John Allison is the CEO of the Cato Institute and author of The Financial Crisis & the Free Market Cure, and is also a leader of the Job Creator's Alliance.
For years politicians have bickered about the best prescriptions for the economy. From the right, it's lower taxes; from the left, the remedy is stimulus spending and government programs. Lost in the cacophony is one solution to our economic challenges about which both Republicans and Democrats claim to agree: rolling back the rising tide of red tape strangling small businesses.
The ever-growing thicket of regulations businesses must contend with is a hidden tax that is stifling economic growth. Washington's bureaucratic machine costs the American economy somewhere in the neighborhood of $1.75 trillion each year according to a recent study commissioned by the Small Business Administration's Office of Advocacy. That is more than the federal government takes in corporate and individual income taxes combined.
Along with the billions spent on stimulus programs have come hundreds of new regulations that make it harder for businesses to grow and propel economic recovery. As one hand gives, the other takes away; and recently, it's taking a lot more. The trouble with regulation is that more is added every year, but very few government mandates are ever repealed. The combined weight of all the rules that have accumulated are crushing the economy—a death by a thousand cuts.
Last year alone, federal agencies issued 3,807 final rules according to data compiled by Wayne Crews of the Competitive Enterprise Institute. A good way to measure the extent and complexity of the regulatory environment is how many pages it takes to explain what all the regulations mean. Last year, for example, the Federal Register spanned more than 81,000 pages. That's enough to make a stack of paper as high as a three-story building and each year, the number grows. Today, the Federal Register spans 54 percent more pages than it did in the 1980s.
More disturbing is the explosion of economically significant rules, those with an impact of more than $100 million. Over the last three years the average number of economically significant rules completed annually has risen by 75 percent.
Washington has lost sight of the consequences that regulations have on businesses, but the public seems to understand. A poll conducted earlier this year for the Job Creator's Alliance found that 60 percent of adults believe that we are putting too much of a tax and regulatory burden on businesses and discouraging job creation as a result. Regulation hits small businesses the hardest. Small businesses cannot afford the legal and consultant teams used by big businesses to navigate complex regulations. That same SBA study found that small businesses face 36 percent higher regulatory costs per employee than large businesses. Hurting small businesses, which create two out of every three net new jobs, is the quickest way to stifle job creation.
Large companies' ability to absorb these costs relative to small businesses gives them a significant competitive advantage. By hindering small business growth, overregulation results in a less dynamic and innovative economy. In the long run, it's not government stimulus, but our ability to create and innovate that leads to prosperity.
We've only just hit the tip of the iceberg. Regulators are still working on dozens of new multibillion dollar regulations due out in the next year or two. Those pending rules will worsen our regulatory climate and further cripple economic growth and job creation. Lifting the regulatory burden on small businesses is essential to any credible program to get the economy back on track.