My Wish for the Republican Debates: Less Talk on Taxes, More Talk on Regulation

I would be all for reductions in tax levels, but I don't think that current Federal tax rates are particularly a barrier to growth and prosperity.  A much bigger, and ever-growing barrier to growth is regulation.

5-10 years ago, in my small business, I spent my free time, and most of our organization's training time, on new business initiatives (e.g. growth into new businesses, new out-warding-facing technologies for customers, etc).  Over the last five years, all of my time and the organization's free bandwidth has been spent on regulatory compliance.  Obamacare alone has sucked up endless hours and hassles -- and continues to do so as we work through arcane reporting requirements.  But changing Federal and state OSHA requirements, changing minimum wage and other labor regulations, and numerous changes to state and local legislation have also consumed an inordinate amount of our time.  We spent over a year in trial and error just trying to work out how to comply with California meal break law, with each successive approach we took challenged in some court case, forcing us to start over.  For next year, we are working to figure out how to comply with the 2015 Obama mandate that all of our salaried managers now have to punch a time clock and get paid hourly.

Greg Mankiw points to a nice talk on this topic by Steven Davis.  For years I have been saying that one effect of all this regulation is to essentially increase the minimum viable size of any business, because of the fixed compliance costs.   A corollary to this rising minimum size hypothesis is that the rate of new business formation is likely dropping, since more and more capital is needed just to overcome the compliance costs before one reaches this rising minimum viable size.  The author has a nice chart on this point, which is actually pretty scary.  This is probably the best single chart I have seen to illustrate the rise of the corporate state:

decline of new business employment

 

Postscript:  I had thought that all the difficult years converting all of our employees from full to part time to avoid Obamacare sanctions would be the end of our compliance hassles (no company will write health insurance for us, so our only defense against the mandates and penalties is to make everyone part-time).  But the hassles have not ended.  For every employee, next year we must provide a statement that has a series of codes, by month, for that employee's health care status.  It is so complicated that knowledgeable people are still arguing about what codes we should be using.  Here is a mere taste of the rules:

  A code must be entered for each calendar month January through December, even if the employee was not a full-time employee for one or more of the calendar months. Enter the code identifying the type of health coverage actually offered by the employer (or on behalf of the employer) to the employee, if any. Do not enter a code for any other type of health coverage the employer is treated as having offered (but the employee was not actually offered coverage). For example, do not enter a code for health coverage the employer is treated as having offered (but did not actually offer) under the dependent coverage transition relief, or non-calendar year transition relief, even if the employee is included in the count of full-time employees offered minimum essential coverage for purposes of Form 1094-C, Part III, column (a). If the employee was not actually offered coverage, enter Code 1H (no offer of coverage) on line 14.  For reporting offers of coverage for 2015, an employer relying on the multiemployer arrangement interim guidance should enter code 1H on line 14 for any month for which the employer enters code 2E on line 16 (indicating that the employer was required to contribute to a multiemployer plan on behalf of the employee for that month and therefore is eligible for multiemployer interim rule relief). For a description of the multiemployer arrangement interim guidance, see Offer of health coverage in the Definitions section. For reporting for 2015, Code 1H may be entered without regard to whether the employee was eligible to enroll or enrolled in coverage under the multiemployer plan. For reporting for 2016 and future years, ALE Members relying on the multiemployer arrangement interim guidance may be required to report offers of coverage made through a multiemployer plan in a different manner.

Here are some of the codes:

  • 1A. Qualifying Offer: Minimum essential coverage providing minimum value offered to full-time employee with employee contribution for self-only coverage equal to or less than 9.5% mainland single federal poverty line and at least minimum essential coverage offered to spouse and dependent(s).

    This code may be used to report for specific months for which a Qualifying Offer was made, even if the employee did not receive a Qualifying Offer for all 12 months of the calendar year. However, an employer may not use the Alternative Furnishing Method for an employee who did not receive a Qualifying Offer for all 12 calendar months (except in cases in which the employer is eligible for and reports using the Alternative Furnishing Method for 2015 Qualifying Offer Method Transition Relief as described in these instructions).

