The Cost Of Regulatory Compliance: $20,000 For Every American Worker

Tyler Durden's picture

As JPM writes in its intraday update, the "Trump/Ryan enthusiasm is starting to quietly fade as investors appreciate the enormous logistical and mathematical hurdles associated w/realization of their agenda. The nature of the Trump White House is such that investors should get used to avalanches of headlines, tweets, etc. on a daily basis but very little of this stream of consciousness barrage is likely to be incremental – platitudinous promises about slashing taxes “massively” or cutting regulations “by 75% or more” are increasingly being ignored as markets wait for specifics on the “Big 3” (tax reform, deregulation, and infrastructure spending). Tax reform continues to account for the bulk of the Trump/Ryan enthusiasm but enormous uncertainty exists around this issue (timing, revenue offsets, forced vs. optional repatriation, 35% vs. 20 or 15% when the average cash/effective rate is already ~23-25%, etc.)."

Yet while investors are becoming somewhat disenchanted with the tax reform and infrastructure spending aspects of the Trump agenda, little has so far been said about the deregulation aspect of Trump's proposals, and it is here that another potential source of upside, especially to small US businesses - the primary source of job creation - resides.

As JPM's Michael Cembalest reminds us in his latest note "The Rules of the Game: on regulation and deregulation", the updated WhiteHouse.gov website states the following: “the President has proposed a moratorium on new federal regulations and is ordering the heads of federal agencies and departments to identify job-killing regulations that should be repealed.”

According to Cemablest, this initiative would be welcomed by small businesses which have expressed rising concerns about regulation since 2009. Similarly, in a 2014 survey by the National Association of Manufacturers, 88% of respondents felt that regulations were affecting their business, by far the #1 concern in the survey. Why might this be the case? While most administrations add to new regulations, the regulatory pace of the last 8 years substantially exceeds its two predecessors.

Cemablest further notes that while it is hard to measure the cost of regulations, in part due to their magnitude and complexity, some agencies try: according to the US Office of Management and Budget, the cost of new regulations passed since 1980 are around $250 billion per year. Other estimates are substantially higher: the latest review from the Competitive Enterprise Institute (the most detailed report I have seen on the subject) cites annual regulatory compliance and economic impact costs of $1.8 trillion, which is roughly equal to all personal and corporate income tax collections.

One direct implication from these soaring compliance costs and the heightened pace of government regulation, is that the US has become, in relative terms, a harder place to start a new business., which may also explain why the bulkof , if not all, job additions under Obama was in minimum-wage, part-time and other low-paid service jobs, leading to a record number of multiple jobholders in recent months.

The next chart shows World Bank data on starting a business that compares the US to the world, and to countries in the OECD. As another indicator of the complexity that US businesses face, consider the inexorable rise in the length of US tax regulations, and in the number of pages in the Code of Federal Regulations (second chart). The US Office of Management and Budget estimated that it took 9.8 billion man-hours for businesses to complete Federally required paperwork in 2015, up from 7.4 billion man-hours in the year 2000.

Making matter worse, according to the JPM strategist, regulatory expansion is augmented by the fact that it is driven by agencies that do not answer to voters. There are roughly 25-30 rules issued by agencies for every law passed by Congress (“regulation without representation”). Related compliance costs from rules and regulations fall disproportionately on smaller and medium sized firms, which account for 50% of total employment.

It brings to mind the 1992 article written by George McGovern, one of the most progressive politicians of the 20th century, on his experience owning a small business after leaving the Senate and dealing with regulation: “A Politician’s Dream is a Businessman’s Nightmare”. You would think that there would be a substantial amount of effort by government agencies to try and understand the costs and benefits of regulation, given its impact on the economy, which as the chart bottom right shows that while regulatory costs amount to $20,000 for all US firms on average, they crush small business by about $30,000 per worker, making new business creation, and employee retention, virtually impossible.

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johngaltfla's picture

IF Trump follows  through on his tax and regulatory promises, I might start another business. Last time I had one, OSHA, DOT, DOL, etc. made the cost of compliance so expensive for a small company the margins did not make it profitable enough to keep it going. This is a solution for an ongoing problem which needs to happen and fast before Yellen & Co. f up the monetary system again.

alien-IQ's picture

Wait a little longer. When we bring back slavery you'll make a killing. Your profit margins will be YUUUUUUUGE!!!!!

Looney's picture

 

It looks like within a year or two there will be quite a few unemployed lawyers on the streets begging for spare change.  ;-)

Looney

Escrava Isaura's picture

You come here and read that regulations cost $20/$30 thousand dollars per employee. Of course by using some ludicrous economic measurement these numbers might be correct, or maybe even low.

Anyone could come here and tell you that these are good news, because we saw what happened to the American people when the financial sector had their regulation (Glass-Steagall) removed. Americans can barely make now.

