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Don’t Look Now, But America’s Regulatory Burden is Easing

While panned by a national media more obsessed with Russian rumors than domestic success, this is terrific news for contractors.

How Much Do Regulations Cost?
It is impossible to assess the cost of Federal regulations with any degree of accuracy, but enough estimates suggest that the cost is staggering.  Government estimates are suspect since bureaucrats make no attempt to estimate the costs and benefits of many rules and regulations. When they do make estimates, the benefits are overstated and costs are understated.

Even so, the Small Business Administration used to make fairly detailed cost estimates with an emphasis on the burden placed on small business. While discontinued in the first term of the Obama administration, the SBA estimates of the cost of regulations on the economy for 2008 were $1.75 trillion in 2014 dollars. That’s right, it is trillion with a T.

In 2014, the National Association of Manufacturers estimated that regulations cost the economy $2.028 trillion in 2012 (using 2014 dollars). The Competitive Enterprise Institute (CEI) produces an annual estimate in their “Ten Thousand Commandments” report.  For 2017, CEI estimated the cost of regulations at $1.9 trillion.

How big is $1.9 trillion? The IRS collected $1.628 trillion in personal taxes in 2016. Corporate income taxes were $292.6 billion, meaning the cost of regulations equals the burden of personal and business taxes combined!

Compare the cost to corporate pre-tax profit. Total corporate pre-tax profit in 2016 was $2.159 trillion according to the St Louis Federal Reserve Bank, which means the cost of regulatory compliance nearly equals all of the pre-tax profits of all of the corporations in America.

There is no question, regulations are out of control.  The question is whether they can be brought back under control.

Relief?
Estimates of the cost of regulations are subject to debate. The size of the Federal Register, where rules, proposed rules, and public notices are recorded represents a objective measure of the size of the regulatory burden, if not its cost. In 2016, the Federal Register set an all-time record with 95,894 pages.

Here is the good news. In 2017, before blank pages are removed, the size of the Federal Register was 61,950 pages. While still staggering, this is a reduction of 35%.  It hasn’t been this small since 1993!

Rules, which are finalized regulations are also down in 2017. In 2016, there were 3,853 rules added to the Federal Register. This dropped 15% to 3,281 additions. Though this still seems high, it is the lowest level since anyone began counting them. Plus, a number of the “rules” were rules to get rid of other rules.

What Happened?
Soon after Trump was inaugurated, the president began to reverse as many Obama era regulations as he could. Trump started with Executive Order 13771, which required agencies to eliminate two existing regulations for each new regulation issued.

Since Obama infamously made significant use of his pen and his phone, Trump used the same approach to repeal parts of Obama’s regulatory legacy. The Office of Management and Budget’s December “Current Regulatory Plan and the Unified Agenda of Regulatory and Deregulatory Actions” revealed that 635 regulations were withdrawn, 244 were made inactive, and 700 were delayed. Thus, 1,579 regulatory actions were eliminated or restrained.

How This Affects You

In the HVAC industry, regulations hurt mid-size contractors the most. Larger contractors (i.e., revenue above $10 million) can spread the cost of compliance with government regulations over more sales. Smaller, “white truck” contractors simply ignore them. It is the mid-size contractor who is most affected by an overreaching federal bureaucracy. The mid-size contractor finds profits squeezed when regulations rise. 

While the actions of the Trump administration represent a slowdown in the growth of the regulatory behemoth, they are not a rollback. And, what one president can do or undo with his pen and phone, the next can reverse.  The current political environment is providing contractors a respite, but not necessarily long-term relief. To ensure your company’s long-term viability, grow. Build your business to the size where you can absorb and withstand greater regulatory burdens in the future.

Matt Michel is president of Service Nation Inc., which operates the Service Roundtable, the industry’s largest contractor alliance. Service Nation also operates the Service Nation Alliance for contractors serious about aggressive and profitable business growth.  For more information visit ServiceRoundtable.com or call 877.262.3341.

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