A tax even Chuck Schumer hates – Pacific Research Institute

A tax even Chuck Schumer hates

Among the five new ObamaCare tax hikes that kicked in Jan. 1, one in particular is attracting opposition from both Republicans and Democrats: the tax on medical devices.

Last month, 18 Democratic senators and senators-elect (including New York’s own Sens. Charles Schumer and Kirsten Gillibrand) wrote Majority Leader Harry Reid, asking him to delay implementation of this 2.3 percent excise tax on the sales of everything from pacemakers to tongue depressors. The House already voted to repeal the tax, which is projected to extract as much as $29 billion from medical-device firms.

There’s a reason that lawmakers from both parties are looking to scrap the tax: It will cost many Americans their jobs, stifle innovation and lower job-creation in the sector.

Indeed, it puts a stranglehold on one of the few industries in America that is actually thriving and creating jobs. As those 18 senators pointed out in their letter, “The medical-technology industry directly employs over 400,000 people in the United States and is responsible for a total of 2 million high-skilled manufacturing jobs.”

By burdening an industry that has proven an engine of job growth, the excise tax could cost the American economy up to 43,000 jobs.

* Minneapolis-based Medtronic anticipates laying off around 1,000 workers — and a loss of $175 million in 2013.

* Michigan-based Stryker plans to eliminate 1,170 jobs. More than 100 of those cuts will come at the company’s Orchard Park and West Seneca facilities in western New York.

* At Welch Allyn — a medical diagnostics manufacturer headquartered in Skaneateles, NY — 275 jobs will be casualties.

The tax will also put a damper on medical innovation. Most new medical devices are invented by small, venture-backed companies that invest heavily in research and development — and so run losses for years before getting their device approved by federal regulators and ultimately turning a profit.

If they come up with a promising prototype, their financial futures are still not secure. Bringing a new, low-risk medical device from concept to market can cost around $31 million — $24 million for activities related to gaining regulatory approval.

Yet the tax applies to gross sales of applicable devices, regardless of a company’s profitability or ability to pay. So companies with weak balance sheets (innovative small firms among them) may face bankruptcy.

The tax will also precipitate a slowdown in a manufacturing sector where America still leads the world. The medical-technology industry exports $5.4 billion more than it imports. And in 2008, the United States accounted for 40 percent of the world’s medical-technology market.

Congress has long known about the tax’s ugly impact on the economy — and on patients. In 2010, Richard Foster, the chief actuary at the Centers for Medicare and Medicaid Services, wrote that the device tax “would generally be passed through to health consumers in the form of higher drug and device prices and higher insurance premiums.” He predicted that annual health-care spending would increase $18.2 billion by 2018 thanks to the tax and other similar fees in ObamaCare.

None of this — not even the pleadings of his own party — has moved President Obama to reconsider the device tax. He explained in a recent interview, “The health care bill is going to provide those medical device companies 30 million new customers . . . so this additional tax essentially comes back to them as new customers.”

Problem is, most of the new customers who gain coverage through ObamaCare will be young, healthy Americans — hardly the device industry’s core customers.

History shows that an influx of newly insured individuals doesn’t necessarily lead to more revenue for medical-device firms. Massachusetts saw no greater growth in the sale of medical technology (compared to other states) after it implemented its own version of ObamaCare in 2006.

With 45 Republicans opposed to all ObamaCare, those 18 Democrats mean that nearly two-thirds of the Senate wants to kill the tax — and it’s rare indeed that two-thirds of the Senate agrees on anything.

The president should heed the Senate — and scrap this job-killing tax.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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