Of course, removing these regulations there won’t be any consequences for the people, right?

“The naive doesn’t see the danger until it is at his throat.” — Noam Chomsky

 

 

johngaltfla's picture

EI, what  would you know about running a business or regulations? Your posts indicate your middle name is "EBT" and you're another leech sucking on the success of capitalists. Don't you have to run to your local convenience store and swipe your government card for lottery tickets and malt liquor or somthing?

logicalman's picture

The problem is that once a bureaucrat makes a rule, he's out of a job unless he can come up with another one.

That's why the rule books are so thick.

Some regulation is necessary, but we have way too many rules that are pretty much pointless and armies of non-productive bureuacrats that we pay to screw us over.

Things are way off balance.

malek's picture

"had their regulation (Glass-Steagall) removed"

Telling that Excrava doesn't know the difference between a law and regulation...

unsafe-space-time's picture

The liberal doesn't see danger until it's up his ass. But then he likes it. Then he gets aids. Everything still good. Then his kid gets raped to death by some brazilian gang. But everyone involved had fun so no harm no foul. 

Only one regulation that needs to be removed is thou shalt not kill. Everything would fall into balance. 

Jethro's picture

Slavery didn't help us the first time around. We've been paying for it ever since. It's apparently like herpes.

Luc X. Ifer's picture

Regulations for the sake of workers safety and real environmental impact make rational sense, anything else is statist bureaucracy

wren's picture

I used to own a pressure washing company. We couldn't even wash a semi-truck. Gas stations weren't allowed to have hoses so that truckers could hose down their rigs because even if the muck didn't flow directly into a stream, which was picked up off the road, per EPA logic, would eventually flow into a water source even when it is first absorbed and filtered in the ground. So the Clean Water Act prevents truckers from washing their trucks.

By that logic, roads should be outlawed because they create muck. No more roads or cars for anyone!

But what does the EPA care, it's not like they have to work for a living. Just pencil pushers bragging to their co-workers about how many citations they hand out to real working people.

Also, some states have begun mandating that food carts that provide seating for customers are also required to have a restroom. So if you have a BBQ grill and a picnic table, you could also find yourself having to provide bathrooms. If you go mobile with your BBQ grill around the state, you better have a second vehicle with a portable restroom on the back. Like food carts, mostly small businesses, can afford this expense.

Being tied to a state legislature for several years I used to watch legislators make bets on who could get the most legislation passed. More is not necessarily better. In fact, in our regulatory environment, we have enough on the books already. Freeze it and start rewarding the legislators that work to simplify regulations and remove the burdensome ones that destroy businesses.

Uzda Farce's picture
Uzda Farce (not verified) wren Jan 23, 2017 5:59 PM

Great examples! Here's a similar story from Austria in the 1930s when the "national socialists" were in charge:

"In 1939, the war started and a food bank was established. All food was rationed and could only be purchased using food stamps. At the same time, a full-employment law was passed which meant if you didn't work, you didn't get a ration card, and if you didn't have a card, you starved to death.... Our tax rates went up to 80 percent of our income... High schools were taken over by the government and college tuition was subsidized. Everyone was entitled to free handouts, such as food stamps, clothing, and housing...

We had another agency designed to monitor business.  My brother-in-law owned a restaurant that had square tables. Government officials told him he had to replace them with round tables because people might bump themselves on the corners... He couldn't meet all the demands. Soon, he went out of business... Next came gun registration..."

http://www.beliefnet.com/columnists/on_the_front_lines_of_the_culture_wa...

wren's picture

Wow that's CRAZY! And if we let it keep going that way it would be coming to a US near you!

defender1be's picture

Lets make 1 final reparation payment to undo the unjustice off slavery and then undo the unjustice of the relocation of the blacks. In other words, SEND THEM ALL BACK to africa.

InflammatoryResponse's picture

So ummm  you're stupid on purpose or is a genetic thing and you just can't help yourself?

 

bh2's picture

Every business owner learns early the complete futility of discussing realities of business operations with people who have only ever been employees, the vast majority of whom will never be anything else.

johngaltfla's picture

You'ums wanna put on your Samuel L. Jackson D'Jango hat and bees mize Slavemaster whenda plantation re-opens?

A Nanny Moose's picture

What makes you think slavery ever ended?

Jethro's picture

I started a little one-man LLC in Dec. I was building this for a couple of reasons, but the potential tax shelter with a Clinton victory didn't hurt.

War Machine's picture

Flat tax: throw out all of Congress' carrots and sticks tbrough which federal power grew way out of control.

Better yet: End the Fed, issue for the time being greenbacks for paper cash legal tender til we ramp up gold/silver backing per Constitutional requirements, then repeal the Income Tax which of course was passed to support the Fed.