  • 1B. Minimum essential coverage providing minimum value offered to employee only.
  • 1C. Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) (not spouse).
  • 1D. Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to spouse (not dependent(s)).
  • 1E. Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) and spouse.
  • 1F. Minimum essential coverage NOT providing minimum value offered to employee; employee and spouse or dependent(s); or employee, spouse and dependents.
  • 1G. Offer of coverage to employee who was not a full-time employee for any month of the calendar year (which may include one or more months in which the individual was not an employee) and who enrolled in self-insured coverage for one or more months of the calendar year.
  • 1H. No offer of coverage (employee not offered any health coverage or employee offered coverage that is not minimum essential coverage, which may include one or more months in which the individual was not an employee).
  • 1I. Qualifying Offer Transition Relief 2015: Employee (and spouse or dependents) received no offer of coverage; received an offer that is not a qualifying offer; or received a qualifying offer for less than 12 months.
  • http://contraniche.blogspot.com/ August Hurtel

    I cannot conceive of starting a small business and having employees at this time. If I manage to do anything entrepreneurial, it'll will just be me.

  • Pinebluff

    You're going to have to fire all the folks enforcing these regulations and that ain't going to happen since they vote for and contribute to Democrats.

  • Mike Powers

    Or they could have put everyone in the country on Medicare.

    But something something Republican something, so we can't do that.

  • Northern Eye

    Wholeheartedly agree on the much-needed regulatory revamp. I spend a good part of my time volunteering to review and comment on Federal regs, which are accelerating in pace and size. Recent example: a "small" change to the Office of Surface Mining rule on stream buffers was 264 pages in the Federal Register with an accompanying explanatory EIS of 2100 pages. The vast majority was government-speak (which even my STEM PhD skills cannot comprehend) and the result will be complete inertia in yet another industry.

  • http://EasyOpinions.blogspot.com/ Andrew_M_Garland

    The US is converting to a Soviet style planned economy. Healthcare is just a good start. Learn from the Soviet experience. Find the person in government who will be your "roof", the guy who will take some money, tell you what you need to do, and will manage to dismiss or delay any claim that you didn't comply.

    No one is going to understand all the rules. They certainly didn't and don't in Russia. The purpose of the rules is to carve out positions for "roofs".

  • Fred_Z

    Never, ever, ever have employees.

    Always have "Independent Contractors".

    And keep your money under a fake ID in a different state.

  • glenn.griffin3

    "The [British Columbian] government has reduced regulatory requirements by 43 percent relative to when the initiative started [in 2001]. During this time period, the province went from being one of the poorest-performing economies in the country to being among the best."

    via Tyler Cowen at: http://marginalrevolution.com/marginalrevolution/2015/11/worthwhile-canadian-initiative-really.html

    Haven't read the whole paper yet.

  • HenryBowman419

    I think that one of the reasons that Congress Critters and wannabe Congress Critters talk about taxes is that they can actually make changes to the tax laws. The regulatory environment, though nominally controlled by Congress, is actually controlled by the unelected bureaucracy. I think Congress has all but given up trying to control such agencies. One merely has to look at the damage caused by the EPA, the IRS, the Dept. of Education, etc, to realize the extent of the problem. Such agencies routinely and blatantly lie to Congress, without deleterious consequences to their agencies.

  • Earl Wertheimer

    Employment opportunities for red-tape untanglers. Plot the number of unproductive government workers and people in businesses that are solely designed to avoid regulations and taxes or to find government funding. Financial planners, Tax accountants, Government Program consultants, ad nauseum.

  • Nehemiah

    I agree with Coyote on this one. Regulations are drag on our economy. They stifle innovation, limit competition and they reward the big over the small businesses since big business can scale compliance costs across greater financial resources. Community banks are disappearing under Dodd Frank.

  • Stan

    You need a "like" button, because I don't have much to comment on, other than to say, "I agree."

