Rep. Duckworth's Small Business Paperwork Relief Act is a Flawed Solution for the Wrong Problem

Rep. Tammy Duckworth appears to have been caught up in the anti-regulatory fervor that has continued to afflict the House of Representatives ever since the GOP took control there in 2010.  On Monday, Representative Duckworth, an Illinois Democrat, announced a plan to address what she said was a problem: “For businesses with less than twenty employees, the annual cost of federal regulation can be over $10,000 per worker.”  But before we get to the proposed solution, there’s a problem with the stated problem: it’s just not true.  The stat comes from the 2010 “Crain and Crain” study commissioned by the Small Business Administration’s (SBA) Office of Advocacy, a study that has been thoroughly debunked in a CPR white paper, by the Congressional Research Service, EPI, and others. Fully 70 percent of the study’s cost estimates came from a regression analysis based on opinion polling about perceived regulatory climate in different countries.

Having aired a faulty claim of a problem, Rep. Duckworth introduced a bill ostensibly aimed at fixing it, by reducing small business reporting burdens.  The bill, the Small Business Paperwork Relief Act, would bar federal agencies from fining “small businesses” for first-time violations of federal reporting requirements when certain conditions are met, significantly curtailing agencies’ discretion in ensuring compliance with these requirements while providing little benefits to true small businesses.  Last term, identical bills were introduced in the House by Rep. Charles Boustany and in the Senate by Sen. David Vitter; Senator Vitter reintroduced the Senate bill in January.

I put the term “small businesses” in quotes, because the definition of that term in Duckworth’s bill is a far cry from what most of us envision when we think of small business.  For this definition, the bill simply uses the small business size standards developed by the SBA.  As documented in a recent CPR white paper, the SBA defines small business rather broadly; they aren’t just limited to the “mom and pop” stores lining Main Street in Small Town, USA. Instead, SBA counts petroleum refineries with up to 1,500 employees and chemical manufacturing plants with up to 1,000 employees as small businesses.  While such facilities may be relatively “small” for their economic sectors, it defies credulity that such operations lack the resources and sophistication to fill out reporting requirements correctly.

Undoubtedly, federal reporting requirements can potentially burden truly small businesses, and that’s why several mechanisms are already in place for ensuring that the minimization of these burdens is appropriately balanced against protection of the public interest.  Since the enactment of the Paperwork Reduction Act in 1980, federal agencies have operated under a specific mandate to minimize paperwork burdens on small businesses—a mandate that has been rigorously monitored and enforced by the White House Office of Information and Regulatory Affairs (OIRA).  Before an agency can impose a reporting requirement, it must be reviewed and approved by OIRA to ensure that the requirement various criteria, such as whether it is understandable (i.e., uses “plain language”) or whether it imposes the least amount of burden (in terms of time and monetary cost) on affected entities as is practicable.  (If anything, implementation of the Paperwork Reduction Act has strayed well beyond its purported role as a reasonable check on agency reporting requirements to become a major impediment to effective regulation.  The procedural steps it creates and OIRA’s overly strict oversight of its requirements together have prevented agencies from undertaking reporting requirements and other information requests essential to carrying out their statutory missions of protecting people and the environment.)

More to the point, agencies already have discretion in most cases not to strictly enforce first-time reporting violations by small businesses when appropriate.  However, agencies must still retain the flexibility to impose the full penalty for reporting violations to advance principles of justice, deterrence objectives, or some other consideration relevant to the public interest.  For instance, if an agency determines that holding one business fully accountable for a reporting violation will serve as an effective deterrent to prevent hundreds of other businesses from committing similar violations, then the agency must retain the flexibility to enforce the reporting requirement accordingly.  Duckworth’s bill would effectively strip agencies of this flexibility in too many instances.

At the same time, it’s important not to lose sight of why we have reporting requirements in the first place.  These requirements are essential to the effective functioning of a regulatory system that Americans rely on every day to ensure their food is free from harmful contaminants and the air is safe to breathe.  In some cases, reporting requirements help agencies verify that businesses are fulfilling their responsibilities under existing law, such as testing safety equipment intended to protect workers against injury or death.  In other cases, these requirements provide Americans with critical health and safety information, such as when agencies use air monitoring reports to inform the public about pollution levels in their communities.

It’s understandable that Rep. Duckworth wants to help small businesses while the economy continues to sputter, but her bill misdiagnoses what’s really ailing them.  Survey after survey shows that small businesses’ primary concern is the lack of demand, while concerns about regulations rank much further down the list.  It’s clear that their biggest priority is getting more folks with open wallets through the front door.  Further slashing reporting requirements can’t solve that problem; only policies aimed at stimulating broad-based economic activity can do that.

There are indeed better policies that could be instituted to help small businesses comply with reporting requirements, some of them outlined in CPR’s recent white paper.  Such policies should help small businesses without undermining the safeguards that the reporting requirements are intended to advance.  For example, Congress could establish SBA-sponsored regional small business compliance offices that assist small businesses complete applicable paperwork requirements accurately and in a timely fashion.  (Of course, to be effective, these offices would need to be adequately funded.)  Or, Congress could authorize an SBA-supervised program that contracts with small businesses to provide services to other small businesses that would help them with reporting compliance.  For example, if a small business would benefit from the services of an accountant to comply with a particular reporting requirement, the program would contract with genuinely small accounting firms who could provide these services.  In that way, effective reporting compliance for one small business would create a profitable market for another small business.  These kinds of “win-win” solutions will both help small businesses and ensure that the regulatory system continues to safeguard the public interest.

In short, the Small Business Paperwork Relief Act does not provide real solutions to a real problem.  Rather, it unfortunately serves as a messaging bill that reinforces Republicans’ anti-government mantra.   At a time when the economy continues to struggle, America’s small businesses deserve better.