Congress has struck a deal to re-open the government and raise the debt ceiling at least temporarily.
Yet for some reason, lawmakers have excluded from the final agreement a policy prescription supported by Democrats and Republicans alike that was part of an earlier version of the deal repeal of Obamacares medical-device tax.
Scrapping this tax should be Congresss next priority. Not only will the levy raise the health costs borne by patients it will also put tens of thousands of Americans out of work.
As of this year, medical-device manufacturers must pay a 2.3-percent tax on their sales. The tax is supposed to raise about $30 billion to help offset the trillion-dollar cost of the presidents health reform law.
The levy will effectively double the total tax bill paid by device firms. And because its assessed on a firms revenues not its profits companies will have to pay regardless of whether they actually make money.
Thats especially bad news for companies in their infancy. It takes $31 million to shepherd a low-risk medical device through the federal Food and Drug Administrations regulatory process and into the marketplace. For higher-risk devices, the cost of approval more than triples.
Add the tax onto those substantial outlays, and startups will have a whole lot more trouble recouping their initial investments.
Startups are the lifeblood of the industry. Some 80 percent of medical-device firms have fewer than 50 employees; 95 percent post revenues of less than $100 million.
Firms are responding to the tax by raising prices for patients. According to a survey conducted by Silicon Valley Bank, nearly one-third of startup firms say that they will try to pass some or all of their new tax burden onto consumers.
Device companies are also putting off plans for growth or worse, actively shrinking. That same Silicon Valley survey found one-quarter of companies will focus on expanding overseas instead of domestically as a result of the tax. Others are planning on reducing their workforce or foregoing new hires and shifting resources away from growing their business.
Thanks to the tax, the industry could see as many as 45,000 job losses nationwide over 10 percent of the sectors current workforce. Fourteen states including California, Florida, Illinois, Massachusetts, Minnesota, New York, New Jersey, Pennsylvania, and Texas could lose more than 1,000 jobs each.
Many of the job cuts could come from firms research divisions.
The United States is at least currently the world leader in medical device technology. According to the federal Commerce Department, the U.S. medical technology sectors value exceeded $110 billion last year and represented about 38 percent of the total worldwide.
But the device tax puts Americas perch at the top in jeopardy.
Given all the collateral damage exacted by the tax, its no wonder that both Republicans and Democrats have come out against it. Some 266 members of the House including 40 Democrats have signed onto legislation that would repeal the device levy. And earlier this year, 79 Senators 34 of whom were Democrats approved a non-binding resolution to scrap it.
Congress should repeal the medical-device tax before it does any more damage.
Congress needs Rx for med-device tax
Sally C. Pipes
Congress has struck a deal to re-open the government and raise the debt ceiling at least temporarily.
Yet for some reason, lawmakers have excluded from the final agreement a policy prescription supported by Democrats and Republicans alike that was part of an earlier version of the deal repeal of Obamacares medical-device tax.
Scrapping this tax should be Congresss next priority. Not only will the levy raise the health costs borne by patients it will also put tens of thousands of Americans out of work.
As of this year, medical-device manufacturers must pay a 2.3-percent tax on their sales. The tax is supposed to raise about $30 billion to help offset the trillion-dollar cost of the presidents health reform law.
The levy will effectively double the total tax bill paid by device firms. And because its assessed on a firms revenues not its profits companies will have to pay regardless of whether they actually make money.
Thats especially bad news for companies in their infancy. It takes $31 million to shepherd a low-risk medical device through the federal Food and Drug Administrations regulatory process and into the marketplace. For higher-risk devices, the cost of approval more than triples.
Add the tax onto those substantial outlays, and startups will have a whole lot more trouble recouping their initial investments.
Startups are the lifeblood of the industry. Some 80 percent of medical-device firms have fewer than 50 employees; 95 percent post revenues of less than $100 million.
Firms are responding to the tax by raising prices for patients. According to a survey conducted by Silicon Valley Bank, nearly one-third of startup firms say that they will try to pass some or all of their new tax burden onto consumers.
Device companies are also putting off plans for growth or worse, actively shrinking. That same Silicon Valley survey found one-quarter of companies will focus on expanding overseas instead of domestically as a result of the tax. Others are planning on reducing their workforce or foregoing new hires and shifting resources away from growing their business.
Thanks to the tax, the industry could see as many as 45,000 job losses nationwide over 10 percent of the sectors current workforce. Fourteen states including California, Florida, Illinois, Massachusetts, Minnesota, New York, New Jersey, Pennsylvania, and Texas could lose more than 1,000 jobs each.
Many of the job cuts could come from firms research divisions.
The United States is at least currently the world leader in medical device technology. According to the federal Commerce Department, the U.S. medical technology sectors value exceeded $110 billion last year and represented about 38 percent of the total worldwide.
But the device tax puts Americas perch at the top in jeopardy.
Given all the collateral damage exacted by the tax, its no wonder that both Republicans and Democrats have come out against it. Some 266 members of the House including 40 Democrats have signed onto legislation that would repeal the device levy. And earlier this year, 79 Senators 34 of whom were Democrats approved a non-binding resolution to scrap it.
Congress should repeal the medical-device tax before it does any more damage.
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.