- The Washington Times - Saturday, August 18, 2001

How EPA alienated America's small businesses

Jack Kemp's July 13 Commentary column, "Breaking the regulatory choke-hold," hit the nail squarely on the head: Federal regulations are literally smothering our economic growth. Probably the worst offender of regulatory overkill is the U.S. Environmental Protection Agency (EPA). There probably are more than 6,000 EPA regulations, standards and/or other requirements imposed upon industries; businesses; state, county and other local governments; and nonprofit entities. Worse yet, the EPA's regulatory pipeline is full of new regulations and requirements that spew out at the rate of 200 or more per year. Compliance with these requirements costs money lots of money affecting income, profits, jobs and growth. Many small businesses don't survive because of these costs.

EPA Administrator Christine Todd Whitman recently initiated a review of the agency's regulatory process in order to improve regulations and strengthen the quality of science and economics that support them. Both the science and economic factors imbedded in existing regulations have been suspect. Unfortunately, Mrs. Whitman's review, now completed, will be suspect, too, as it was carried out essentially by EPA personnel who were responsible for the previous questionable products.

Former Administrator Carol M. Browner's regulators (Brownercrats) are still alive and well and operating the machinery in EPA. Their review found that the agency's "regulatory process" was basically sound, needing only a little tinkering around the edges nothing major. What else could one expect? After all, they were not about to point fingers at themselves. The command-and-control mind-set still dominates operations at EPA and will continue.

The Brownercrats made no mention of the EPA's Small Business Ombudsman's Office, which in years past (before Mrs. Browner), served as an effective advocate for small businesses in the development of regulations and assisted such businesses in complying. The office had tremendous support from all the major national trade associations that represent the small-business community. Regretfully, during the past eight years, the Brownercrats intentionally buried the Small Business Ombudsman's Office in bureaucracy so that its voice cannot be heard at appropriate levels, by the Congress or the concerned public. In fact, the Brownercrats overlaid the office with a "regulatory type" when they appointed a small-business advocate to comply with the Small Business Regulatory Enforcement Fairness Act. They put the fox squarely in the middle of the chicken coop, so to speak.

To date, Mrs. Whitman has been a disappointment to the regulated business community, especially small businesses and small entities. Look-back reviews need to be made of past regulations to determine their effectiveness and impact. In taking future regulatory actions, secondary and tertiary impacts must be considered, as well as a possible domino effect. EPA must question whether less costly operational alternatives really have been explored and considered fairly. Finally, it must ask if the costs of encouraging voluntary compliance through outreach and assistance vs. heavy-handed enforcement and litigation have been considered and compared. These are the types of questions the Small Business Ombudsman's Office raises and the kind of recommendations it suggests in the development of a regulation or, at least, used to raise before the Browner era.

EPA's Small Business Ombudsman's Office needs to be relocated back directly under the administrator to restore the confidence and cooperation of the nation's vital small-business community.


JOHN M. ROPES

Mason City, Iowa


John M. Ropes is former director of EPA's Small Business Office, a charter member of the Senior Executive Service and recipient of the agency's distinguished career award.

Reconsidering capital gains

Commentary columnist Bruce Bartlett makes a persuasive case to stop taxing capital gains, but he only tells one side of the story his side ("Cutting edge for capital gains?" Aug. 15).

He gives an interesting history, but he is wrong when he says most gains only represent inflation or the present value of corporate profits that already are taxed twice.

Corporate profits are only taxed once. The double tax only occurs if the corporation pays out a dividend, which chief executive officers today try not to do. Their bonuses depend on raising the price of the stock, not on paying dividends. Most stockholders don't want dividends that would be taxable as income. They want capital gains, which get taxed at a lower rate or not at all, if Mr. Bartlett were to have his way. If the tax differential between income and capital gains is big enough, it even produces a fertile field for lawyers and accountants to come up with fee-producing schemes to "shield" their clients' income by shifting it into capital gains.

Corporations have become super-IRAs for their shareholders, who receive little or no income (dividends) until they sell. Then, unlike the situation with individual retirement accounts, whose distributions are fully taxable, the selling shareholder pays a lower capital-gains tax on the profit when the sale is made. No wonder CEOs get paid in stock options instead of cash. No wonder corporations merge, acquire, borrow, issue junk bonds and use precious cash to buy back their own company's stock anything goes if it will raise the price of the stock.

Tax cutters should put first things first: They must either eliminate the corporate profits tax or eliminate the personal income tax on corporate dividends. Then and only then can they claim that capital gains are not income.

If that were to happen, we would have a very different corporate America, in which CEOs once again would be rewarded for their ability to produce real earnings and pay out real cash dividends rather than their ability to puff up their short-term quarterly income statements.


GORDON O.F. JOHNSON

Alexandria


Gordon O.F. Johnson is the former chief executive officer of LogEtronics Inc. and an adjunct scholar for the Acton Institute for the Study of Religion and Liberty.


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