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Energizing the Economy

by Kevin D. Williamson

Leash the regulators and unleash the oilmen

Conservatives dismayed by the fact that the United States is home to the highest corporate-tax rate in the developed world are welcoming Mitt Romney’s proposal to reduce it from 35 percent to 25 percent, but his biggest proposed tax cut has nothing to do with taxes as such.

Running well in excess of $1 trillion a year by most estimates — and closer to $2 trillion by the Small Business Administration’s reckoning — the cost of complying with federal regulations is a much bigger burden on American businesses than taxes are. The expense of regulation is in effect a form of taxation, but with an important difference: You can boot out your representative if he votes for a tax hike, but you can’t vote out executive-branch bureaucrats. The tax and regulatory climates have a great deal in common: Both are cumbrous and expensive, and both bodies of law are full of special-interest carve-outs that are the result of billions of dollars’ worth of lobbying by entrenched business interests, coddling market incumbents at the expense of start-ups and smaller firms. If General Electric is not particularly worried about the 35 percent corporate-tax rate, that is because it does not usually pay taxes at that rate and, indeed, in some years does not pay corporate taxes at all. Likewise, Goldman Sachs and similar large firms with 400 lawyers on staff and a dozen lobbyists on retainer are less disadvantaged by the Obama administration’s aggressive regulatory stance than are smaller and younger firms for which legal fees and compliance monitoring are heavy burdens, or even insurmountable ones: The estimated annual cost of regulation on a U.S. manufacturing firm is very high, about $700,000, meaning that small, specialized start-up enterprises without the cash flow to handle such expenses are out of business before they can begin.

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