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The Entrepreneurial Mind

SBA: Costs of regulation 'staggering' for small businesses

The high costs associated with meeting EPA and IRS regulations are many times higher for small businesses than for their larger competitors, per capita.

By Jeff CornwallGuest blogger / December 1, 2010

Lee Mason runs the business side of a small manufacturing company, Clarke Gear Co. The company feels burdened by regulations that make it difficult to continue to operate. Ms. Mason says she may have to cut jobs.

Robert Harbison / The Christian Science Monitor / File

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Winslow Sargeant, chief counsel for advocacy at the U.S. Small Business Administration, recently shared the following facts with the Senate Small Business Committee:

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  • Costs to meet Environmental Protection Agency rules average $22,000 per employee for a small manufacturing business. This compares to only $5,000 per employee for the large companies they are trying to compete with.
  • The average costs for all small businesses to meet federal rules is $10,585 per worker.
  • Small businesses face costs of meeting Internal Revenue Service tax regulations that are four times greater per employee than for large companies.

Why was he pointing out the regulatory nightmare for small business? To gain support for getting the federal regulators out of the way of entrepreneurs? Nope. It was simply to support the repeal of the dramatically expanded 1099 reporting requirements that were part of the Obama health care legislation.

While support for repeal of the 1099 debacle is noteworthy, it is one small rock from the mountain of regulatory burden facing small business.

This is not a time to accept small victories. The possible repeal of one specific new regulatory requirement will do very little to spur business start-ups.

It is time for fundamental regulatory and tax reform if we have any hope of breaking down the growing barriers to business formation. In Sargeant's own words we have created a system that places small businesses at a "staggering competitive disadvantage" to their larger competitors, to say nothing about the global competition they also are facing.

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