White House threatens to veto repeal of medical device tax

posted at 7:21 pm on June 6, 2012 by Erika Johnsen

It is a truth universally acknowledged that, if you want to discourage a certain behavior, you can put a tax on it. (Note: I am in no way endorsing said policy, just pointing out that when you put a tax on something, you can reliably predict that you’ll get less of it.) So, one would assume that through the oh-so-august auspices of the Patient Protection and Affordable Care Act, which include a forthcoming tax on the medical device industry, President Obama is trying to discourage… uh, medical device innovation? Gee, how nice.

Rep. Erik Paulsen (R-Minnesota) is one of the Congressmen leading the charge in getting rid of this little innovation-discouraging surprise contained within ObamaCare, and he’s got plenty of bipartisan support for the bill up for a vote this week. He and Rep. Jason Altmire (D-Pennsylvania) took to The Hill‘s blog to make their case:

In less than seven months, on January 1, 2013, a new tax on medical device companies (part of the Patient Protection and Affordable Care Act) is set to steamroll American leadership in medical innovation. The 2.3% excise tax will be levied on all types of medical devices, from heart stents and pacemakers to MRIs and ultrasounds. Because the new tax is on revenue, not profit, a small company that is not yet in the black would bear the biggest brunt. This tax will hit medical device companies especially hard in states that are leading the way in medical innovation; states like Pennsylvania, Minnesota, California, New York, and Massachusetts.

After touring many device companies, both large and small, we know that this impending tax may force companies to cut jobs, reduce investment in R&D, move overseas, or even shut down completely. This is the worst possible outcome not only for American jobs and American innovation, but also for the patients who might not have access to a new medical device or a new technology that could save their lives.

The bill has a good chance of making it through the House, but Harry Reid’s office has indicated the Senate will not take up the legislation, and the White House has already issued their veto threat.

White House officials threatened a veto Wednesday of a Republican bill that would repeal a tax on the makers of many medical devices sold in the U.S., in the latest partisan clash over President Barack Obama’s health care overhaul. …

The device industry is getting a potential 30 million additional customers who eventually will gain medical insurance due to the health care overhaul, the White House said in its letter warning of the veto.

“This excise tax is one of several designed so that industries that gain from the coverage expansion will help offset the cost of that expansion,” the White House said.

Industry officials insist they won’t gain extra customers, arguing that elderly people who use many of their products are already insured under Medicare.

For another explanation on why this tax would be so devastating, check out this piece from Forbes today — this tax will not only seriously undermine our ability to compete, but could make health care a lot more expensive for a lot of people, to boot (come on, SCOTUS, do the right thing!).

My colleague Robert Book has written a compelling analysis of Obamacare’s medical-device tax, which concludes that it will destroy about 14,000 and perhaps up to 47,100 jobs. The 2.3 percent excise tax on medical devices is a savage blow to innovation. Note that this tax is on sales, not profits. It cuts into the top line, not the bottom line. If not repealed, this tax will start hitting medical-device makers on January 1, 2013.

Another colleague, Benjamin Zycher, has come at the tax from a different angle: In an analysis that concludes that the tax will lead to a reduction in research and development by about $2 billion every year, Zycher estimates how many patients will suffer early deaths because of the throttling of innovation.


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