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Don’t Delay the Medical Device Tax

Lobbyists for the medical device industry are waging an intense campaign to repeal health reform’s 2.3-percent tax on the devices (cardiac pacemakers, MRI machines, surgical gloves, and so on), which takes effect in January — but they are modifying their message.

They can no longer contend that manufacturers lack the detailed guidance necessary to implement the tax because the IRS has published the final regulations.  These are similar to the proposed rules published in February.

Now, the industry is trying to delay the tax as a “bridge” to its ultimate goal, which is the tax’s repeal, Stephen Ubl, president of the industry’s largest trade association, said recently.

Repealing the device tax — one of several revenue measures that Congress included in health reform to ensure that it doesn’t add to the deficit — would cost $29 billion over ten years, according to Congress’ Joint Committee on Taxation.  Because of Congress’ pay-as-you-go requirement, policymakers would have to offset this revenue loss with other tax increases or spending cuts.

One likely target is the health reform provisions that expand coverage to 30 million more Americans.  In fact, the Republican-dominated House voted in June to do just that.

Although a one-year delay would cost only $3 billion, that figure is deceptively low.  If Congress enacts a delay this year, the industry almost certainly will ask for another one next year.  Moreover, delaying the device tax would put added pressure on lawmakers to delay or repeal other revenue-raising provisions of health reform, such as the tax on health insurers and the Medicare tax on the unearned income of high-income taxpayers.  Delaying or repealing these provisions would be even more costly.

We have previously explained how the industry lobbying campaign against the medical device tax is based on misinformation and exaggeration.  A number of industry executives and independent analysts agree.

For example, Martin Rothenberg, head of a device manufacturer in upstate New York, calls claims that the tax would cause layoffs and outsourcing “nonsense.”  The tax, he writes, will add little to the price of a new device that his firm is developing.  “If our new device proves effective and we market it effectively, this small increase in cost will have zero effect on sales.  It would surely not lead us to lay off employees or shift to overseas production.”

Michael Boyle, founder of a Massachusetts firm that makes diagnostic equipment, insists that the device tax is “not a job killer.  It would never stop a responsible manager from hiring people when it’s time to grow the business.”