Loss of Economic Freedom Takes a Toll on Small Businesses

The 2014 edition of the Heritage Foundation/Wall Street Journal Index of Economic Freedom is set for release next week, and for America, the news isn’t good.

This year, the United States continued to lose ground to its competitors in the global race to advance economic freedom and prosperity. The U.S. score has declined almost 6 points since 2007, placing the U.S. among those countries considered to be only “mostly free.”

Sounds bad, but what does it really mean? Don’t many new regulations affect mostly large businesses, such as the giant firms bailed out in the wake of the financial crisis? Not necessarily.

In fact, burdensome rules affect businesses all sizes. A stark example of how petty regulators can get is the case of Rhea Lana Riner, an Arkansas small business owner who organizes consignment sales and was recently warned by the U.S. Department of Labor that she may not get help from volunteers. The Washington Examiner‘s Sean Higgins reports:

Rhea Lana, Inc., hosts what are essentially big semiannual yard sales. People who donate clothing or other items get 70 percent of the profits from the sales of their items as well as first crack at the other merchandise.

The donors also often volunteer at the events, doing things like hanging clothes or working the cash register. This helps to ensure that their items get sold. That’s also what got Riner in trouble with the feds.

Forbidding private parties from entering into a mutually beneficial voluntary business arrangement is about as bad a violation of the freedom to contract as you can get.

But sadly, it’s not that surprising, considering the escalating array of labor regulations all employers face. And, as CEI’s Wayne Crews notes in his annual 10,000 Commandments report (page 34), it begins at the very first rung.

Federal Workplace Regulation Affecting Growing Businesses

Assumes nonunion, nongovernment contractor, with interstate operations and a basic employee benefits package. Includes general workforce-related regulation only. Omitted are (a) categories such as environmental and consumer product safety regulations and (b) regulations applying to specific types of businesses, such as mining, farming, trucking or financial firms.

1 EMPLOYEE

• Fair Labor Standards Act (overtime and minimum wage [27 percent minimum wage increase since 1990])

• Social Security matching and deposits

• Medicare, Federal Insurance Contributions Act (FICA)

• Military Selective Service Act (90 days leave for reservists; rehiring of discharged veterans)

• Equal Pay Act (no sex discrimination in wages)

• Immigration Reform Act (eligibility must be documented)

• Federal Unemployment Tax Act (unemployment compensation)

• Employee Retirement Income Security Act (standards for pension and benefit plans)

• Occupational Safety and Health Act

• Polygraph Protection Act

4 EMPLOYEES: ALL THE ABOVE, PLUS

• Immigration Reform Act (no discrimination with regard to national origin, citizenship, or intention to obtain citizenship)

15 EMPLOYEES: ALL THE ABOVE, PLUS

• Civil Rights Act Title VII (no discrimination with regard to race, color, national origin, religion, or sex; pregnancy-related protections; record keeping)

• Americans with Disabilities Act (no discrimination, reasonable accommodations)

20 EMPLOYEES: ALL THE ABOVE, PLUS

• Age Discrimination Act (no discrimination on the basis of age against those 40 and older)

• Older Worker Benefit Protection Act (benefits for older workers must be commensurate with younger workers)

• Consolidation Omnibus Budget Reconciliation Act (COBRA) (continuation of medical benefits for up to 18 months upon termination)

25 EMPLOYEES: ALL THE ABOVE, PLUS

• Health Maintenance Organization Act (HMO Option required)

• Veterans’ Reemployment Act (reemployment for persons returning from active, reserve, or National Guard duty)

50 EMPLOYEES: ALL THE ABOVE, PLUS

• Family and Medical Leave Act (12 weeks unpaid leave or care for newborn or ill family member)

100 EMPLOYEES: ALL THE ABOVE, PLUS

• WARN Act (60-days written plant closing notice)—Civil Rights Act (annual EEO-1 form)