  • Rick C

    As someone who's implementing 1094/5 reporting I would suggest you just pay someone to do it for you. Trying to work that out isn't worth it unless someone's paying you to do it. As for this, "It is so complicated that knowledgeable people are still arguing about what codes we should be using," most of it's not as bad as you think--I know of one place, involving COBRA, where the IRS accidentally gave two conflicting instructions, and then said they wouldn't penalize people who used the 'wrong' one.

    And what's with " For next year, we are working to figure out how to comply with the 2015 Obama mandate that all of our salaried managers now have to punch a time clock and get paid hourly?" I'd love to know what you have to figure out--there's an entire industry of people who are willing to take some of your money and do almost all of the work for you. For example, check out these guys: http://www.saashr.com/ I'm not endorsing them per se, but my company uses them. You just have your employees log in to the website periodically and enter in their hours worked. If that's not what you want there's any number of companies that'll sell you timeclocks or an application that people sign in and out of. Yeah, it'll cost you some money but it'll cut down drastically on the time you're--in all honesty--probably wasting trying to figure it out.

  • Rick C

    "Employment opportunities for red-tape untanglers."

    This is a thriving industry. I have a friend who worked for a middleman company that sat between doctors and insurance companies. Doctors pay them to do stuff like prevalidate that every person with an appointment is still covered by their insurance, to make sure the correct forms are filled out for each insurance company so they can't deny a claim because the form was filled out wrong, and so on.

    It's lame that such a thing has to exist but it's pretty awesome to not have to worry about that yourself.

  • bigmaq1980

    True, but we must remember that it is the Executive Branch (i.e. the White House) that sets direction and tone. Congress, for a variety of reasons (some of it for efficiency purposes - it cannot regulate down to the level that these Departments must, some of it because "their guy" was in office, etc) gave and then lost much of their legal right to control.

    @Coyote - The problem is not only the current amount of regulation. It is the future prospect of regulation - that is, "regime uncertainty".

    When the WH lets a Department head say that they have their "boot on the throat of BP" and the President himself says to business owners "You didn't build that, Somebody else made that happen" (despite the so called "context"), they see a regime that is not interest in making their lives and ability to create wealth any easier - in fact, it seems like the government are coming after business owners to get something they "owe society/the government" for.
    https://www.whitehouse.gov/the-press-office/press-briefing-press-secretary-robert-gibbs-532010
    https://en.wikipedia.org/wiki/You_didn't_build_that

    Many have hunkered down and chose to not start something new, while larger businesses have lowered investment, under these circumstances.

    Perhaps a new President with a new attitude, and action to make major changes in deregulation and taxes will help turn this around, and then work with Congress to put power back where it was designed to be.

  • frankania

    Right-on Fred. I left the USA in 1988 because of over-regulation of my businesses. A decade before, in the 70's, I "fired" all my employees and called them sub-contractors and never did any more paper-work on them; just gave them their earned money and let them declare (or not) to the various govt. drone bureaucrats. Now I live in the mountains of Mexico, and the incompetent govt. here leaves us alone to do almost anything we want...

  • beautox

    This reminds me about the "entire useless third of the population" that got done away with in hight hiker's guide to the galaxy. Problem with these folks is they can't contain themselves to knitting or flower pressing, and feel the need to go into government and make up useless rules.

  • Tonestaple

    Nonsense. Of course the problem is the current amount of regulation. Regime uncertainty is just a bonus. Current regulations include the one Coyote finds incomprehensible and impossible to comply with, the one that Rick C so blithely says Coyote should hire someone to do for him.

    And the way for Congress to dispose of the regulatory state is to start eliminating these bureaucracies wholesale.

    And it wouldn't hurt to implement rule no. 1a from "Starship Troopers": No one who works for the government can vote.

  • bigmaq1980

    Not sure there is a disagreement to warrant "nonsense".

  • Tonestaple

    Then perhaps I mis-read. I beg your pardon.