By definition, if a bill is sponsored by Sens. Mark Udall, D-Colo., and Rand Paul, R-Ky., or any similarly odd ideological couples in the House, it more than meets the definition of bipartisan. For that, it should get a big kumbaya from the Beltway cognoscenti.
Yet the Udall-Paul bill, S. 968, should be cheered not just because of its bipartisanship, but because it actually spreads freedom. Those concerned with government eroding options for entrepreneurs should cheer this legislation, which lifts regulatory barriers to an untapped source of capital for startups: America’s credit unions.
Small business and startups pursue many diverse sources of funding. As traditional sources have dried up, many credit unions have stepped up to fill the void. As Rohit Arora, CEO of the Biz2Credit small business loan arranging service, recently explained at FoxBusiness.com, “Following the mortgage bust, many big banks essentially turned off the spigot to small business lending. Credit unions decided to take advantage of this hole in the marketplace by increasing their small business loan-making.”
But because of government barriers to credit union business lending, thousands of entrepreneurial ventures may be unnecessarily deprived of the seed capital credit unions could provide to them. As Arora says, “Credit unions are handcuffed by a lending cap of 12.25 percent of their assets imposed by the Credit Union Membership Access Act of 1998. Thus, many of those who became active in small business lending quickly hit their limit.”
And this regulatory barrier is exactly what Udall-Paul, and its House companion H.R. 688, sponsored by Rep. Ed Royce, R-Calif., would fix. The legislation would raise the cap for business lending to 27.5 percent of a credit union’s assets. The modest hike in the lending cap would pay big dividends for entrepreneurs and the economy. The Credit Union National Association estimates this increase in the cap would create 138,000 jobs in the first year, a figure Pepperdine University economist David M. Smith calls “conservative and well within the bounds of a reasonable projection.”
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Last year, the Obama Office of Management and Budget’s 2012 Draft Report to Congress on the Benefits and Costs of Federal Regulations surveyed 10 years of regulatory costs and benefits and pegged the cumulative costs of 106 selected major regulations during 2001-2011 at between $43 billion and $67 billion. Meanwhile, the estimated range for benefits spanned from $141 billion to $701 billion.
OMB just released the new 2013 Draft Report to Congress on the Benefits and Costs of Federal Regulations, and the burdens are increasing.
Consider just the past two years:
2012 Report: 12 rules were issued with benefits of between $34.3 billion to $89.5 billion annually, and costs of between $5.0 billion to $10.1 billion
2013 Report: 14 rules were issued with benefits of $53.2 billion to $114.6 billion annually, and costs of between $14.8 billion to $19.5 billion.
Observe the high cost estimates for each year; the Obama administration’s acknowledged new regulatory costs nearly doubled from $10.1 billion in 2012 to $19.5 billion annually in 2013.
This is significant; Recall the 2012 State of the Union Address when Obama wisecracked that he got rid of a regulation that classified spilled milk as an “oil.”
He further boasted:
In fact, I’ve approved fewer regulations in the first three years of my presidency than my Republican predecessor did in his. (paused for applause.) I’ve ordered every federal agency to eliminate rules that don’t make sense. We’ve already announced over 500 reforms, and just a fraction of them will save business and citizens more than $10 billion over the next five years.
That meager $10 billion in cost savings over five years, worthy somehow of the State of the Union, yet in reality a tiny sliver of the real regulatory burden of $1.8 trillion annually, was just swamped in one year in the new Report to Congress.
OMB’s cost-benefit breakdowns incorporate only benefits and costs that agencies or OMB have expressed in quantitative and monetary terms, omitting numerous categories and cost levels of rules altogether. There are far more rules, and far more costs, in reality. Costs of rules from independent agencies are entirely absent in this report for example. Cost-benefit analyses are also sensitive to basic assumptions about how regulations translate into benefits.
The federal government doesn’t tell us what we need to know about regulation, but what it’s owning up to points in the wrong direction.
If Americans truly want to ensure no unauthorized immigrants work in the United States, they better get ready to pay top dollar. E-Verify, the electronic national identification system contained in the Gang of Eight’s immigration bill, will cost government, businesses and workers at least $8.5 billion per year, according to my new study on E-Verify released yesterday. That’s $13,000 per unauthorized immigrant denied a job.
E-Verify requires employers to submit Form I-9 information for comparison with information in databases held by the Social Security Administration and the Department of Homeland Security. People who advocate E-Verify as a cheap solution to illegal immigration need to understand this requirement is the most extensive regulation possible—it imposes requirements not just on every single business in America, but every single American citizen. Even small expenses distributed among such a large population will produce major costs.
This study basically accepted all federal data about E-Verify at face value and attempted to estimate its impact on the entire economy using the government’s own assumptions. First, as for government, the Congressional Budget Office estimated a national E-Verify mandate would cost, on average, $1.22 billion annually, not including DHS personnel costs. Add $227 million for the 5,000 new DHS enforcement agents called for in this bill, and the cost jumps to $1.45 billion.
