The Biggest Loser: Small Business Bears the Weight of Government Regulations

New York City's soda ban is just the tip of the iceberg when it comes to complying with government regulations.
President, Proximo, LLC
March 13, 2013 “Arbitrary and capricious” are the words that New York Supreme Court Judge Milton Tingling used to strike down New York City’s regulation banning large sugary drinks. Not one to be left behind, New York City Mayor Michael Bloomberg responded almost immediately, indicating he would appeal the judge’s ruling. If history is an indicator, Bloomberg will likely win. His 2006 regulation requiring that restaurants post calorie counts on menus went through a lengthy process of appeals and revisions but was eventually upheld.

While the mayor and the courts battle over the legality of this regulation, small-business owners are stuck footing the bill to comply with a regulation that may or may not become law. 

This isn’t an isolated example. Small businesses are forced to comply with local, state and federal government regulations on a daily basis. Every day, dozens of new regulations go into effect around the country. According to the Small Business Administration (SBA), small businesses spend 36 percent more dollars per employee compared to large companies for regulatory compliance. This is money that could be better spent hiring employees, advertising or buying new equipment. At the local level, it's problematic because regulations can be issued, as New York City shows, by mayoral fiat. The court system serves as a check but tends to avoid overruling local elected officials on regulatory matters.  

According to the Competitive Enterprise Institute, the cost of complying with government regulations is astronomical. Federal regulations alone cost businesses an estimated $1.75 trillion in compliance costs. The Federal Register needs over 80,000 pages to explain all federal regulations. Hundreds of new regulations are enacted each year that directly affect small business. What is even more frustrating is that 95 percent of new regulations are not considered economically significant. This means that the benefit is small but still requires effort on the part of small-businesses owners to comply.

The regulatory burden is likely to get worse. For every new regulation that is enacted, there are currently 10 pending regulations in process. Small-businesses owners aren’t given the benefit of the doubt. Failure to comply with regulations promulgated from any level of government exposes you to fines, penalties and even the closure of your business. The mechanisms in place for you to appeal an adverse finding are slow, inefficient and stacked against you. It's not pretty.

[The New York Times]

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