A $3Trillion Burden Biden regulators spew out red tape at a historic pace.
By James Freeman, Wall Street Journal
A $3Trillion Burden
Biden regulators spew out red tape at a historic pace.
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Jan. 2, 2024 at 6:09 pm ET
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A year ago this column wasn’t buying Wall Street predictions of recession in 2023, but did suggest a proven method for President Joe Biden to encourage prosperity—and get himself re-elected. The idea was to move Bidenomics in the direction of Reaganomics by agreeing with congressional Republicans to reduce the burden of federal regulation. Sadly Mr. Biden did the opposite. His administrative agencies have been historically busy over the past 12 months, churning out new directives across the U.S. economy. It now appears that even before their year of frenzied rule-making, the overall cost of federal regulation was much greater than previously reported.
Wayne Crews writes in Forbes on the Washington bureaucracy’s roster of new and proposed commandments:
The Federal Register, the daily depository of rules and regulations, wrapped up 2023 with 90,402 pages. That happens to be the second-highest tally of all time.
Mr. Crews adds that this blazing pace of regulating falls behind only “Barack Obama’s all-time record-setting 95,894 pages.” Let’s hope that Mr. Biden doesn’t view this as an Obama achievement he must try to exceed.
Of course some new bureaucratic diktats inflict more pain on the citizenry than others. But it’s the overall impact of all new and existing rules that is economically excruciating, especially for small businesses.
Economists Nicole Crain and Mark Crain recently reported in a study for the National Association of Manufacturers:
U.S. federal government regulations cost an estimated $3.079 trillion in 2022 (in 2023 dollars), an amount equal to 12% of U.S. GDP. These costs fall unevenly on the major sectors of the economy and on firms of different sizes; the findings indicate that compliance costs fall disproportionately on small businesses...
Considering all federal regulations, all sectors of the U.S. economy and all firm sizes, federal regulations cost an estimated $12,800 per employee per year in 2022 (in 2023 dollars). Small firms with fewer than 50 employees incur regulatory costs of $14,700 per employee per year – 20% greater than the cost per employee in large firms ($12,200). These estimates are consistent with prior studies, which indicate that the cost of regulatory compliance disproportionately affects small firms.
Nicole Crain and Mark Crain have been toiling in these vineyards for years. Back in 2010 they did a similar report for the Office of Advocacy of the U.S. Small Business Administration and found what at the time seemed like a gargantuan compliance burden. They wrote in the Journal:
The annual cost of federal regulations in the United States increased to more than $1.75 trillion in 2008, a 3% real increase over five years, to about 14% of U.S. national income. This cost is in addition to the federal tax burden of 21%, for a combined cost of 35% of national income. One out of every three dollars earned in the U.S. goes to pay for or comply with federal laws and regulations, and new policies enacted in 2010 for health care and financial services will increase this burden.
Good call. ObamaCare and Dodd-Frank only added to an overall U.S. regulatory compliance cost that now appears to exceed total individual income taxes.
This means there is a massive opportunity here to cut the cost of doing business, encourage investment and unleash growth without even having to enact a tax cut. If Mr. Biden continues to ignore the opportunity, his successor should seize the day.
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Seizing the Money
San Francisco residents have lately been asking why local politicians seemed more interested in cleaning up the streets for a Marxist foreign dictator than for the people who call the city home. But there’s at least one out-of-towner getting shabby treatment from City Hall. In fact it appears that San Francisco politicians have been downright abusive to a capitalist enterprise based in Detroit.
Callum Keown reports for Barron’s:
General Motors is suing San Francisco claiming it has been unfairly taxed $108 million over seven years despite having no employees or physical presence in the city.
The Detroit auto maker claims the city incorrectly used its robotaxi business Cruise, which is based in San Francisco, to calculate the tax bill. As a result $3 billion of GM’s global revenue was attributed to San Francisco for tax purposes last year alone...
“GM’s core automotive business does not employ anyone in the city (San Francisco), has no plants or physical locations in the city, has no dealerships in the city, and sells only a de minimis amount of retail goods (approximately $677,000 in 2022) in city,” the company said in its complaint.
Over the seven years Cruise made a minimal amount of income, the filing claims. “California Government Code mandates that City Taxes must fairly reflect the proportion of activity actually carried on within the city, and they do not, either generally or as applied to GM,” it added.
This column will go out on a limb and suggest that GM is not the only business that’s had a bad experience dealing with the government of San Francisco.
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The Opposite of San Francisco
Shelly Hagan reports for Bloomberg on a surging financial center:
Dallas saw three of Wall Street’s largest banks start on new campuses this year, cementing their bets on one of the fastest-growing metros in one of the fastest-growing states. The industry’s rapid Texas expansion since the onset of the pandemic means the area now has more finance workers than Chicago or Los Angeles, trailing only New York.
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And it isn’t just the major banks. Asset managers of all sizes have been looking to cash in on the influx of wealth and people moving from the coasts to Dallas for cheaper housing and no state income tax. Fisher Investments relocated to suburban Plano from Washington state earlier this year, joining asset managers including Charles Schwab and Canyon Partners that arrived a few years before...
The bank build-outs are helping solidify the city’s status as the financial mecca of the South, overshadowing competitors like Atlanta and Miami. The rapid migration of people and businesses to Texas has led to a virtuous cycle of job creation in construction, restaurants and other industries without direct ties to banking.
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James Freeman is the co-author of “The Cost: Trump, China and American Revival” and also the co-author of “Borrowed Time: Two Centuries of Booms, Busts and Bailouts at Citi.”