Thursday, May 10, 2012

George Will: The Case for Repealing the Medical Devices Tax

Commentary in the Indianapolis Star:

Taxing jobs out of existence in Indiana, and beyond
...
Bill Cook had no garage, so he launched Cook Medical in a spare bedroom in an apartment in this university town. Half a century ago, he settled here and began making cardiovascular catheters and other medical instruments. One thing led to another, as things do when the government stays out of the way, and although Cook died last year, Cook Medical is the world's largest family-owned medical devices company.

In 2010, however, Congress, ravenous for revenues to fund Obamacare, included in the legislation a 2.3 percent tax on gross revenues -- which generally amounts to about a 15 percent tax on most manufacturers' profits -- from U.S. sales of medical devices beginning in 2013. This will be on top of the 35 percent federal corporate tax, and state and local taxes. The 2.3 percent tax will be a $20 billion blow to an industry that employs more than 400,000, and $20 billion is almost double the industry's annual investment in research and development.

An axiom of scarcity is understood by people not warped by working for the federal government, which can print money when it wearies of borrowing it. The axiom is: A unit spent on this cannot be spent on that. So the 2.3 percent tax, unless repealed, will mean not only fewer jobs but also fewer pain-reducing and life-extending inventions -- stents, implantable defibrillators, etc. -- which have reduced health-care costs.

The tax might, however, be repealed. The medical device industry is widely dispersed across the nation, so numerous members of Congress have constituencies affected by these developments:

Cook Medical is no longer planning to open a U.S. factory a year. Boston Scientific, planning for a more than $100 million charge against earnings in 2013, recently built a $35 million research and development facility in Ireland and is building a $150 million factory in China. Stryker Corp., based in Michigan, blames the tax for 1,000 layoffs. Zimmer, based in Indiana, is laying off 450 and taking a $50 million charge against earnings. Medtronic expects an annual charge against earnings of $175 million.

Already 235 members of the House of Representatives -- 227 Republicans and eight Democrats -- are co-sponsors of a bill to repeal the tax. Twenty-three Republican senators favor repeal. The Democrats who imposed this tax on a single manufacturing sector justified this discrimination by saying Obamacare would be a boon to the medical devices industry because, by expanding insurance coverage, it would stimulate demand for devices. But those insured will be disproportionately young and not needing, say, artificial knees. And well before Obamacare, the law had long required hospitals to provide devices to the needy who are uninsured.

...

http://www.indystar.com/article/20120510/OPINION12/205100314/George-Wil-Taxing-jobs-out-existence-Indiana-beyond?odyssey=mod|newswell|text|IndyStar.com|s