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The Soaring Cost of Regulations: How Small Businesses Are Bearing the Brunt



This week, the House Small Business Committee is holding a hearing, Main Street Realities: Examining the Current Economic Landscape in America. The CPAC Foundation’s Center for Regulatory Freedom (CRF) has been closely examining the rapid acceleration of regulatory growth under the Biden administration, and the findings are alarming. Regulatory costs have surged by nearly 16% annually, increasing the burden of the regulatory state by more than 50% in just over three years. This pace has even surpassed the Obama administration's regulatory growth, which we had previously criticized for its 11.72% annual increase.


The Obama-Era Regulatory Surge

When President Obama took office in 2009, he inherited a regulatory state costing just over $900 billion. Under his administration, regulatory costs skyrocketed to approximately $2.25 trillion, with an annual growth rate of 11.72%. This rapid increase placed a heavy burden on America's small businesses. The per-employee, per-year (PEPY) regulatory cost for small businesses jumped from $7,762 to nearly $19,000 by the end of his term.


The Trump-Era Regulatory Slowdown

In stark contrast, President Trump aimed to combat regulatory excesses by pledging to discard two regulations for every new one implemented. Although it’s unclear if this specific promise was fulfilled, the overall growth rate of regulatory costs slowed dramatically to just 0.33% annually during his term. This period of regulatory stability allowed for significant economic benefits, with the PEPY cost for small businesses rising only marginally from $18,838 to $19,088.


Biden's Regulatory Expansion

Under President Biden, we anticipated a return to Obama-era regulatory levels. However, the actual regulatory growth has been even more aggressive, with costs soaring from $2.28 trillion to $3.65 trillion—a 60% increase in just three and a half years. The PEPY cost for small businesses has surged from $19,088 to $33,105. For a business with ten employees, this translates to an astronomical rise in regulatory costs from $190,880 to $331,050, with a further $2.5 million in lost opportunities due to diverted resources.


The Path Forward

The Supreme Court's recent decision in LoperBright has given hope for reining in the regulatory state. However, two paths lie ahead: one where regulatory growth continues at its current unsustainable rate of 15.85% annually, and another where it reverts to the more manageable 0.33% annual growth seen under President Trump.


If regulatory costs grow at 0.33% per year from now until 2030, the aggregate cost will reach $3.716 trillion, with the PEPY cost for small businesses at $33,706.85. Conversely, if the current growth rate persists, the total cost will soar to $7.6 trillion, with the PEPY cost hitting $69,520.50.


A regulatory state costing the American economy over $7.5 trillion would have devastating effects on GDP, household incomes, and the overall health of society. As we consider the future of America’s small business sector, it is crucial to address these regulatory trends and take steps to ensure the nation remains on a sustainable path.



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