The Small Business Tax: Government Regulations

When governments impose regulations on small businesses that drive up the cost of doing business, it’s like imposing a tax.  Google’s dictionary defines tax as “A compulsory contribution to state revenue, levied by the government on workers’ income and business profits or added to the cost of some goods, services, and transactions.”

And when those regulations hit small businesses hardest, it’s like imposing a tax on small businesses.  That’s why whenever small businesses are polled, such as by Gallup, business owners regularly put regulatory burdens at or near the top of concerns.  And it’s not just business owners’ perception.  As Professor Scott Shane has pointed out in the past here on Small Business Trends, researchers and even World Bank studies have shown that regulations adversely impact small businesses, in four ways:

• Regulatory compliance puts a disproportionately large burden on small companies because they don’t have as much revenue to spread the costs over, as do large firms.
• Regulations make small businesses less competitive against foreign competition.
• Regulations add uncertainty, which keeps small businesses from investing in capital purchases, services and hiring.
• New regulations add complexity and often have unintended consequences.

The following new infographic from the Chamber of Commerce website illustrates just how regulations impact small businesses:

Click for larger image of Small Business Tax Infographic

Notice that the cost per employee of complying with regulations is $10,585 for small businesses with fewer than 20 employees, but only $7,755 for larger companies.  Almost 90% of businesses in the United States have under 20 employees, so that means the vast majority of businesses are affected adversely — with small businesses paying over 36% more per employee.

According to Tyler Shears, an executive with ChamberofCommerce.com:  ”We created this infographic to raise awareness of an issue important to us and millions of other small businesses. We are a small business ourselves and we serve small businesses. The business owners we hear from who are in the trenches competing, devote their life savings to developing innovative products and services, hiring more staff, and growing a business for the benefit of family, employees and community. So we were concerned to see how regulations and compliance hit small firms harder.”

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