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Why do we need the Regulatory Flexibility Act?
Small businesses pay more and spend more time to comply with federal regulatory requirements than larger businesses do. In fact, Office of Advocacy research shows that the annual cost per employee for the smallest firms (fewer than 20 workers) was 45 percent higher than the cost for large businesses with 500 or more employees.
This uneven burden is one reason that Congress passed the RFA in 1980. This law requires federal agencies to assess the impacts of their proposed new rules on small businesses. If the rule is expected to have a significant impact, the RFA directs agencies to be flexible – to consider alternatives that lighten the impact on small business, while still achieving the regulation’s goal.
The RFA requires Advocacy to monitor agency compliance with the RFA and report to Congress and the President. The fiscal year 2007 edition of the annual Report on the Regulatory Flexibility Act shows significant regulatory cost savings. Small businesses realized $2.6 billion in first-year cost savings (the difference in the cost of complying with the proposed rules and the final rules after Advocacy’s intervention). Another $285 million in annually recurring savings also resulted from Advocacy’s efforts.
In future years, the annual RFA report will go even further. White the RFA focuses on rules before they come into being, a little-used but extremely important RFA requirement – section 610 – calls on agencies to periodically review the impact of regulations that are already on the books.
In summer of 2007, Advocacy launched a new initiative to invigorate section 610. This initiative – Regulatory Review and Reform or r3 – focuses attention on existing rules and invites small businesses to participate in the review process.
Federal agencies already conduct regulatory reviews. But as a recent report by the General Accountability Office points out, the public is not made aware of these reviews, hence public input is not a standard part of the review process.
Through r3, small businesses have identified over 80 rules in need of review and reform, and Advocacy has narrowed the list down to the Top 10. Advocacy has announced the rules and forwarded them to the appropriate agencies for their action. Advocacy will report twice a year on agency progress on its website, www.sba.gov/advo/r3, and progress will also be reported in the annual RFA report. These regular status reports will help keep attention on these rules over the prolonged period that reform often takes.
Some of this year’s top 10 rules affect particular industries, while others affect entire categories of businesses. At Advocacy’s February 28 press conference announcing the Top 10, Dan Nickey, chairman of the State Small Business Environmental Assistance Program’s National Steering Committee, discusses how Clean Air Act requirements are affecting the dry cleaning industry. Certain provisions were written 25 years ago for dry cleaning equipment that is now being phased out. These provisions cannot be easily applied to the modern machines that have been designed to drastically reduce the release of dry cleaning solvents into the atmosphere, an important intention of the Clean Air Act. The outdated testing requirements may actually hinder adoption of the newer, greener technology.
Josh Levine, a small businessman from Baltimore, Maryland, described the vagaries of the home office deduction – its complexity and the lack of clarity as to who is eligible to take advantage of it. These complexities create an additional burden for home-based businesses and the self-employed. Levine argued for review and reform of the home office tax deduction. Creating a standard home office deduction, modeled on the standard personal deduction, would eliminate unnecessary confusion and complexity, he argued.
Wayne Crews, director of technology studies at the Competitive Enterprise Institute, has spent many years studying the unintended consequences and market distortions spawned by regulation. The effort to reform federal regulations is such a monumental task, Crews compared it to “going after Moby Dick with a rowboat and tartar sauce.” Crews welcomed the r3 initiative. “r3 adds a propeller to the boat,” he said.
The r3 initiative will only work with small business attention and action. Advocacy encourages small business owners and their representatives to nominate rules for the 2009 Top 10, to monitor agency progress, and comment on agency progress (or lack thereof) in review and reform.
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