When industry trade groups and companies talk about public policy, they often engage in special pleading, asking for special tax breaks or regulatory preferences. But sometimes their claims do in fact serve the public interest–especially when they call attention to unusual taxes or onerous regulations. Such is the case with the medical hardware industry and its beef against a tax levied on it as part of ObamaCare.
First, some background. In an attempt to make Affordable Care Act (ObamaCare) “fiscally responsible,” Congress enacted a number of measures to increase federal revenue. One was an excise tax on medical hardware, such as pacemakers.
Medical hardware just happens to be a Minnesota specialty, so the Affordable Care Act has a extra impact on the state. It so happens that in this case, industry concerns line up with the concerns of a free-market advocate.
Taxes are needed to fund necessary and proper government functions. But the hardware tax is bad for at least three reasons. First, it was meant to support an unwise law. Second, it’s a special rather than a general tax, which makes it suspect. Finally–and to make a parochial point–some of its harm lands squarely here in Minnesota and nowhere else.
How much harm? A new report claims that (to quote an article from the Star-Tribune), “the device tax could cost more than 43,000 job losses nationally, including 2,767 in Minnesota, home to one of the country’s most robust medical-technology sectors.” The report estimates that in 2009, all forms of medical device manufacturing employed 24,825 people in Minnesota. That’s more than tech-rich Massachusetts (23,960), though a distant second to much-larger California (76,834).
Shaye Mandle, a vice president with the Minnesota-based trade group LifeScience Alley, said, “Hopefully, this will create more energy around the repeal of the tax before it takes effect.”
Mandle added, “We are more dependent on medical technology than any other state.” All the more reason for Minnesotans to be concerned about the over-reaching health care law.
The report itself has a rather dull name: “Employment Effects of the New Excise Tax on the Medical Device Industry.” Don’t let that scare you away; it’s readable, and you can find it at the website of the Advanced Medical Technology Association (another trade group), in PDF. The authors are two economists well known in policy circles, Diana Furchtgott-Roth and Harold Furchtgott-Roth.
Here are two other points from the report:
- The new tax will “raise the average effective corporate income tax rate [of the affected companies] to one the highest effective tax rates faced by any industry in the world.” This will be especially hard for start-up firms, which often have little income.
- “The Joint Tax Committee estimates that the tax will raise $20 billion in revenues over the period 2013-2019, a cost to device companies and the American consumer. The economic impact of the tax on wages and output will be significantly higher.”
The report also notes that medical hardware is one of the few bright spots of manufacturing in America. I’m not in favor of special favors for manufacturing, but singling out one of the country’s–and Minnesota’s–stronger segment in manufacturing makes me … sick.