In the United States, the entrepreneurial spirit is vibrant and relentless. Despite the challenges posed by rising economic inflation in 2023, the country recorded a 20-year peak in the formation of new businesses. Yet, there lurks a less visible but equally challenging barrier for small businesses: compliance inflation.
Navigating the dense and expanding thicket of regulations remains a formidable challenge for small enterprises. The U.S. Chamber of Commerce reports that annually, about 15,000 new laws are enacted across various levels of government, while outdated regulations seldom see repeal. This legislative sprawl not only persists but grows, imposing heavy burdens on businesses that are the backbone of the economy.
The sheer volume and complexity of these regulations impose significant demands on business owners, from dentists to flower shops, and from tech startups to restaurants. These businesses endeavor to comply with the myriad of rules but often find the process overwhelming and costly. According to the U.S. Chamber of Commerce, on average, small businesses dedicate 200 hours and \$11,700 per employee each year to compliance tasks, not including potential financial penalties.
Addressing compliance inflation is critical. Policymakers play a pivotal role in alleviating these burdens by simplifying outdated regulations and integrating technology to streamline compliance processes.
One striking example of regulatory obsolescence is the continued requirement for “wet” signatures on paper documents in some states, while others mandate that notaries must personally witness signatures on authorization forms. In an era where electronic signatures are broadly accepted, these requirements are not only antiquated but also unnecessarily burdensome.
Furthermore, interactions with the IRS highlight additional inefficiencies. Small business owners often need to provide their Employer Identification Numbers (EIN) to payroll providers—a crucial identifier for tax filings. However, typographical errors can lead to delays; notably, the IRS informs providers of such errors via a CD-ROM sent months later, which must be manually installed to address the issue.
This scenario underscores the urgent need for regulatory reform and technological upgrades to support small business owners and solopreneurs, who are vital to fostering innovation and driving economic growth in the U.S. As policymakers look to the future, the focus should be on making it easier for small businesses to thrive without the heavy yoke of outdated and time-consuming compliance measures.
