Regulations May Not Really Cost $1.75 Trillion a Year, SBA Office Concedes

Economists’ estimate was taken ‘out of context,’ statement says.

The little-known Office of Advocacy at the Small Business Administration has acceded to critics and distanced itself from a three-year-old estimate that federal regulations inflict as much as $1.75 trillion in annual damage to the U.S. economy.

At issue was a 2010 report in a series by economists Nicole V. Crain and W. Mark Crain titled “The Impact of Regulatory Costs on Small Firms.” Its release as a report and a Wall Street Journal op-ed caused consternation among some academics and liberal policy advocates seeking to defend regulations that protect health and safety. “

The $1.75 trillion figure was later used by lobbyists and some lawmakers in support of legislative blocks on the Obama administration’s regulatory agenda. But its methodology was faulted by the nonpartisan Congressional Research Service, the Economic Policy Institute and the Center for Progressive Reform, which wrote a letter of protest to the SBA office and was told in 2011 that the government viewed the methodology as sound.

Last month, however, the SBA Office of Advocacy quietly posted an undated statement saying, “the findings of the study have been taken out of context and certain theoretical estimates of costs have been presented publicly as verifiable facts.” It added a series of points intended to clarify, among them:

“The overall figure of $1.75 trillion in costs is derived from a number of different assumptions and sources to create an estimate. As with almost any academic methodology, it was not intended to be considered a precise finding. The study demonstrated that small businesses bear a larger burden from regulations than large businesses; it was not intended to do more than provide an estimate of this disparity. The study cannot appropriately be used to inform discussion about any regulatory costs that have or have not been incurred since 2008. The methodology used in part of this study is novel, but the authors explain why they chose to use it and offer caveats concerning the results.”

Sidney Shapiro, a Wake Forest University law professor and member of the Center for Progressive Reform, called for a firmer stance on the figure. “While this admission is welcome, it does not go nearly far enough in light of the antiregulatory crusade this misleading, taxpayer-supported report fueled,” he said in a blog post. “It is time for the agency to disavow the report completely, remove any vestige of it from its website, and adopt procedures to ensure that it does not pay for and publicize similarly misleading research again.”

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