Economics, Regulation

A great idea for protecting small business from the regulatory state

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America’s regulatory apparatus continues to grow, with one study estimating 106 new major federal regulations added in just the first three years of the Obama administration. Since 1994, we’ve added about 300 new regulations per year, as the chart from Politifact below shows. And more are on the way as the Affordable Care Act, Dodd-Frank, and the EPA’s anti-coal agenda are implemented in full.

With so much red tape, businesses are in danger of running afoul of regulations they didn’t even know existed. This is particularly dangerous for small businesses (which provide the majority of new jobs), because they often don’t have the resources to maintain expensive legal teams dedicated to ensuring they dot every “i” and cross every “t.”

Small businesses need protection from the encroaching regulatory state, and Rep. Kerry Bentivolio, a Michigan Republican, has a great idea on how to provide it. In a new memo being circulated on Capitol Hill, the Congressman proposes:

  1. When an agency finds a small business to be in violation of a regulation, instead of an immediate fine they provide them with a notice that they are in violation.
  2. The small business then has six months to fix the problem.
  3. If, after six months, the business can prove they are making a good faith effort to fix the problem, they are granted a three-month extension.
  4. If, after this time, the business has not corrected the problem, it will be fined or punished as the regulation calls for. If the problem has been corrected, the fine is waived.

This simple plan ensures that businesses cannot ignore regulations—they’ll get fined eventually—while simultaneously providing them an opportunity to become compliant without being hit by fines that could shut them down.

Bentivolio’s plan is still very much in the formative stages, but the general principle seems sound. In a country with more than 80,000 pages of regulations, it’s inevitable that some businesses will unintentionally break some rules. We should have a system in place that gives business owners a second chance while still ensuring that the rules are ultimately followed.

What do you think? Is this plan too simple? Are there massive loopholes? The comments section awaits.

3 thoughts on “A great idea for protecting small business from the regulatory state

  1. Sounds brilliant. You’re found in violation. Rather than smoke some poor guy, say “look, you are in violation of this regulation. Please take the necessary steps to correct it.” If it’s not done, then the fine hits. I like it. Kind of the “benefit of the doubt” thing.

  2. Alright stop gap measure. The real solution is to start reducing regulations. Do we need all of them? Based on the ones I have encountered, I would say, no.

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