David R. Henderson  

Regulation Matters More than Taxes, According to Study

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Small businesses care almost twice as much about licensing regulations as they do about tax rates when rating the business-friendliness of their state or local government.
The power to tax is the power to destroy. That seems obvious. What may be less obvious is that the power to regulate is the power to destroy. When a government imposes a regulation that a business has to comply with before operating, that is like a very stiff tax.

Thus the quote above from a study by Thumbtack.com in partnership with the Kauffman Foundation. It's based on a survey of over 6,000 small businesses. If you go here, you can click around and see how various states rank. California is in the toilet on many of the criteria. When I talk to small businessmen in California, they often complain about incredibly costly regulation.

What should worry a lot of California politicians (but may not if there's a California Curley effect) is that right next door to California is Nevada, which ranks much higher on many dimensions.

Here's a little poem for Nevadans speaking to Californians (with apologies to Emma Lazarus):

Give me your businesses who are tired of regulation,
Your oppressed companies yearning to breathe free,
Send these footloose tempest-tost to me,
I lift my lamp beside Reno and Las Vegas.


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CATEGORIES: Regulation



COMMENTS (11 to date)
Evan writes:
The power to tax is the power to destroy. That seems obvious. What may be less obvious is that the power to regulate is the power to destroy.
The intuitiveness of those two statements is exactly reversed to me. It's always seemed obvious to me that the power to regulate is the power to destroy, since regulation is basically directly telling people not to do certain things. By contrast I did not understand how destructive taxes could be until I read up on supply side economics. I think it's because regulation is a first order effect, it directly prohibits an activity; while taxation is a second order effect, it indirectly prohibits an activity by making it too costly.

I would certainly prefer to living in a highly taxed society to living in a highly regulated society, if I had to pick between them.

Bob writes:

Tax imposes a burden on money.
Regulation imposes a burden on time.

Many small business are attempting to trade the latter for the former. Regulation has the effect of depleting the resource that most small businesses can least afford to spare.

joshua writes:
Tax imposes a burden on money. Regulation imposes a burden on time.

Regulations can definitely impose burdens on money as well (and I don't just mean in the sense that "time is money"; regulations that you have to provide such and such functionality for your business, etc. It's more than just paperwork).

Part of the problem is that these costs are more hidden than the cost of taxes, which makes it easy to forget about them when discussing the economy. It can also make them politically easier to increase...

Russ Friend writes:

When companies knowingly emit tons of voc's into the environment with no regard to the potential effects of their actions, instead if forcing them to abide by silly regulations perhaps we should put the owners and all of the employees in jail for a few years and put their business up for auction?
Or perhaps they should have to pay for cleaning up their mess, which would effectively force them to shut their doors.
Though, more often than not, companies will declare bankruptcy before dropping a dime to clean up their mess.
A lot of companies complain about regulations, but the reason regulations were created was in response to an appalling lack of accountability and responsibility of the industry's being regulated.

Tom West writes:

A lot of companies complain about regulations, but the reason regulations were created was in response to an appalling lack of accountability and responsibility of the industry's being regulated.

And there's the rub. For the most part, regulation don't appear out of nowhere. They occur in response to a harm (perceived or real).

The trouble is that unless there's significant recognition that enacting and enforcing regulations is *also* a harm (of a different nature), then there's no no balance between the two sides.

It's the same danger when one side wants to prevent crime (a noble goal). If there's nobody fighting for civil rights, then a 8:00 curfew and internal passports can seem entirely acceptable set of actions in the long run.

I do wish politicians would occasionally be brave enough to make the trade-off publicly explicit. When a harm reaches public attention and thus pressures towards regulation, politicians either regulate (and proclaim their sympathy) or bury the story. We need someone in the public eye to explicitly say that not all harms should be addressed by regulation, just as not all crimes justify restricting our freedoms to prevent them.

MG writes:

If regulation is a good solution to addressing environmental externalities, wouldn't nationalization be even better? Well-meaning regulators can only do so much against those unaccountable and irresponsible private entities. Wait, was this tried in the USSR and the Eastern Block? How did that work out? In all seriousness, I would like to see a cross country panel study relating a country's/state's intensity of regulation/cost of regulation against broad economic and even just the target outcome.

Saturos writes:
I lift my lamp beside Reno and Las Vegas.

LOL!!

R Richard Schweitzer writes:

And Yet -

Are regulations devised in a vacuum; or are they shaped by the representation of interests, usually "vested" interests who perceive those as part of the means to preserve their relative positions?

Now, where the "twist" occurs is in the administration of regulations. That's when the process gets out of the hands of those who foster regulation for their purposes (such as the realtors' and builders' lobbies) and are dismayed at many of the operative effects.

Ken B writes:

Rankings based on CEO surveys place California last.

Tom C writes:

Barely a difference between the two. Both would be considered "takings" in a society with constitutionally acknowledged natural rights protected by law.

Harun writes:

"And there's the rub. For the most part, regulation don't appear out of nowhere. They occur in response to a harm (perceived or real)."

http://www.cdtoa.org/news/inthenews/1081-march-2012/1934-the-heartland-institute-shades-of-epa-the-flawed-human-health-effects-epidemiology-in-the-california-air-resources-boards-diesel-truck-emission-rules

So, in this case, a government scientist with a fake Phd came up with fake research so a new regulation on diesel could be implemented.

The regulation's supporter's even tried to get the UCLA professor who questioned the research fired.

But you go ahead and believe that every regulation is due to serious public demand.

For many pollutants nowadays, there are not many low-hanging fruit left. So, the agencies who feel the need to expand, must look for work where they can find it, or fake it.

CARB regulations on formaldehyde in engineered wood products supposedly now requires lower levels in the wood than naturally occur in your own mouth. Maybe they could regulate kissing, eh?\

The Lacey Act requires vast amounts of paperwork to show what species you use in wood items, instead of simply providing aid to foreign forestry services to catch poachers. The regulators prefer to the easy life of jumping on the folks trying to be lawful instead of catching the bad guys.

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