tax on medical devices and equipment that was part of the Affordable Care Act was always a bad idea, as it presents a threat to an innovative industry that supports more than 2 million jobs across the country, including about 12,400 in Ohio.
A new government report adds sloppy implementation and poor oversight of the tax by the Internal Revenue Service to the list of ill effects. Efforts for a full repeal should be renewed.
The medical-device tax was one of many new taxes tucked into the health-care law’s 2,400 pages. Months ahead of the tax taking effect in January 2013, companies began laying off workers in anticipation, and investors were reported to be redirecting their money elsewhere. To date, according to the Washington, D.C.-based Advanced Medical Technology Association, more than 30,000 industry jobs have been axed as a result of the law.
In a survey by trade group AdvaMed, 30 percent of device firms said they cut their 2013 budgets for research and development as a result of the tax; an even greater percentage said they will cut their budgets in the future if the tax remains in place. At least one longstanding U.S. medical-device firm, Minnesota-based Medtronic, has announced plans to move its official headquarters to Ireland in a “corporate inversion” deal, which is expected to lower the taxes of the world’s largest standalone medical-devices firm by hundreds of millions of dollars.
Most medical-device firms, though, are fairly small. The 2.3 percent tax is on all revenue, not just profits; since 80 percent of such firms have fewer than 50 employees and many are startups that don’t turn an immediate profit, the tax represents a heavy burden.
A report issued in August by the Treasury Inspector General for Tax Administration found that the revenue generated last year, $913.4 million, by the tax was about 25 percent lower than projections. In addition, the Inspector General said the IRS cannot even identify all the companies who should be subject to the tax, while hundreds of other companies were incorrectly assessed a combined total of more than $700,000 in penalties they didn’t actually owe.
Combined with the added work hours and paperwork associated with this tax — which generates revenue that’s a drop in the bucket compared to the billions spent on the federal and state health-insurance exchanges to date — there appears to be no good argument for keeping it.
There is bipartisan support for repealing the tax, but, like many other initiatives, it has been hampered by a lack of cooperation between the House and Senate, and by congressional leaders focusing instead on partisan point-scoring. A bill to repeal it already has passed the House. In the Senate, Sen. Rob Portman, R-Ohio, has been a supporter of repeal, along with the majority of other Senate members, including many Democrats.
Bipartisan support for a measure appears rare these days; action is even rarer. This is a case where lawmakers should consider the very clear negative impact of this tax, and come together to save jobs and help the economy by repealing it.
