NCPA - National Center for Policy Analysis

ObamaCare's Tax Raid on Medical Devices

October 2, 2012

The industry responsible for pacemakers, chemotherapy systems and defibrillators is now facing a heavy tax that could cripple its ability to provide life-sustaining products. The Affordable Care Act's tax on medical devices will ruin an industry that is productive and drives the economy, says Evan Bayh, a former governor and U.S. senator from Indiana.

  • More than 400,000 employees are employed in the medical device industry, not to mention another 2 million for those involved in supply and distribution.
  • Average compensation is $58,188 in this industry.
  • In contrast, the national average for all employment is $41,673.
  • The U.S. device industry earned $5.4 billion more in exports than on imports of such devices.

The average American derives immense benefits from a thriving medical device industry. Much advancement has been made in areas such as: artificial hips and knees, devices for cancer treatment, vascular surgery, and more. However, all that is threatened by the Affordable Care Act that was recently upheld by the Supreme Court.

  • There will now be a 2.3 percent tax on medical device sales.
  • This equals a 15 percent tax on profits.
  • Add this to a 35 percent corporate tax and state corporate taxes, the industry will have a tax rate that exceeds 50 percent.
  • The result of this is being felt already -- for example, Cook Medical in Indiana has cancelled plans to build new facilities annually.
  • Device maker Zimmer plans to lay off 450 workers while another device maker, Stryker, is anticipating a layoff of 1,000 workers.
  • Compounding the job loss is the fact that production is moving overseas to Europe and Asia, permanently taking U.S. jobs away.

The tax was imposed under the theory that the addition of newly insured patients would cause an increase in medical devices being sold. However, that calculation ignores that medical device consumers are already covered by Medicare, Medicaid and private insurers. According to the Congressional Budget Office, there will be no increase in sales to offset the added $30 billion cost.

The tax increase will come at the expense of research and development or operations of many medical device companies. As a result, the industry will lose innovative vigor that gave it a competitive edge in the international arena.

Source: Evan Bayh, "Evan Bayh: ObamaCare's Tax Raid on Medical Devices," Wall Street Journal, September 27, 2012.


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