Setting a Baseline for Proposed Rules Affecting Small Business

In what way are proposed rules affecting small business rising or falling, and should policy makers be on guard?

The answer to the second part of that question is “yes,” no matter how rules in process are faring, because the administrative state sits at a key juncture in which all its activities bear closer scrutiny than ever.

That focus by policy makers is vital in the wake of trillions in pandemic spending and attendant programs and the regulatory surge likely to follow from costly COVID legislation, as well as legislation on “infrastructure,” “inflation,” and “innovation.” Atop all that, “whole-of-government” initatives seek to implement progressive priorities on climate, equity, digital currency, competition policy, and more.

A surge in overall rule counts is still not reflected on the Federal Register online database. Moreover, rules with some officially recognized effect on small business are up too, albeit by amounts (seemingly) not as great. Small business rules could exceed what we know so far, since the small-business tally we are presenting in this brief (as well as here) derive from the online database that for the moment appears to undercount 2021’s overall final rules.

The emphasis on small business at the moment is due to the observation (noted here recently) that small business, along with state and local governments, get credit for propelling the last major set of regulatory reforms, dating back to the 1990s. Since the novel federal interventions now coming online may benefit their larger competitors, small businesses may yet again feel the need to have their voices heard and heeded.

What jumps out in the figure below depicting proposed rules (and the “significant” subset; see description here) affecting small business is that, after an Obama “midnight rule” surge in 2016 and subsequent drop during the Trump term, proposed rules affecting small business in Biden’s first year of 2021 surged (to 804). That exceeds anything seen since before 2008. While this year’s count has not caught up, it seems destined to exceed everything else in the chart.

Clearly, rule counts rose under Trump, too, despite the one-in, two-out mandate during his administration, but never exceeded predecessors (apart from 2009). Part of the reason is that the attempt to eliminate a rule requires writing another one, and a number of Trump rules were deemed “Deregulatory.” Another probable influence, teased out a bit in the Trump administration “capstone” edition of Ten Thousand Commandments, was rules implementing the Paycheck Protection Plan under the Coronavirus Aid, Relief, and Economic Security, or CARES, Act.

While overall rules affecting small business are back up above Obama-era heights, the silver lining is that the “significant” subset of proposed rules, while higher than under Trump, have not yet returned to pre-Trump levels. This all bears watching since the agencies’ implementation of the recent legislative directives must find their way into the “significant” category for small business, if the disclosures are to be honest.

As noted, given the discrepancies seen in the overall final rule counts, the counts of small business rules could also be understated. Elsewhere we have noted the nettlesome issue of the historical numbers changing, sometimes by significant percentages, in the online Federal Register database. 

One reform for that would be for the annual Federal Register statistics PDF updated annually by on the National Archives to be declared definitive and expanded to include small business rule counts.

Such reforms aimed at better disclosure won’t be quite enough, since much of the regulation to come will not lend itself to counting or to being assessed monetarily. Policy makers have yet to appreciate how the aforementioned legislation—the bipartisan CHIPS and Science Act and Bipartisan Infrastructure law prominent among them—crowd out private activity.

Watch for more intervention to take place in the form of guidance documents rather than notice-and-comment rules. Biden has undermined the disclosure of such guidance, and his appointee for overseeing the regulatory enterprise would not commit to restoring guidance document portals that the Trump administration had implemented.

A broad slate of reforms needs to be prepared by the 118^th and 119^th Congresses, aimed not merely at Administrative State regulation but also at the lawmaking overreach that provides its oxygen.

Reform-minded lawmakers may find a small business community eager to wish them success in a more ambitious but necessary pursuit of separation of state and economics.