in Congress and beyond, don’t mention that their regulations impose costs on small businesses. After all, voters like small businesses, and it wouldn’t be smart politics to acknowledge this economic reality. But reality, nonetheless, it is.

The Documented Harms of Over-Regulation

Let’s first take note of assorted studies that verify or affirm, if you will, that increased regulations and related costs do serious damage – directly and indirectly – to entrepreneurship, small business and the economy. Note the following sample of such studies (which SBE Council has highlighted previously).

● As noted in an updated study released by National Association of Manufacturers and authored by economists Nicole V. Crain and W. Mark Crain (“The Cost of Federal Regulation to the U.S. Economy, Manufacturing and Small Business”), the burdens of federal regulations fall harder on small firms. For example, the annual per employee costs of regulations registered $14,700 (2023 dollars) 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. And the difference was even more striking among manufacturers, with per employee costs of regulations registering 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.

● In the 2023 edition of “Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State,” authored Clyde Wayne Crews Jr. noted:

“When regulatory costs are combined with federal outlays of $6.27 trillion, the federal government’s share of the entire economy reaches 31.4 percent. State and local spending and regulation would add to these costs.”

“U.S. households pay $14,514 annually on average in a hidden regulatory tax. This amount exceeds every item in the household budget except housing.”

“Final rules affecting small business appear to be mounting and could serve as a source of calls for reform. Outstripping both Trump and Obama, Biden’s administration saw 915 and 916 final rules, respectively, far higher than any other year during the past decade. The significant subset, however, has not reattained pre-Trump heights and so bears monitoring…. Of the 3,690 rules and regulations in the fall 2022 Unified Agenda pipeline, 707 affect small businesses. This count is up from 635 in 2020 under Trump, of which 83 had been deemed deregulatory. Of Biden’s 707, 349 required a regulatory flexibility analysis, which is an official assessment of small-business An additional 358 were otherwise noted by agencies to affect small businesses in some fashion.”

● In a September 2015 study from the Mercatus Center at George Mason University titled “Regulating Away Competition: The Effect of Regulation on Entrepreneurship and Employment,” economists James Bailey and Diana Thomas reported that “more-regulated industries experienced fewer new firm births and slower employment growth in the period 1998 to 2011,” adding that “regulations inhibit employment growth in small firms more than in large firms.”

● Another study from the Mercatus Center (“The Cumulative Cost of Regulation,” April 2016), authors Bentley Coffey, Patrick McLaughlin, and Pietro Peretto looked at the effect of regulations on investment choices, and therefore, on innovation and economic growth. The authors found that since 1980, the cumulative effects of regulation slowed the real economic growth rate in the U.S. by 0.8 percentage points per year. If regulation had been held at 1980s levels, the U.S. economy would have been $4 trillion, or 25 percent larger, than it was in 2012.

Indeed, regulatory costs are significant, and inflict significant harm on small businesses, entrepreneurship, consumers, and the economy in general. Still, the regulatory march forges ahead, with President Biden, on March 5, 2024, even launching a “Strike Force” of federal agencies focused on “prescription drugs and health care, food and grocery, housing, financial services, and more.”

This is a political game whereby the administration is trying to pin the blame for inflation on businesses, while ignoring, of course, government’s part – from the White House to Congress to the Federal Reserve – in driving up costs and fueling inflation.

Biden’s Regulatory Harm Grows Daily

The list of regulatory actions just keeps getting longer. Consider the following, while keeping in mind that this is only a sample of what’s happened and what’s to come under the Biden administration.

Independent Contractor Rule. The Biden Department of Labor issued its final Independent Contractor rule in early January 2024, and it’s scheduled to take effect on March 11. As SBE Council has explained, the regulation will wipe out countless independent-contracting opportunities, along with the ability of small businesses to utilize the expertise of many independent contractors. It imposes a “six-factor” test that is unclear, complex and subjective to determine whether an individual is an employee or independent contractor. SBE Council President & CEO Karen Kerrigan noted: “The new multi-factor analysis, as the DOL calls it, is ‘six-factor’ fudge. The factors are broad and unclear, not anchored in economic reality, and heavily biased towards charging a business with misclassification. In applying the six factors, any independent contractor could be reclassified as an employee.”

Unless thrown out by a court or overturned by Congress, the regulation takes effect on March 11.

Price Cap on Credit Card Late Fees. In early March 2024, the Consumer Financial Protection Bureau (CFPB) published a final rule imposing a cap on credit card late fees. Of course, whenever government steps in to cap prices, there are costs. Access to credit will be reined in, including for lower income individuals and for small businesses, despite the fact that the bulk of these individuals and businesses rank as responsible borrowers. And that reduced access to credit for small businesses will have consequences across local and regional economies, as well as for overall economic, income and employment growth. Other forms of cost shifting will include reductions in valuable rewards and cashback opportunities, and higher interest rates. SBE Council President & CEO Karen Kerrigan correctly observed, “Rather than fulfilling its duty as an independent bureau to develop rules that would benefit consumers and small businesses, the CFPB made a political statement during an election year that will ultimately harm the people it’s supposed to protect. While the CFPB’s final rule applies only to ‘the largest credit card issuers,’ the harmful effects of these type of regulatory exemptions for smaller financial institutions and small businesses will not be contained. Access to credit and beneficial services for small business consumers will be constricted, restricted, or perhaps even disappear.”

