Does Colorado have an invisible $33 billion tax on employers that is holding back economic expansion and job creation? According to a recent report, that amount is the estimated annual cost of compliance imposed on Colorado employers by federal regulations.
To get an idea of the magnitude of this compliance cost, consider that it is fifty times the size of all corporate income taxes paid by Colorado employers.
Two decades ago, the U.S. Small Business Administration began sponsoring a periodic study by an independent team of economists to come up with an estimate of the annual costs imposed on American businesses by the thousands of federal regulatory mandates. By 2013, those costs added up to an estimated $2.02 trillion according to the team’s 2015 report. The non-profit Competitive Enterprise Institute arrived at the similar cost estimate of $1.86 trillion. That translates to at least a $33 billion compliance cost for Colorado’s business sector — an amount over fifty times the state government’s annual corporate income tax bite. This ever-growing cost functions just like a destructive tax policy: it discourages capital investment and job creation.
The groundbreaking SBA study of compliance costs confirmed that small business is impacted disproportionately by regulatory mandates on employers. For example, the per-employee cost of new environmental regulations is $3,574 for companies of less than 50 employees compared to $1,014 per employee in companies with 100 or more employees. For manufacturing firms, that difference between large and small firms is over $14,000 per employee.
That estimated $33 billion compliance burden on Colorado employers is a hidden tax no one in government wants to talk about. Advocates for government regulation want to talk only about the promised benefits of new standards, new goals and new targets, not the costs of those regulatory mandates.
Efforts in the state Legislature to acknowledge those compliance costs are resisted. A case in point is what happened to the 2003 legislation aimed to curtail mushrooming regulatory costs in Colorado. Senate Bill 03-121 established a process for requesting and conducting a Cost Benefit Analysis (CBA) for new rules which impact small firms or damage Colorado’s competitiveness to a substantial degree.
What happened to that 2003 mandate? The numbers tell the story. Since 2004, state agencies have published 5,616 new and amended rules, described in an average of 15,000 pages each year. Now, what percentage of those 5,616 rules promulgated since 2004 have been subjected to a Cost-Benefit Analysis? The answer, sadly, is less than 2 percent.
No one is suggesting that the benefits of a new government regulation never outweigh the costs. The point here is more fundamental: When imposing new regulations on the business sector, state lawmakers and regulatory advocates always crow about assumed benefits, but they hardly ever even acknowledge compliance costs, much less try to quantify them.
In truth, this hidden tax is the unacknowledged “elephant in the room” obstructing Colorado’s economic growth. Because those cumulative costs have never been measured or examined adequately, no one — not even professional economists — knows the real impact of cumulative compliance costs on job growth and business expansion. Furthermore, who is evaluating the regulations of the past?
Obviously, one of the main reasons there is so little organized resistance to regulatory mandates is that corporations have been bullied to look upon regulatory compliance as simply a “cost of doing business.” The cost of compliance with any one particular rule is simply factored into the cost of the product or service sold to consumers, suppliers or the government. To left-wing politicians and some government bureaucrats, the idea that entrepreneurs will be discouraged from starting new firms and some small firms forgo expansion or even be driven out of business by compliance costs is simply dismissed as “collateral damage.”
Every signal coming out of Washington, D.C. is telling us to expect a major push for business deregulation as a major pillar of a new business expansion strategy. Colorado should be an active partner in this effort. We should welcome the new opportunities for regulatory reform and for a more skeptical attitude toward the regulatory “collateral damage” inflicted on small business, which is the primary engine of job growth, economic expansion and distributed wealth creation.