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Reason Foundation

Compliance Costs on the Rise

Anthony Randazzo
September 28, 2010, 9:28am

The annual cost to businesses from complying with federal regulations and paying federal taxes has hit 35 percent of national income according to Nicole V. Crain and W. Mark Crain. From their piece in the WSJ:

The annual cost of federal regulations in the United States increased to more than $1.75 trillion in 2008, a 3% real increase over five years, to about 14% of U.S. national income. This cost is in addition to the federal tax burden of 21%, for a combined cost of 35% of national income. One out of every three dollars earned in the U.S. goes to pay for or comply with federal laws and regulations, and new policies enacted in 2010 for health care and financial services will increase this burden."

There is bad news for small businesses as a subset of this:

"In a report released last week for the Office of Advocacy of the U.S. Small Business Administration, we find that small businesses bear a disproportionately large share of regulatory costs. The portion of these costs that falls initially on businesses overall was $8,086 per employee in 2008. But these costs are not borne equally by businesses of all sizes. Larger firms benefit from economies of scale in compliance; small businesses do not have that advantage.

As a consequence, small businesses-those with fewer than 20 employees-incur regulatory costs 42% greater than firms with between 20 and 499 employees, and 36% greater than firms with more than 500 employees. The regulatory cost per employee for small businesses was $10,585, compared to $7,454 for medium firms and $7,755 for large firms."

See the whole piece here.


Anthony Randazzo is Director of Economic Research


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