Regulate the bureaucrats

Another day, another set of regulations hog-tying American businesses.

Last week, the Obama administration unveiled a broad set of new regulations affecting everything from retirement advising and white-collar overtime to organic food labeling. From an administration squeezing as much bureaucratic intrusion out of its last few months in office as possible, this is not surprising.

Most people reading this will be inclined to dismiss these new regulations as having very little impact on them personally. This is true, at least on the surface. After all, how many of us are staying up at night worrying about how poor old Pfizer Pharmaceuticals will get by without using a corporate tax inversion to dodge U.S. corporate taxes in favor of Ireland’s? I would guess not many.

But this way of thinking is dangerous for us as consumers because it distracts us from the very real and very damaging issue of regulatory abuse. Apathy, however, is not our only mistake — we far too often buy into the logic and talking points of statist politicians.

The corporate tax example encapsulates everything wrong with this mindset. Inversion is a method of avoiding domestic corporate taxes by merging with a foreign company and moving the corporate headquarters abroad.

President Obama has railed against this tactic recently, saying that “when companies exploit loopholes like this, it makes it harder to invest in the things that are going to keep America’s economy going strong for future generations. It sticks the rest of us with the tab.”

This is an appealing argument to most Americans. But the president and his supporters have apparently failed to consider whether the government caused the problem in the first place.

In this case, the problem is the U.S. corporate tax rate — the highest in the Western world at about 39 percent. By comparison, the liberal paradises of Denmark and Sweden both have corporate tax rates of 22 percent. Ireland, the country Pfizer tried to move its headquarters to, has a corporate tax rate of 12.5 percent.

So what was this administration’s bold solution to obscenely high taxation? Our good friend bureaucracy, of course. The U.S. Department of the Treasury recently unveiled a new set of regulations forcing Pfizer to give up on the merger.

We accomplished our goal of keeping Pfizer under our thumb. But I’d recommend you hold off a moment before you crack open the champagne to celebrate the victory of our brave bureaucrats over those black-hearted traitors at Pfizer. There are a few side effects to the bitter pill that Pfizer had to swallow.

First, we have to remember that Pfizer and others like it didn’t try to leave because they’re no-good tax cheats — they did it because they’re desperately trying to remain competitive. Our corporations are competing with other corporations from around the world, and doing so is much more difficult when they have to give a far larger proportion of their income to the government than their competitors.

Second, while we have a tendency to equate corporations with overcompensated CEOs and lavish boardrooms, they can employ thousands of people. It’s those lower-level employees who are hurt most by the Treasury Department’s actions. If Pfizer could save to pay a lower corporate tax rate like that of Ireland, it would have had far more money to invest in salaries, jobs and research on new drugs and treatments.

At the end of the day, using the regulatory bureaucracy to solve a problem created a litany of additional problems. A better solution? Cut the corporate tax so that our corporations don’t end up fleeing the country.

This is just one of the recent examples of regulation having severe consequences for our economy, however. According to the Competitive Enterprise Institute, 2015 set a record with 81,611 pages of new regulations.

Each new regulation may usually seem too innocuous or mundane to do any harm, but in unison, the consequences can be crippling.

CEI’s “Ten Thousand Commandments” report on the cost of regulations found that in 2014, federal intervention cost U.S. consumers and businesses $1.88 trillion in lost productivity and higher prices. That’s 11 percent of the 2014 GDP.

This staggering cost illustrates the constricting effect of regulation on the ability of businesses — particularly small ones — to expand. According to a 2014 report from the National Association of Manufacturers, the average per-employee regulatory cost to businesses with 50 or fewer employees was $11,724, while the cost to businesses with more than 100 employees was $9,083.

These costs, already high, pale in comparison to those facing similarly sized manufacturers. According to the same NAM report, the average per-employee regulatory cost to manufacturers with 50 or fewer employees was a whopping $34,671, while the cost to manufacturers with more than 100 employees was also very high at $13,750. What’s more, when manufacturers were asked how they would spend this money if it was not being used for regulatory compliance, 63 percent answered that they would use it for internal investment.

Given these numbers, it should come as no surprise that the economy continues to struggle while the manufacturing sector has been in recession since October. If there was any doubt that regulatory overreach killed jobs and stifled growth, these statistics should dispel it.

As millennials continue to worry about their job prospects, it is critical that we begin to consider the consequences of the regulations coming out of Washington. Our generation cannot continue to think of the federal government and its many departments and bureaucrats as the only entity capable of delivering meaningful change.

Statist politicians who happily increase the size of our already bloated federal bureaucracy aren’t the ones answering for the consequences.

Passing the buck shouldn’t be easier than passing these regulations.

Arnaud primarily writes about politics and public policy for The Pitt News. 

Write to Arnaud at awa8@pitt.edu