Credit Card Routing Mandates. The Credit Card Competition Act, if passed into law, would impose routing mandates for credit card transactions. That would be costly for small businesses. SBE Council has warned: “The mandates would drive billions of dollars from the credit market and force financial institutions to reduce crucial lending to entrepreneurs and their businesses in need. Additionally, credit card routing mandates would strip small businesses of valuable services, like fraud prevention, that they rely on to protect their business and customers.” A recent study confirms exactly that, by the way. As noted by SBE Council, the study’s author reported: “While the bill’s supporters contend it will reduce credit card processing fees and that these savings will accrue to consumers, this is unlikely to occur. Instead, the biggest impact for many consumers and SMEs will be the demise of their credit card rewards programs, and a reduction in the availability of credit.”

Freight Railroad Regulations. Politicians and special interests will even use tragedies as an excuse to impose harmful regulations. For example, after a fiery train derailment in Ohio in February of 2023, two U.S. senators – Sherrod Brown (D) and J.D. Vance (R) – proposed the Railway Safety Act. This measure would do nothing to address safety, while raising costs for railroads and their customers, as made clear in a recent SBE Council analysis. The measure does the bidding of labor unions, while ignoring industry realities, limiting innovation, and yes, damaging small businesses. After all, as highlighted in another SBE Council analysis, it turns out that small businesses play major roles within the rail sector and as rail customers.

Halting LNG Export Approvals. The U.S. has become the world’s leading energy producer thanks to private investment and innovation. But the Biden administration doesn’t like that very much given its political reliance on environmental activists. SBE Council recently noted U.S. energy leadership, while also pointing out a regulatory move by the Biden administration to thwart investment, innovation and that leadership:

“How does the Biden administration react to this unabashedly good news? It announced on January 26 that it would be delaying approval of any natural gas export terminals. Ironically, Biden declared, ‘We will not cede to special interests.’ Of course, the president’s announcement is fully driven by his pandering to special interests, while ignoring the economy and national security interests.

“And make no mistake, when the Biden administration and some in Congress attack the U.S. energy sector, they are attacking small businesses. For example, according to the latest data from the U.S. Census Bureau (2021), 96 percent of employer firms in the oil and gas extraction sector have fewer than 100 employees, and in the support activities for oil and gas operations sector, 96 percent of employer firms have fewer than 100 workers.

“Energy producers have made the U.S. the top energy producer on the planet, and with that comes additional economic, income and job growth. The Biden administration responded by trying to punish the small businesses and workers who innovate and work in the energy sector.”

Joint Employer Rule. The National Labor Relations Board (NLRB) has issued a final “joint employer” rule, which will expand the risk that a business would be determined to be a “joint employer” for individuals over which they have no real control. Small businesses would unknowingly be exposed to liabilities, and franchisees would be exposed to collective bargaining agreements in which they had no say or input. Make no mistake, the NLRB’s expanding joint employment between businesses is a severe blow to entrepreneurship across sectors – raising costs, increasing uncertainty and erecting new barriers. This is another example of too many in government giving lip service to how important entrepreneurs and small businesses are, and then inflicting policies that do real harm to real-world entrepreneurs and small businesses.

SBE Council joined other small business groups in signing a letter to Congress in support of overturning the rule. It was noted in that letter: “Issued in October 2023, the NLRB’s Final Joint-Employer Rule institutes an unworkable, overly broad set of circumstances under which a company is considered a ‘joint employer’ under federal law. The Final Rule will cripple small businesses in numerous sectors by exposing them to frivolous litigation, eliminating jobs, and slowing wage growth across the country – just like it did when a similar standard was implemented in 2015. At a time of continued economic uncertainty, it is alarming that the NLRB has chosen to move forward on such a divisive and damaging joint employer rule.”

The rule was to take effect on March 11, but a judge threw out the rule late in the evening on March 8, and noted that the NLRB “failed to reasonably address the disruptive impact [that] the new rule [would have] on various industries.” The NLRB has thirty days to decide if it will challenge the court’s ruling.

Antitrust Activism. The Biden administration has been hyper-active on the antitrust front. For example, with Lina Khan leading the Federal Trade Commission (FTC), American entrepreneurs, businesses, and consumers have seen a gross overreach by government on the antitrust front. Therefore, political appointees are overruling entrepreneurs, businesses and consumers operating in the competitive marketplace. Indeed, these regulators effectively are trying to seize control over how entire industries function – consider the assaults on tech firms like Amazon, Alphabet, and Facebook, for example. Does that affect small businesses? Of course, not only do entrepreneurs and small businesses use the services provided by these tech leaders, but small firms also work in these tech sectors. Indeed, small businesses partner with such tech companies, as illustrated by the fact that more than 60 percent of sales at Amazon.com are by independent sellers, that is, by small businesses.

And as illustrated by the final joint guidelines for reviewing mergers and acquisition from the FTC and the Department of Justice, released in December 2023, Biden administration antitrust regulators seem intent on eliminating most M&A activity. As noted in an SBE Council analysis: “The guidelines go on to essentially become a very long and expansive laundry list of excuses for the FTC/DOJ to stop a wide array of mergers and acquisitions. It amounts to a license for government regulators to freely interfere with and override decisions made by entrepreneurs, businesses, investors and consumers, even though these regulators have no real clue as to how M&A activity, or for that matter, how future firm, industry and economic developments, will turn out… Indeed, these FTC/DOJ guidelines certainly are comprehensive in terms of weaponizing politics, politicians and their appointees to put a halt to M&A activity. However, M&A is vital to American entrepreneurship, and for the competitive edge that entrepreneurship gives the U.S. in the global marketplace.” After all, limiting M&A activity means limiting investment in U.S. startups and small businesses.

The list of regulatory costs springing forth from the Biden administration is long and growing. Those noted here are merely a small sample. In the end, this kind of regulatory activism undermines U.S. entrepreneurship, investment, innovation, competitiveness and growth.

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, The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist and The Weekly Economist III: Another 52 Quick Reads to Help You Think Like an Economist.

 

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