Economy / Healthcare / Medical Device Tax / Tax

Scrap the Medical Device Tax

On March 19th-21st, the Subcommittees on Communications and Technology, Health, and Oversight and Investigations under the Energy and Commerce Committee conducted a series of hearings to evaluate the role of technology in healthcare and to examine the potentially harmful federal regulations impacting patient safety and innovation.

Following the hearing series on March 21st, the Senate passed a resolution to repeal the 2.3 percent sales tax on medical-devices by an overwhelming 79-20 votes. Within the seventy-nine yea-votes, there were thirty-four Senate Democrats who joined the Republicans to vote against the ACA’s excise tax on medical devices.

Although this resolution is nonbinding, it is relevant to note that there were signs of bipartisan consensus against a key tax in the ACA. The 2.3 percent tax specifically targets innovation and creativity of American’s medical technologies. Also, it creates potential job losses and threatens small businesses and startup companies in the medical device industry.

Although the ACA does not go into effect until 2014, companies have been paying the 2.3 percent tax since January of 2013. According to a study from the American Action Forum, “it is estimated that the [medical device] industry spent 23 percent of its revenue on wages and compensation and employed over 474,000 employees.” Repealing the tax is necessary in order to preserve the jobs across the medical device industry.

The 2.3 percent tax is an excise tax, which takes a percentage of the manufacturer’s revenue and creates “low profit margins or operate[s] with losses during a given year.” This threatens the survival of small businesses and startups in the medical device industry. They will face greater challenges and difficulties adapting to the tax and will struggle to cope with heavier burdens compared to the already established companies.

There are several studies investigating the effects of the medical-device tax; most of the conclusions are negative in their results. It’s not a surprise that there is a bipartisan agreement to repeal the tax. There are obvious adverse effects to the tax and it would be wise for Congress to repeal the impending medical-device tax. Some argue in favor of the tax because it is predicted to bring in high revenues and helps fund the ACA. However, it is evident that there are devastating effects from the medical-device tax.

Congress and the President should consider a repeal for the best interest of the American people and for the future economy.