Federal Regulations: Are American Businesses Unduly Burdened?

Sep 20, 2011 7:00am
ap virginia nuclear plant nt 110829 wblog Federal Regulations: Are American Businesses Unduly Burdened?

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Whether it’s in a Republican jobs agenda, a presidential executive order or a think tank report, some government regulations have been targeted as unnecessary burdens. And at a time when job creation is the number one goal of most lawmakers, decreasing businesses’ regulatory burden is one way politicians, particularly Republicans, are looking to inspire private businesses to create more jobs.

But despite cries that American businesses are over-regulated and over-burdened, the United States still ranks as one of the best countries to start a business. Worldwide, only Singapore, Hong Kong, New Zealand, and the United Kingdom have a more business friendly environment, according to the 2010 International Finance Corporation and World Bank “Doing Business” report.

“When you see how the U.S. performs, it still is in the top five economies, so it is kind of difficult to do better than the U.S.,” said Jean Michel Lobet, a private sector development specialist at the World Bank who works on the Doing Business report. An updated version of the report will be released in mid-October.

Lobet said regulations in this country are “adequate,” “relatively streamlined” and provide the “right balance.” Compared to other countries, the rules around starting a business are simple enough that it takes on average just six days to create a business in America. In Canada and China, the United States’ two largest trading partners in July, it takes five and 38 days respectively.

Despite overall good rankings worldwide, regulations still pack a costly punch for American businesses, although the exact price tag for federal regulations is highly disputed.

One area where the United States has “a lot of room to improve” is in construction permits, Lobet said. The report found that 19 procedures are necessary to build a warehouse and they take 40 days to complete, pushing the United States down to number 27 in the world rankings.

“Permitting delays inadvertently disadvantage U.S. companies, discourage domestic investment and slow the pace of U.S. job creation,” according to a Business Round Table statement.

According to a Small Business Administration report, all federal regulations combined cost American businesses about $1.75 trillion in 2008, or $8,000 per employee. More than $5,000 of those costs per employee stem from economic regulations, while more than $1,500 come from environmental rules, the report notes. These findings have been disputed because some economists claim they are based on incomplete and out-of-date data.

“Regulations are costly. That’s always true. And that makes it more difficult to hire people and to conduct your business,” said Paul Schultz, the director of the Center for the Study of Financial Regulation at Notre Dame University’s Mendoza School of Business.

During Obama’s first two years in office, 555 new “significant” regulations, or ones that have a cost or benefit of at least $100 million in a year, have been enacted, according to the Office of Management and Budget. Over the eight years that former president George W. Bush was in office about 2,380 regulations were enacted, an average of 595 every two years.

“But what are the potential benefits?” Schultz continued.  ”If you issue regulations limiting the use of, say, certain kinds of coal, the air pollution is something [companies] don’t pay for.  The trick is to balance off those things like pollution with the costs of running a company.”

House Majority Leader Eric Cantor’s jobs agenda targets 10 of what he calls the “most harmful job-destroying regulations.” Cantor’s plan would repeal seven Clean Air Act rules, two labor law provisions and one Affordable Care Act rule.

“The current regulatory burden coming out of Washington far exceeds the federal government’s constitutional mandate, and it’s hurting job creation in our country at a time when we can’t afford it,” Cantor’s fellow House Republican, Speaker John Boehner, said in a speech to the Economic Club of Washington last week.

A more stringent ozone regulation topped Cantor’s list of “costly bureaucratic handcuffs.” The rule would have cost an estimated $1 trillion over a decade to implement, but the EPA estimates it would have saved the same amount in public health benefits such as fewer asthma attacks and premature deaths.

Obama announced earlier this month that he would instruct the EPA not to implement the new rule because a revised ozone rule was set to come out in 2013. Another of Cantor’s targeted rules, the Cross-State Air Pollution rule, would cost power plants an estimated $2.4 billion annually, according to EPA estimates. But it would also prevent at least 13,000 premature deaths and save up to $280 billion annually in public health costs, the EPA estimates.

“There’s no bright line in the sand that tells you this is too much this is too little,” said James Gattuso, a senior fellow for regulatory policy at the conservative Heritage Foundation. “That’s one thing that makes regulatory policies so tough.”

And fighting “burdensome” regulations is not just a Republican thing. Obama signed an executive order in January that would curb “unreasonable burdens” on businesses and eliminate regulations that are “just plain dumb,” he said at the time.

In August, the administration rolled out “hundreds of initiatives that will reduce costs, simplify the system and eliminate redundancy and inconsistency,” Cass Sunstein, administrator of the Office of Information and Regulatory Affairs, wrote in a White House blog post.  The White House estimated these changes would save $10 billion over five years.

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