OPINION:
Federal agencies are deliberately ignoring a law that protects small businesses, leading to massive one-size-fits-all mandates that hurt Main Street job creators.
That’s the conclusion of a new report from the National Federation of Independent Business, which reviewed agency compliance with the 1980 Regulatory Flexibility Act, or RFA. Violations are frequent, leaving the law little more than a paper tiger and small businesses at the mercy of regulators gone wild. Congress should strengthen the law immediately, proving that our lawmakers actually stand with small business.
The RFA was once heralded as the most important defense of small business in American history. President Jimmy Carter signed it into law after its unanimous passage through Congress. The law was a direct response to the rapidly growing federal bureaucracy of the 1970s, which both Republicans and Democrats recognized as especially hurting Main Street.
This law was supposed to protect small businesses in several ways. First, it requires agencies to analyze a regulation’s effects on small businesses, both at its proposal and final promulgation. Second, it requires agencies to consider ways to ease compliance for small businesses, including alternatives and exemptions. In the 1990s, a third major protection was added, requiring some agencies to solicit direct input from small businesses, through formal panels, before establishing rules. The whole point of the law was to stop the most burdensome federal mandates, not least by forcing agencies to publicize the damage they would do.
The RFA was initially successful, leading to a 16% decrease in final rules and a 28% decline in proposed rules in its first year. Yet agencies have since discovered they can treat the law as a formality, resulting in an explosion of costly red tape. Between January 2021 and March 2023, the Biden administration imposed almost $360 billion in regulatory costs and added more than 220 million hours of paperwork burdens. These costs fall disproportionately on small businesses, which don’t have armies of lawyers and compliance officers to help navigate complex regulations.
Which agencies are ignoring the RFA? NFIB’s review of data from the Small Business Administration’s Office of Advocacy revealed 28 separate instances of inadequate RFA compliance by agencies between January 2021 and January 2023 alone.
Look no further than the Department of Labor’s 2022 regulation classifying more independent contractors as workers. The department didn’t even try to estimate the cost to small businesses, laughably claiming that compliance would cost $25 and 30 minutes.
Yet classifying contractors as workers would add benefit costs of thousands of dollars or more per person. This regulation will substantially disrupt — if not destroy — entire small-business models, especially in sales, insurance, construction and trucking, yet the Labor Department said nothing about it. The department also failed to comply with RFA regarding rules on tipped wages and Davis-Bacon wage requirements.
The Environmental Protection Agency is another routine offender. Its 2022 emissions guidelines for oil and natural gas didn’t analyze all costs for small businesses, failed to look at burdens after three years, and refused to look at alternative policies. And the 2022 “Waters of the United States” regulation assumed no substantial costs for small businesses.
In reality, countless farmers, developers and small businesses are cutting back because the rule seems to give the federal government unprecedented control over their land, and the necessary federal permits under the law cost an average of $29,000 and take nearly a year to obtain. At least eight more EPA regulations failed to comply with the RFA.
The list goes on, with agencies from the National Labor Relations Board to the IRS ignoring or undercutting the law that protects small businesses. Clearly, the bureaucracy will continue to ignore the RFA’s mandates until it is forced to do otherwise. That’s where Congress should act.
Congress should immediately strengthen the RFA in several ways. That includes increasing transparency in the regulatory process and enhancing requirements to ensure agencies give accurate assessments. It also means mandating greater reporting on less costly alternatives and even forcing agencies to issue separate and more affordable rules for small businesses. Finally, the Small Business Administration’s Office of Advocacy should be given a much larger role, including the power to approve RFA analyses before a regulation is established.
Members of Congress across the political spectrum have strong reasons to support these reforms. No representative or senator wants to be tarred as hurting small businesses, and in fact, virtually every current member of Congress is on record supporting them. Supporting small businesses when the cameras are rolling or during a campaign is one thing. Proving it through legislative action is another. They can demonstrate their support for small businesses by strengthening the Regulatory Flexibility Act, making it the bulwark for Main Street that it was always meant to be.
• Josh McLeod is manager of federal government relations at the National Federation of Independent Business.
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