But the big costs come from the impact on employers. Based on the estimates in the DHS’s Regulatory Impact Analysis for its 2008 E-Verify mandate for federal contractors, employers nationwide would spend $4.1 billion setting up, training and implementing the new system. That’s nearly $2.4 billion more than the estimated cost to businesses under the White House draft legislation, which exempted small businesses. Annually, employers will spend $2.55 billion operating system checks, based on DHS assumptions alone. This estimate is close to a 2011 Bloomberg Government report that found a national E-Verify mandate would cost businesses $2.6 billion annually (a number that actually ignored costs to 76 percent of businesses).
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One way the current political climate discourages hiring is by turning problem employees into potential lawsuits for the employers who take the risk of hiring them. The legal climate has gotten much worse over the past several years due to the appointment of more left-wing, anti-employer judges by President Obama, and an increasingly out-of-control Equal Employment Opportunity Commission, which sues employers for terminating bad employees who fall into “protected classes,” and for sensible hiring decisions that most judges would consider perfectly legal, since the plain language of federal civil-rights laws permits them. The EEOC even sues employers for using hiring criteria required by state law, such as health and safety codes.
The EEOC’s abusive, out-of-control behavior is a point of agreement among lawyers who agree on little else, liberal and conservative alike. The liberal lawyer “Loki,” writing at the Volokh Conspiracy, observes:
Without going into too much detail, I recently had the bizarre experience of the EEOC first arguing that the plain language of the statute didn’t matter. Then we dug up their own policy, which contradicted their stated litigation position. They argued that their own policy didn’t matter. The issue hadn’t been litigated much, but we found case law directly on point contradicting them (and for which they had been sanctioned). They argued that the case law didn’t matter. Then we found prior DOJ opinions on the issue- guess what? The EEOC said the DOJ opinions didn’t matter.
The judge? He thought it mattered.
I wish this was a one-off experience, but it’s not. Every single time I have dealt with the EEOC, it’s something similar. It’s gotten to the point where I fully expect them to be pissing on my leg so they can tell me it’s raining. And note that I’m not reflexively anti-government; I’ve dealt with the DOJ and SEC (among others) and have nary a bad word to say with the attorneys I’ve dealt with. . .I honestly don’t know what it is in the water at the EEOC. . . I had to do a lot of research on EEOC cases, and I found so many cases where the trial courts just got fed up with the EEOC it wasn’t funny.
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This month’s Cato Unbound series focuses on the constraints of money in politics, how businesses respond to opportunities for rent-seeking, and prospects for the future of free market advocacy.
In his initial essay, CEI Founder and Chairman and Director of CEI’s Center for Advancing Capitalism, Fred L. Smith, Jr., makes the case for increased business involvement in politics on the side of free markets. He suggests that academics and intellectuals sympathetic to capitalism should consider how their work affects the narratives about business that frame the general public’s views. Public choice economists, in his opinion, may have actually contributed to the decline of principled businessmen and the rise of crony capitalists.
You can read see the entire series here, or go directly to Fred’s essay here.
Overview of Regulatory Reform in the U.S. from The Base Realignment and Closure Act
The Base Realignment and Closure (BRAC) Act of 1988 was created to close or realign excess military bases in order to save money. Since Department of Defense (DoD) spending can attract millions of dollars to a politician’s constituents every year, they will rarely vote to close unneeded bases. The BRAC Act worked around this problem by creating a commission of independent experts (the Base Realignment and Closure Commission) who, along with the DoD, would recommend base closures and realignments.
The DoD used military need as its primary criterion for deciding which bases should be realigned or closed. The BRAC commission then amended the DoD’s recommendations to ensure that they adhered to a set of criterion created by Congress and sent final recommendations to the president for approval or disapproval.
The president cannot make any changes to the recommendations and must either approve or disapprove of the entire set. If approved, the president sends the recommendations to Congress which then has 60 days to pass a resolution of disapproval. If Congress does not pass such a resolution, the BRAC commission’s recommendations automatically become final.
Results from the BRAC Act of 1988
After years without significant military base reform through the traditional legislative approach, the BRAC Act of 1988 resulted in the closure of 16 major U.S. military bases and the realignment of 11 others. This and subsequent BRACs have been estimated to save about $7 billion annually.
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At a recent speech before a convention of the Credit Union National Association (CUNA), new Sen. Elizabeth Warren (D-Mass.) made the pitch that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was achieving its goal of reining in Wall Street while “level[ing] the playing field” for credit unions.
On the law’s creation of the Consumer Financial Protection Bureau (CFPB), which Warren first proposed and then organized as an adviser to President Obama, Warren proclaimed: “The agency works for consumers. It also works for the lenders and small financial institutions, like credit unions.”
