Small businesses need more than bread and circuses

May 20–26 was National Small Business Week. Around the country, government officials paid homage to the small business owners who drive innovation in our national and state economies.

The recognition is certainly well deserved, but small businesses need more than a week of ceremonial platitudes in order to create the jobs that will spur our national and state economies out of recession.

What small business desperately need is real relief — relief from over-regulation, high taxes, and burdensome labor laws — at both the federal and state levels.

As President Obama signed the proclamation designating last week National Small Business Week, over the past three years 10,215 new federal regulations have been unleashed, 106 of which are “major” regulations (an estimated annual impact of at least $100 million per year) that increase the regulatory burden on private-sector activity by more than $46 billion annually.

Considering that very small firms, those with fewer than 20 employees, spend 36% more per employee than larger firms to comply just with federal regulations, this is not welcome news for the nation’s small businesses. A firm with fewer than 20 employees spends about $10,585 per employee to comply with federal regulations, whereas a firm with over 500 employees spends only $7,755 per employee.

Add to that the stacks of regulations imposed by the state. During that same three-year period, Washington State imposed more than 4,000 new permanent state regulations (not including the thousands of temporary “emergency” rules).

Regulations in our state fill 32 phonebook-sized volumes, which together form a stack of paper over five feet high. The staggering amount of regulatory red tape amounts to more than 100,000 requirements that a small business owner must know, understand and follow, in order to run a business legally.

Compounding the problem is many of Washington’s regulations, particularly those related to the environment, are often far more restrictive than federal standards require, and often go far beyond similar rules in other states. This means our state’s businesses are forced to operate at a severe disadvantage compared to out-of-state firms.

Three recent independent reports confirm over-regulation is taking its toll on our state’s competitiveness. Comparing Washington to other states, these reports rank our state disturbingly low and conclude Washington’s small business climate is in serious need of improvement. The most commonly cited issues? Over-regulation, high taxes and burdensome labor laws.

It is difficult enough for small businesses to survive the taxes, regulations and labor laws imposed by the federal government. When compounded by our state’s heavy hand, it isn’t hard to understand why we suffer from the nation’s second highest small business failure rate.

While many factors account for this high failure rate, research shows the state’s onerous regulations are particularly burdensome for small businesses. A 2007 state Department of Revenue study on the business survival rate in Washington found that “taxes and costs of complying with government regulations are factors that contribute to business failure because most small businesses are not profitable in the early years.”

Recognizing the value of small businesses to our state’s economy is always a good thing; the president’s declaration is a nice gesture. But small business owners need action, not just words.

Washington Policy Center has long recommended commonsense reforms to reduce the regulatory burden on our state’s small businesses. These reforms would remove what small business owners themselves have complained are significant obstacles to their goal of growing their company and creating jobs. Such action would mean more to business owners than the bread and circuses of National Small Business Week.

Erin Shannon is the director of the Washington Policy Center’s Center for Small Business. For more information, visit www.washingtonpolicy.org.