Overload - PaperworkSoon, President Obama will sign into law the “JOBS Act of 2012” (HR 3606) another piece of legislation that will be celebrated and lauded as just what this economy needs. 

Meanwhile down here on Main Street and Implementation Boulevard, small to mid-size businesses are drowning in a tsunami of red tape, regulations and complexity.

Add to that the uncertainty of pending healthcare, tax increases at every level (local, state and federal) and continuous regulations coming out of Washington and most businesses are too swamped or too scared to make any significant investments or hiring decisions. That is why the JOBS Act won't jumpstart our economy and is not what we need now.

At least that was the sense of more than 200 Maryland CFOs in our recent town hall & Professional Issues Update last week.

So first, here is why the Jobs Act won't work. AccountingWeb editor Gail Perry reported on the Jobs Act recently and I posted this comment,

“There are some very scary provisions in this bill that got thru with little or no transparency, or time for the CPA profession to weigh in. I wonder what Congress will say when one of those billion dollar companies has a scandal and causes investors to lose a billion dollars? No SEC oversight and no audits of internal controls? is this really the cost for creating jobs in our economy?”

She appropriately did point out some new opportunities and bright spots for CPAs, but I am more concerned about the accounting issues and lack of SEC oversight as major risk points. Have our memories grown that short? Enron, WorldCom, Bernie Madoff? However, despite my concerns over the JOBS Act, the real issue is that it misses the real issue.

The real issue is Red Tape Rising (a report from the Heritage foundation on regulations and compliance), and the growing costs and complexity associated with the flood of state and federal regulations facing small businesses and CPAs who support them or work as CFOs ane Controllers in them.

The mid-year report from the Heritage Foundation talks bout the increasing burdens of regulatory compliance and comes up with some startling numbers,

” In total, according to the Government Accountability Office, 1,827 rulemaking proceedings were completed during the first six months of FY 2011 (between October 1, 2010, and March 31, 2011). Of these, 37 were classified as “significant/substantive” or “major,” meaning they each had an expected economic impact of at least $100 million per year… The total burden added to the economy from the current administration exced $38 billion.”

This issue was brought to the forefront by the US Small Business Administration in their 2010 report, The Impact of Regulatory Costs on Small Firms. The report findings will surprise you, 

“The findings in this report indicate that in 2008, U.S. federal government regulations cost an estimated $1.75 trillion, an amount equal to 14 percent of U.S. national income. When combined with U.S. federal tax receipts, which equaled 21 percent of national income in 2008, these two costs of federal government programs in 2008 consumed 35 percent of national income. This obviously represents a substantial burden on U.S. citizens and businesses.”

It goes on to say that 89% of all companies in the US employ 20 or fewer workers and their “compliance burden” of just US laws & regulations (Economic, Environmental, Tax and OSHA/Homeland Security)  amounts to a whopping $10,585 per employee! 

Think about that number. A small business has to incur $10,585 per employee to keep up with the regulatory requirements of being in business in the United States. That does not include the actual taxes, fees, licenses, and other levies from the federal government. This is before the new regulations since 2008 (1,827 regulations at a cost of $38 billion) and before any state and local regulatory burden is considered.

What would be the total cost of federal and state compliance pus the tax burden? And do we think that this is sustainable? When will the next regulations or tax simply be the “straw that breaks the camel's back”?

The JOBS Act is a clever acronym for Jumpstart Our Business Startups Act. While well intentioned, I think it is aimed at the wrong problem and is fraught with risks most people are not aware of.

What is needed is a real effort to re-evaluate this hidden cost of compliance at all levels of government and a moratorium of new regulations until the small business sector can catch its collective breath and swim back up to the surface. Only then can the US economic engine truly be jumpstarted.

Resources:

Transparency, Accountability, Efficiency: Time for a revolution from CPA Success

Transparency, accountability, open government: is it time? from CPA Success

Scandals, Fraud & CPAs – Accounting students speak out from CPA Success

Dodd-Frank: The best (or worst) is yet to come from CPA Success

Events: where this topic and the economy will be covered:

Business & Industry Conference  – April 20, 2012

MACPA Innovation Summit on June 27, 2012 

 

 

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