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  • Medical Device Tax Is Latest Proof That Taxes Matter

    The more time passes, the more we get to see in real life the consequences of Obamacare. We warned back when it passed that the 18 tax increases it contained would do serious damage to the economy. Only now that the damage is about to take hold do some in Congress take note.

    The specific tax that has caught the attention of 18 Senators, most of whom voted for Obamacare, is the medical device tax. This tax begins on January 1—along with four other Obamacare taxes—and levies a 2.3 percent excise tax on the sales of manufacturers and importers of medical devices.

    Medical devices include a broad range of instruments commonly used in medical offices—everything from MRI and X-ray machines to syringes and stethoscopes. It also includes products used directly by patients, such as prosthetics. The Senators want a delay in the implementation of the tax.

    The Senators said that they asked for the delay because of uncertainty about how the tax will be implemented. But the IRS recently released detailed regulations about how it will implement that tax, clearing up much of the lingering uncertainty. The more likely reason for their concern is that these Senators are worried about the job losses that will mount once the tax goes into effect in a few weeks.

    Depending on how these businesses pass the tax on, it could result in higher prices for their customers (e.g. patients), lower returns to their shareholders, or fewer jobs for their workers. As we explained earlier, evidence is mounting that it is their workers that will bear the brunt of the tax:

    Layoffs of thousands of workers have already occurred at some manufacturers that have anticipated the tax’s impact on their businesses.

    For instance, Stryker Corporation of Kalamazoo, Michigan, announced it will lay off about 1,000 workers—about 5 percent of its workforce—because of the tax. Many of those job losses will occur in the company’s research and development department. This will stifle the company’s ability to innovate to create new products or improve existing products.

    More job losses could follow as more medical device manufacturers and importers realize the impact that the tax will have on them. The jobs already lost will remain lost unless Congress repeals the tax.

    The fallout from the medical device tax may surprise these Senators, but it shouldn’t. After all, for the most part they support raising taxes on carbon, cigarettes, and gas, for instance, to dissuade their use. Raising taxes on medical devices was bound to have some adverse consequence which they should have known if they truly believe taxes can be used to alter behavior.

    These Senators should apply what they have just realized about the medical device tax to the other taxes about to hit with the fiscal cliff. In that debate, the argument for raising tax rates on “the rich” (which President Obama defines as a family making more than $250,000 a year) is that raising their rates will not impact jobs.

    The argument goes that higher rates on these taxpayers, who just so happen to be mostly small businesses and investors, won’t reduce their incentives to invest, which would spur growth and create jobs. Warren Buffet is the chief distributor of this fallacy. This is nonsense. Of course raising tax rates reduces economic growth and costs jobs.

    The18 Senators that want the medical device tax delayed to put off its negative impact on jobs should also reconsider their support for President Obama’s other tax rate increases that will have a much greater negative impact on jobs. Doing so would at least be intellectually consistent.

    Posted in Featured, Obamacare [slideshow_deploy]

    8 Responses to Medical Device Tax Is Latest Proof That Taxes Matter

    1. John East says:

      This is just another example of the problems that lie ahead of the american people unless we the people real this government back in.What country has ever TAXED its self back to prosperity?

    2. John Barnes says:

      It should be no suprise that 18 Senaters, mostly Democratic, are now awake to the impact the 2.3 % will have on the medical industry and jobs. After all, we needed tp pass the bill to find out what was in it!

    3. O_Henry says:

      Just another way to tax us to prosperity…

    4. adam says:

      The tax is applied to the top line, which will force producers of low margin products to consolidate In the end, there will be only one or two competitors in many sectors Result: much higher prices and far less employment.

      American manufacturers will attempt to shift sales, marketing, and development efforts abroad, as the tax is not applied to US exports. However, since imports into this country are taxed, expect other countries to retaliate.

      This could be one of the most devastating taxes in American history. In the end, it will cost taxpayers far more than is ever taken in, just as it levels one of this country's most vibrant industries.

    5. Mike, Wichita Falls says:

      "these Senators are worried about the job losses that will mount once the tax goes into effect in a few weeks"

      I don't know why they are so worried; Obama won re-election after creating and presiding over a miserable economy that shed millions of jobs. All they have to do is blame Bush, his tax cuts, his wars, etc. Their voters will believe it.

    6. Don says:

      Taxes, taxes, everywhere and nobody wants to pay them. Just who does the Administration and Congress think they are kidding?. This medical equipment tax, just like the corporate tax, is passed along to the consumers, as "a cost of doing business"., which in turn causes our health insurance premiums to increase. I had open heart surgery about 12 years ago, and the bill was about $50,000 dollars and my insurance paid for all of it except the room TV charge. Now that surgery, is far less invasive but costs at least double. and I see were regular room rates are 4 time that of my old rate and daily intensive care is in the thousands. I think it is about time, congress looked at all of this and started a P/L analysis.

    7. Frustrated says:

      Small example of who this tax affects: I work in sales for a major med company affected by this new tax. I'm the sole household provider for wife and 3 kids and we couldn't be more middle class (earn less than 100k). As reps, we all (130 in my small division) learned yesterday, that as a result of this new tax, our travel reimbursement (car allowance, mileage, maintenance) is being cut $300/month. Coincidentally, I planned to finally upgrade my 10 year old car yesterday to something half as old. Embarrassed, I had to call both the buyer of my vehicle, and the seller of my future car, and tell them I could no longer afford to move forward with either transaction. They too were very frustrated. I'm one measly middle class earner who just stifled most likely four auto transactions. Instead, no sales tax revenue, no eventual dealership job creation/retention, and the 3 of us left in a spot we respectively wanted to get out of. So by "sticking it to the fat pocket medical companies", at least 3 middle class earners are frustrated today because my pay just got wacked. How many times over is this happening right now across the country? Hope Obamacare is worth it.

    8. Pingback: Microbiology News Medical Device Tax Cause Uncertainty To Some Senate Members » Microbiology News

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