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State Regulation Stifles Local Small Business and Economic Growth

Author: Ed Herrera
Created: 20 November, 2009
Updated: 13 September, 2023
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3 min read


 A recent study released by the State of California tallies the total cost of regulation to business in the State of California at almost 493 billion dollars per year—“almost five times the State’s general fund budget, and almost a third of the State’s gross product.” The result: a loss of approximately 3.8 million jobs due to overregulation, contributing to California’s 10.5 percent unemployment rate which as of early November 2009 became equivalent to federal levels.

 While Sacramento and Washington scramble, vacillating between economic recovery and the health care debate, many local municipal governments are suffering. As a result of the State dipping into local funds, the mundane act of annual budget cuts, is most immediately impacting the “Main Street” of every city in California.

 Many proactive elected city officials have caught on to the “every city for itself” mantra and have begun developing local economic recovery plans. Others simply have done nothing but become rubberstamps for budget cuts. However the situation at City Hall, a wise economic development plan will focus on attracting new industry and boosting local business. Let us again focus on the later. There is good reason that an a local economic plan focus on boosting local business, namely because it usually accounts for the highest in tax increment revenue for a city’s general fund, second only to property taxes which as several cities have learned the hard way, are not reliable in our current state.

 However, what must first occur is a “reinvestment in the local economy” by the State—that means helping small businesses thrive and thus local economic recovery plans succeed from the top down. The greatest impediment for small business is poor public policy. Most stifling, is the direct impact of regulation on small business which composes 99.2% of business employers in the state. The study, examining 2007 figures, puts the cost of regulation per small business at $134,122 with labor income not created or lost at $57,260.15 and approximately one job loss per business.

 According to Raymond J. Keating of the Small Business & Entrepreneur Council, costs which discourage small business investment arise from government imposed direct and indirect costs to business such as personal income taxes, individual capital gains taxes, corporate income taxes, corporate capital gains taxes, additional income taxes on S-Corporations, alternative minimum taxes for individuals, alternative minimum taxes for corporations, indexing of personal income tax rates, property taxes, sales/gross receipts/excise taxes, death taxes, unemployment tax rates, health savings accounts, healthcare regulation, electricity costs, worker compensation costs, total crime rate, right to work costs, number of government employees, tax limitation states, gas taxes, internet taxes, state minimum wage, state legal liability costs, regulatory flexibility, trend in state and local government spending, per capital state and local government spending, protecting private property, and highway cost efficiency. Yet, in spite of this compendium of costs, the State of California continues to pass new regulations.

 Business regulation has long contributed to heated discourse at both state and federal levels of government, with politicians inciting class warfare to bolster support for regulatory measures.

 However, as the need to attract new industry and boost business becomes ever needed at a state level of economic recovery, we approach the 500 billion dollar cost benchmark of regulation on business—small, local business, and the need to reform regulatory practices becomes ever-crucial. And while some regulation is necessary only to prevent fraud and other white collar-crimes, most regulations on businesses are impeding obstacles to wealth, job growth, and the economic sustainability of our state and local economic recovery plans.