American small businesses are paying through the roof for regulations

In a new column at Forbes, I take look at the National Association of Manufacturers’ (NAM) update of its report called The Cost of Federal Regulation to the U.S. Economy, Manufacturing and Small Business.

Authored by Nicole V. Crain and W. Mark Crain, the report, via both top-down and bottom-up estimates, finds that overall costs of regulatory compliance to the economy reached $3.079 trillion in 2022 (in 2023 dollars).

That $3 trillion amounts to $277,000 in average annual compliance costs for a typical US firm. The report notes also that per employee costs for the typical US firm is almost $13,000, and that regulations cost the typical US firm around 19% of payroll expenditures.

Small businesses tend to be hit hardest. That unfairness is most prominent in the manufacturing sector, where, for small firms with fewer than 50 employees, the average annual per-employee cost for regulations is assessed at a whopping $50,100. Here’s a breakdown:

As several recent columns have noted, we sorely lack official tallies of such regulatory costs, and there exists a disinclination toward acknowledging them. This disregard is baked in to formal policy, even for rules on a one-by-one, standalone basis. An official estimate for aggregate regulatory costs is non-existent. Crain and Crain are right that “an alternative estimate of the cost of economic regulations is required.”

As it stands, the year 2023 is about to close out with Biden having already delivered the second-fattest Federal Register (it stands at 90,084 pages today, with one more day left in the federal work year).

The 2024-2025 policy debates should elevate regulatory liberalization as well as revive sound assessments of regulatory burdens as priorities. It is clear, though, that Congress will need to step in for either to occur.

Given that an election year begins next week, the Biden administration will be incentivized to get things done, rather than—as America’s small businesses might wish when it comes to regulation—get things undone. 

It’s looking as if changes may need to await a 119^th Congress, but it doesn’t have to be that way. Small business regulatory burdens were the major factor that led to sweeping regulatory reforms in the past.