Yet at a Wednesday congressional hearing, those who manage credit unions begged to differ with Warren’s assessment. They maintained that credit unions were struggling against a sea of red tape from both the CFPB and from other provisions of Dodd-Frank sold as going after “big banks,” such as the Durbin Amendment’s price controls on debit card interchange fees.
“Although I recognize the need for appropriate regulation, too often credit unions end up paying the price for abusive practices perpetrated by non-credit union entities,” testified Mitch Reiver, general counsel for Melrose Credit Union in Queens, New York, at the hearing before the House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit.
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While most states are desperately trying to figure out ways to encourage business development and reduce the cost of consumer goods, New York is considering a proposal that would benefit one particular group of large businesses at the expense of smaller outfits and consumers. The reason, it appears, that lawmakers are considering the proposal is because those large in-state businesses set to benefit from the law changes donated very large sums of money to those very lawmakers.
“At-rest” laws, which require alcohol being shipped from out-of-state spend 24 hours in a distributors warehouse in the state where it is to be sold (sometimes for up to three days) are an effect of the mandatory three-tier system that separates alcohol producer from retailers by forcing both to use a middle man. As I have stated in the past, wholesalers can provide and invaluable service for both retailers and alcohol producers, but by making their use mandatory it has given that middle tier an immense amount of control over the market and with it power and money. Over the decades, wholesalers have been able to buy or pressure their way to favorable laws. For example, 33 states have these “at-rest” laws which really serve no greater purpose than to act as a way to protect in-state wholesalers from out-of-state competition and raise costs (and thus the prices) of out-of-state alcohol. Now, New York is reportedly considering adding this provision to its alcohol control laws. Why? As others, like Walter Olson over at Cato have noted, the only explanation seems to be that large in-state wholesalers donated thousands of dollars to lawmakers in order to convince them to get on board — State Sen. Jeff Klein (D-Bronx), who is pushing the proposal, S3849, received no less than $33,000 from Empire Merchants, a distributor that already has warehouses in New York.
Small and out-of-state wholesalers are up-in-arms about the proposal, claiming that the cost of buying or leasing warehousing space in New York could put them out of business which would reduce the choices for consumers in the New York market. Furthermore, for those that manage to survive the change, the increases in operating costs would necessitate an increase in the prices they charge to consumers. According to wine writer Jesse Nash, the new requirement could add $7 or $8 to bottles.
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CEI Research Associate Evan Woodham contributed to this post.
Another round of disappointing jobs numbers released last Friday shows more than ever that massive spending “stimulus” isn’t working in getting the U.S. economy going. We must, in the phrase coined by my Competitive Enterprise Institute colleague Iain Murray, “liberate to stimulate.”
But not only is the U.S. government piling on ever-more regulation on all sectors of the economy, it is stalling on implementing even modest bipartisan regulatory relief passed into law.
On April 5 of last year, President Obama signed the Jumpstart Our Business Startups Act. Risking heat from allies, I praised the president for this action in conservative venues such as National Review, because I believe that good public policy actions should be praised no matter who the actor is.
But on its first birthday, much of the JOBS Act might as well still be in the womb. That’s because except for provisions that went into effect automatically — and these are working well, as I will get to in a minute — liberalized rules under the JOBS Act have been inexcusably delayed by the Securities and Exchange Commission (SEC).
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The stock market has fallen this morning in response to the dismal March jobs report released this morning, which showed that a meager 88,000 jobs were added, which didn’t even keep up with America’s population growth or increases in its working-age population. Ed Morrissey notes at Hot Air, “The jobs added fall far short of the 125K-150K needed just to keep up with population growth.”
Nevertheless, the official “unemployment rate fell another tick, from 7.7 percent to 7.6 percent,” notes Howard Portnoy. Why? “According to the report some 496,000 Americans stopped working or looking for work.” Why did they stop looking for work? One reason is that many able-bodied unemployed people, with the encouragement of the Obama administration and many state governments, are going on Social Security Disability, citing vague maladies like depression, or personality disorders. Once they go on Social Security Disability, they virtually never go off before reaching retirement age. And they are no longer counted as unemployed in the official unemployment rate. The cost of Social Security Disability payments and government healthcare for its recipients now costs taxpayers “around $200 billion per year — more than the budgets of the Departments of Commerce, Energy, Homeland Security, Interior, Justice, and State combined.”
Some employers have stopped hiring due to Obamacare, and others are cutting full-time workers and replacing them with part-time workers to avoid Obamacare mandates that apply to full-time employees, note the Huffington Post and Fox News. Obamacare caused layoffs in the medical device industry. Liberal Minnesota Senator Al Franken conceded that the medical-device tax contained in Obamacare will reduce employment. Last year, Franken called it a “job-killing tax” that will “impair American competitiveness in the medical device field.” Obamacare will cut employment by an additional 800,000 because of work disincentives and bizarre income-cliffs.
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