Small Businesses Need Relief From the Corporate Transparency Act

The Biden administration is pursuing a regulatory onslaught in an effort to beat the Congressional Review Act deadline and protect rules from reversal if Republicans win in November. The administration recently issued burdensome rules expanding overtime pay, banning noncompete contracts, mandating electric vehicle use, and regulating internet access.

The Corporate Transparency Act requires small businesses to self-dox

One new regulation on small businesses that’s escaped scrutiny is the Corporate Transparency Act. Passed by Congress in 2021 and administered by the Treasury Department, the CTA requires American small businesses to divulge sensitive personal information about their owners and officers. If they don’t comply by the end of the year, they face huge fines and even jail time. (New businesses have to comply immediately.)

The CTA’s name is a misnomer. Corporations are exempt from its requirements, and it squarely hits small businesses. Policymakers claim the rule is needed to crack down on money laundering, but in reality it’s just the latest front in the war on small businesses. The government can weaponize the private data hoovered up to attack entrepreneurs who step out of line on political issues.

Job Creators Network’s latest national small business poll finds that only one-third of small businesses are aware of this new rule. In other words, entrepreneurs are vulnerable to criminal penalties for a pointless and burdensome regulation they don’t even know about.

Small businesses are fighting back. A group of small businesses sued the government over the CTA and won earlier this year. The district court ruled the law is unconstitutional because it exceeds Congress’ enumerated powers.

Violation of the Fourth Amendment

Job Creators Network recently signed onto an appeals court amicus brief arguing that the CTA violates small business owners’ Fourth Amendment right to privacy. An appeals court victory could strike down this rule for good and free small businesses from its mandates.

Yet a broader solution to Democratic overregulation is required to meaningfully protect small businesses from overzealous regulators. Since taking office in 2021, President Biden has finalized at least 923 federal rules at a cost of more than $1.6 trillion. Contrast Biden’s regulatory record with Trump, who cut eight regulations for every one he implemented.

These rules hit small businesses hardest because they often lack the compliance departments and profit margins needed to interpret and comply with them. These regulatory costs are partly passed on to customers in the form of higher prices. A 2023 Competitive Enterprise Institute report finds the average household pays more than $14,500 annually in a hidden regulatory tax.

There are potential legislative and judicial solutions on the horizon. Congress is currently considering the Prove It Act, bipartisan legislation that requires federal agencies to follow existing law and consider the impact of regulations on small businesses before implementing them.

Protecting the smalls from disparate impacts

The Regulatory Flexibility Act of 1980 requires policymakers to ensure new regulations don’t have a disproportionate impact on small businesses. Yet in practice, this safeguard is treated as a box-checking exercise. For example, the Department of Labor laughably certified its recent independent contractor rule forcing small businesses to convert many contractors to employees as a mandate that doesn’t meaningfully impact small businesses. The Prove It Act would give the RFA the teeth it needs to protect small businesses.

Ultimately, the Supreme Court’s upcoming Loper Bright Enterprises v. Raimondo decision may deal the biggest blow to the regulatory state. This case has the potential to change the court’s Chevron precedent that grants agencies deference to interpret unclear laws through regulations. It can cripple the unelected and unconstitutional fourth branch of government and ensure that major policy questions lie with Congress, not career bureaucrats.

American small businesses urgently need such lasting regulatory relief. Yet that won’t spare them from the CTA, which was passed by Congress. The appeals court, the Treasury Department under a business-friendly administration, or even the next Congress should step up to protect small businesses from this burdensome law instead.

This article was originally published by RealClearMarkets and made available via RealClearWire.