Seems like there's zero pressure on Trump to address the Fed and the fiat ponzi... I'd argue it should be in his top 5 things to work on, easy, along with ending CIA support of ISIS/Qaeda and renegotiating nafta and easing back in Nato, etc

logicalman's picture

The only half way reasonable taxes are excise taxes.

Income tax is flat out extortion/theft.

Tax code would fit on a postcard and no amount of accounting bullshit would make them avoidable.

If you don't want to pay the tax, do without the taxed item.

There should be no tax on food.

 

ejmoosa's picture

Unfortunately the regulatory beast is a three headed hydra.

Federal State Local.

So the results from the actions of Trump will be uneven at best.  Let's hope the state and local conservatives jump on board with this plan.

new game's picture

state of mn, lol. libtard madness. county too. perk test set to fail logical perking to avoid needless mound system. 98 percent.

lots of sandy soil here. but, ask a system installer and they ACT like it's a bummer, but love the results all the way to the bank...

logic is the acid test of regulation, but we all have observed the lefts logic. kinda hopeless...

johngaltfla's picture

I live in Florida so the reglations are not that bad.

What is amazing is I have associates who live inside the city of Sarasota (Malibu East) and St. Petersburg (San Francisco East) and they have to establish their businesses outside of the city limits to operate. The stupidity of bureaucrats and leftisist is beyond the pale.

Tremel Jackson's picture

OSHA, DOT, & DOL made it difficult?

What was your business?

Having 8 year olds spray paint commerical vehicles in an unventilated warehouse with lead paint?

johngaltfla's picture

It was printing and delivering welfare payments and Obamaphones to scum like you.

Countrybunkererd's picture

I bet you didn't know that EVEN NEW paints (and ANY spray can of any type for that matter) MUST be inventoried, labeled AND STORED EXACTLY where the inventory states they are.  Feds and states both like that one because either one can fine for it and it is impossible to get a worker to put it back where it "belongs".

Add to your comment EVERY ITEM, EVERY TOOL, EVERY CHEMICAL, EVERY PIECE OF EQUIPMENT, well lets make it easier and say EVERYTHING YOU SEE is regulated and the costs of non compliance are steep.  So you pay someone or several people with a chem-e or other degree to follow some factory workers around to put everything back in it's place each day.  You are an idiot. 

chunga's picture

The regulations on all new gas cans are awesome. Every time you try to pour some gas it shoots out of the nozzle, and leaks like a sieve.

Countrybunkererd's picture

If it is for business you better be using a REAL gas can not the plastic one.  Didn't the company that made the plastic ones close down a while back so now we get them from who knows where and who knows what regs they meet?

chunga's picture

The ones I'm talking about are plastic. I have them for personal use and no matter how careful you are they just leak and they also build up pressure. They are definatley not safer or cleaner for those reasons.

You can't find the old style in stores any more so I suspect this stems from new regulations that touted "safety" when is was probably moar about fraud.

Lumberjack's picture

Keep in cool shaded area. When it gets to -10-F, or more, transfer gas into clean empty container. Allow the remaining ice (in original container) to melt and remove from said container. That damn ethanol gas and bad container design traps water, At cold enough temps, It will freeze the water in the blend. The ethanol added is at a minimum and most likely 150 proof, (pure ethanol is 200), thus, water content of the ethanol 12.5 percent. Methanol based dry gas helps , but if one lives in an extremely cold environment, you can see the resulting ice in your can. Been there done that including the expermental and legal manufacutre of ethanol fot such purposes under a gov grant. It doesn''t work.

 

 

Capn Mike's picture

I just remove the nozzle and use a funnel. Guess what? That's SAFER!!! :)

 

Lumberjack's picture

You have only scratched the surface. Trust me on that one. 

doctor10's picture

That 20K is the difference between what wages were in 1990 and where they should today.

That 20k-instead of being in workers pockets-has gone to DC
-instead of communities around the country.

per capita income in DC was among the lowest in the nation in 2002. Today it is almost the highest in the nation

brooklinite8's picture

Regulation is everywhere.

What is the cost of Insurance regulation on individuals? 

What is the opportunity cost of regulation in all regulated industries? 

What is the unnecessary burden on nature and waste created?  

What is the cost of using available funds for a value item vs just spend it because we need to comply? 

Regulation Regulation Regulation. Life is a zero sum game. Gladly we are talking about it now. It is all about Freedom. Life should be very simple even for corporations. If you have a bad product you get punished by the consumer not by the government. Consumers make and break choices. I wish I as a consumer had that power.

Winston Churchill's picture

As an example of that my car insurance,for a car we have over there, is $600 pa

fully comprehensive.Here it would be $3k.

