Kamala Harris and Donald Trump’s Plans for Small Businesses: An Insight into Regulatory Compliance Costs

Last week, Kamala Harris proposed a plan to support small businesses through increased tax credits and simplified processes. Meanwhile, Donald Trump responded with a promise to reduce regulations, vowing to eliminate 10 government regulations for every new one enacted.

High Regulatory Compliance Costs for Medium-Sized Businesses

Although the spotlight often falls on small businesses when discussing regulatory burdens, our research indicates that it’s the medium-sized businesses that bear the brunt of regulatory compliance costs. We developed an employment-data-driven model that estimates the overall labor and capital costs of regulatory compliance for U.S. companies. The model reveals that regulatory-related tasks could account for up to 3.3% of total labor costs for an average American establishment, reaching a total of $239 billion in 2014 ($289 billion including equipment).

The Impact of Regulation on Mid-sized Firms

Some regulations are only applicable to medium to large-sized businesses, creating a barrier for small firms wishing to expand. On the other hand, large firms benefit from economies of scale, allocating dedicated resources for managing compliance and reporting efficiently. The resulting uneven impact of government regulations creates a hurdle that companies must overcome as they grow.

The Need for Data-Driven Regulatory Decisions

Government agencies need to adopt a more data-driven approach to regulation, testing the effectiveness of individual regulations through pilot programs before enforcing them widely. Precedents for this targeted analysis exist, such as the Securities and Exchange Commission’s rule on tick sizes implemented in 2015.

Reducing Regulatory Burdens

Our analysis contradicts the traditional political notion that the smallest firms bear the greatest regulatory burden. In fact, it’s the mid-sized firms poised for growth that face the highest regulatory compliance costs. Opportunities to alleviate this burden could come through scaling back regulations with limited public benefits or implementing targeted tax relief.

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