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Economic recovery after a pandemic – the case for small business exemptions

Tyler Richards

Patrick A. McLaughlin

It’s no secret that small businesses are struggling in this COVID-19 world. Few owners have the resources to pay their leases, wages, utility bills, loan payments, and other obligations with little to no revenue. Efforts are underway to try to keep these businesses from going under, though these efforts are running into significant problems. Anything short of full revenue reimbursement means that many businesses will fail, while most of those that survive will continue to struggle well after the pandemic subsides.

Beyond the immediate relief, we also need to start thinking about ways to help small business bounce back once shutdowns and social distancing requirements are relaxed. One cheap, easy and effective way to set the stage for rapid small business recovery is to exempt these businesses from large swaths of regulations that were mostly intended for big businesses anyway.

Helping small businesses means helping millions of people get their jobs back, creating a conducive environment for new businesses to fill the void left in the wake of the COVID-19 economic crisis, and boosting the U.S. economy. Small businesses make up 99.7 percent of U.S. business, almost half of U.S. employment, and serve as a major source of U.S. job creation and productivity growth. How these businesses fare in the first few months after the pandemic subsides will likely determine the speed and trajectory of the U.S. economic recovery as a whole.

Zooming in on regulations is a good starting point. Regulatory costs are one of the most severe problems facing small businesses, and evidence shows that regulations disproportionately burden small businesses, compared to large ones. Regulations also create barriers to entry that make it harder for entrepreneurs to start new businesses. Regulatory exemptions would help reduce costs and remove barriers for existing and new small businesses at a time when they need it most — when we all need it most.

Regulatory exemptions are cheap, in the fiscal sense. Unlike other efforts to help small businesses, exemptions require almost no government spending and therefore almost no taxpayer money. By focusing on regulations that were targeted mostly at big businesses, exemptions will also come at a low cost for society. In other words, the societal benefits of these regulations mostly come from dictating what big businesses can or cannot do. Small business exemptions will leave those benefits intact.

Regulatory exemptions are a one-time fix. Many of the current approaches to helping small businesses endure the crisis rely on providing relief funds so these businesses can continue paying bills — a worthy cause, no doubt. However, these funds will dry up quickly, and businesses will continuously need more and more while the pandemic persists, which will mean fewer and fewer funds available to help during the recovery. Regulatory exemptions will not only be unaffected by the availability of funds, they will also provide immediate, effective relief for small businesses regardless of how long the pandemic persists.

These exemptions are also a politically feasible, bipartisan remedy. Regardless of political leaning, most policymakers understand that regulations come with some costs, even if the regulatory benefits outweigh those costs. And everyone understands the importance of small businesses because we all see the impact of them every day. We all have family members and friends who rely on their operation for goods, services and even jobs. This is a common-sense approach that nearly everyone can get behind.

Helping individuals and businesses meet their obligations and avoid financial ruin is the first step in economic damage control, given current circumstances. While we try to find ways to provide immediate relief, we also need to think about what comes next. Small business growth could be the key to a strong economic recovery, and it would provide new opportunities for millions of people who are already facing an uncertain economic future.

If that is to happen, we need to act now to create an environment that will allow small businesses to take the lead — an environment that is free from unnecessary burdens and barriers to creation. Small business exemptions are a cheap, easy, and effective way to create that environment and set the stage for small businesses to lead the economic recovery.

ABOUT THE WRITERS

Patrick A. McLaughlin is the director of policy analytics and a senior research fellow with the Mercatus Center at George Mason University, and Tyler Richards is a research coordinator with the Mercatus Center. They co-authored the Mercatus Center policy brief on “Small Business Recovery after COVID-19.”