CNONC's picture

It is not regulation that is the problem, but regulation without regard to cost.  I am a whole hearted supporter of the so-called "consensus standards," such as NFPA, UL, etc. that are developed by the affected industries.  I have been involved in the promulgation of these standards, and seen the results of non-compliance.  The Port Wentworth Georgia fire a few years back could have been easily prevented with adherence to low cost regulations (non sparking bearings in Class 2, Div.1 environments, or sufficient ventilation) or simple house keeping.  Being safe is not expensive.

Government regs., however, are non sensical, often contradictory, frequently unclear and always expensive.  When I first started in the industry, I needed to find the definitive answer to the question of how much air a paint booth must move to be legal.  While I knew, in principle, the correct answer, I had to be able to convince local AHJs, and cite the relevent statute or reg.  After a few hundred hours of research, I found the answer exists only in a series of letters written from OSHA to various regulated entities, which, when taken together, state that OSHA will not cite when the concentration of VOCs in the stack is less than 25% of the LEL, but will cite if the concentration is above 25% of the LEL. These two statements occur in letters written 15 years apart.  However, OSHA's position is that this is merely an opinion, and should not be relied upon when designing equipment.   

Countrybunkererd's picture

Compliance with the overall amount of regs allow the dangerous ones to be missed by sheer volume.  Many times we had (back in the corporate, pre self employment days) to categorize risk to find out what could be done for real safety and enviro because it would be impossible for full compliance regardless of cost.

CNONC's picture

My approach to regulation has become:

 1.  Life Safety issues

 2. Product Safety

 3. Environment

 4. Machine Protection

 5. Process Continuity/Reliability

 6. Pay attention to the fines issued by the regulators recently.  The inspectors don't know much, so they look for easy things.  If they go to a class that addresses, for instance, grounding and bonding when transferring flammable liquids, they will spend the next year issuing citations for that, and not much else. 

 

Capn Mike's picture

Tell me about it. I used to design surgical laser systems. I was replaced by 6 people, 5 of them new compliance hires to deal with avalanche of FDA regs. As I backed out of the company, I found that their NEW system would be WINDOWS based!! COMPLETELY UNSAFE!!!

Glad I'm retired.

 

Uzda Farce's picture
Uzda Farce (not verified) CNONC Jan 23, 2017 6:21 PM

"[They] will develop a new kind of servitude which covers the surface of society with a network of complicated rules, through which the most original minds and the most energetic characters cannot penetrate. It does not tyrannise but it compresses, enervates, extinguishes, and stupefies a people, till each nation is reduced to nothing better than a flock of timid and industrious animals, of which the government is the shepherd.” -- Alexis de Toqueville, 1835

Luc X. Ifer's picture

All a gov should do is prevent creation of monopolies so that we as consumers have true freedom of choice and not get stuck with only one crapy and expensive option.

Trogdor's picture

Yes, there's a huge loss in opportunity as well.  Changes in UT State regulations regarding who is and isn't an "employee" have made it so that I can't risk taking on interns or even mentoring people any more.  In the past years, I've been able to help people build portfolios (art, animation, design, etc) and get experience that got a lot of them some really good jobs (Blue Sky, Pixar, Warner Brothers, etc) - but thanks to worthless bureacrats who can't seem to pass up the opportunity to fuck someone over, I can't risk letting anyone have access to my computers or software at my business any more - lest they be declared "employees" by state parasites - and I end up paying crazy fees.  This is regardless if they are actually working on company projects or their own stuff - it's insane....

Countrybunkererd's picture

fees=TAXES.  And NEVER allow unemployment comp to see an opportunity or you will lose and then have to pay state and federal taxes on all your new employees for all they years they were NOT (even when they have and EIN) employees.  It can bankrupt you overnight.

HRH Feant's picture
HRH Feant (not verified) Jan 23, 2017 3:29 PM

Kill the regulations. The cost is larger than that if you add in all of the millions of people that are unemployed or closed their business because they were sick and tired of dealing with arrogant .gov bureaucrats.

alien-IQ's picture

Agreed! I see no good reason why we can't dump nuclear waste in public beaches. For god sake, think of the ancillary benefits!!! Our children can grow up to be mutant super-soldiers!! How cool would that be?

Corporations should be allowed to do anything they want whenever they want wherever they want. Nothing bad will come of it.

new game's picture

a balance of sorts, lol, never seen a gov.org stay static. so there is no good solution as far as giving this power to gov.org.

bribes,ect. corrupt a good intention, always,,,

ejmoosa's picture

You must have upvoted your own comment.

 

 

new game's picture

dooooooooooosh bag...

iq dude

sleigher's picture

Right, because decreasing regulations automatically means removing all of them and handing all corporations carte blanche.  Your strawman is on fire.