The job-killing medical device tax

For The Hill, Pete Kasperowicz reports:

A bipartisan group of 180 House members — consisting of about 40 percent of the House — has reintroduced a bill to end the 2.3 percent tax on medical devices that was imposed under the 2010 healthcare law known as Obamacare.

That tax took effect at the start of 2013, and is expected to raise a few billion dollars a year in tax receipts for the government, and $30 billion over ten years. But opponents of the tax say it will hinder innovation and job creation in the medical device industry.

“Placing a new tax on the backs of U.S. medical innovators and entrepreneurs who employ more than 400,000 Americans is not a prescription for economic growth or job creation,” said Rep. Erik Paulsen (R-Minn.), who sponsored the bill. “In fact, companies have already laid off thousands of employees as a result of this onerous new tax, and more jobs will be lost now that this tax is in effect.

“It’s not only costing our country jobs and deterring innovation, but more importantly, it will reduce patient access to cutting edge medical products and treatments that save lives.”

Here are some things to consider:

  1. One can always make the argument, about any sector, that the level of taxation or subsidization — no matter what that level is — is harming jobs and innovation in that sector. More money in the sector means, in general, more activity in that sector, more stuff, more jobs. It also, means less elsewhere.
  2. One can ponder what the “right” level of taxation is for the medical device industry. Given point 1, it’s not self-evident zero is right.
  3. One can be confident that the medical device industry, like just about every other, is lobbying hard for tax relief.
  4. One can be confident that the medical device industry will benefit tremendously from the large increase in the number of insured individuals to begin in 2014.
  5. One can speculate that there might be economies of scale in the medical device industry. If so, it stands to do very well come 2014. The government may have handed it a huge gift. (“You didn’t build that.”) I haven’t seen any unbiased running of the numbers, but maybe a 2.3% tax is a bargain.
  6. It may be that the medical device industry won’t ultimately pay the full tax any more than private insurers will pay the full Cadillac tax. Some might trickle down to premiums or offsets in quality. (Quality offsets aren’t necessarily bad. It is possible for products to be of too high quality, for technology to be too advanced. This is actually a problem in health care in general, and perhaps in the medical device sector in particular.)
  7. There are probably medical devices that most of us would agree should be taxed more. They’re overused or don’t provide much benefit. A flat, 2.3% tax is a crude way to address this issue. One would prefer to target some of the overused/low benefit stuff. But that would be picking winners and losers. Imagine the political fight. It’s impossible, but that doesn’t mean it’s wrong.

I don’t really have a strong conclusion to make here. I just think there’s a lot more that needs to be brought into the discussion than we’ll ever hear from members of the House.


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