Over the past eight years, the number of job-smothering regulations churned out by the Obama administration is nothing short of staggering, especially given that the lion’s share of these costly rules overwhelmingly hits small businesses.
A recent Heritage Foundation report found that since 2009, 229 “major” regulations have been levied by the administration at a cost of $108 billion annually. This year alone, 43 new major rules are planned, costing American entrepreneurs and consumers more than $22 billion.
From unnecessarily clamping down on capital availability – the lifeblood of entrepreneurial opportunity and growth – to misdirected Dodd-Frank regulations, to inhibiting the ability to grow and hire more workers with overtime rules, to “joint employer” restrictions and Obamacare, the administration’s regulatory blizzard is weighing down small and family-owned businesses.
Now, the Department of the Treasury is proposing new regulations that would place further unnecessary costs on American businesses, in addition to making day-to-day business activities more difficult.
Known as “Section 385,” these regulations purportedly seek to deter so-called corporate inversions. This uncommon business practice – when United States companies reincorporate or merge with overseas entities – is driven by a number of key factors, principally with the goal to operate in more competitive, pro-growth tax and regulatory climates.
Yet, the department’s approach to the problem is completely detached from the root cause and real-world economic conditions. These proposed regulations, which are broad and far-reaching, would have damaging consequences for the U.S. business community.
Even small- and medium-sized businesses that have zero interest in pursuing “inversions” would be financially punished by this proposed regulation if they compete in the global marketplace and have international operations. Given that small businesses account for nearly 98 percent of the firms exporting goods from the U.S., the potentially negative impact on business growth and American jobs is alarming.
Specifically, Section 385 would upend the common management tool known as cash pooling. Simply put, cash pooling allows businesses to pull together financial-related resources throughout their operation (locations, departments, etc.) and to then allocate these resources where and when needed.
This enables businesses to efficiently perform essential operational and growth activities across geographies, such as making payroll or covering business expenses. Making these basic activities even more difficult for small businesses to execute would carry harmful economic impacts and hurt job growth at a time when quality jobs are most needed.
As a 2016 PricewaterhouseCoopers report concludes, this proposed regulation “will impose substantial compliance costs” on American businesses, taking valuable resources away from reinvestment and job growth. So why is the Department of the Treasury actively working to make things even harder for U.S. businesses, especially smaller firms?
The positive impact that small businesses have on our entire economy, and our communities, cannot be overstated. The U.S. economy needs more entrepreneurial activity, not less. According to the U.S. Small Business Administration, small businesses accounted for 63 percent of the net new jobs created between 1993 and mid-2013. So imposing “substantial compliance costs” on this source of job creation would not only be detrimental to small business competitiveness and growth, but the economy as a whole.
According to the Small Business Administration, small businesses accounted for 63 percent of the net new jobs created between 1993 and mid-2013. Imposing “substantial compliance costs” on this source of job creation would not only be detrimental to small business competitiveness and growth, but the economy as a whole.
These regulations are set to be finalized within the next few months, after only being proposed in late spring. Jamming through such sweeping regulations is bad policy and bad politics.
Instead of fast-tracking a massively consequential tax proposal that creates more problems than it purports to solve, Washington must focus on comprehensive, broad-based tax reform that will truly help American businesses of all sizes better compete and grow.
Ms. Kerrigan is president of the Center for Regulatory Solutions, a project of the Small Business and Entrepreneurship Council. Visit sbecouncil.org or centerforregulatorysolutions.org to learn more. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
