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Medical Device Tax Is Latest Proof That Taxes Matter

Posted By Curtis Dubay On December 18, 2012 @ 4:45 pm In Featured,Obamacare | Comments Disabled

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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 [2] 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 [3], most of whom voted for Obamacare, is the medical device tax. This tax begins on January 1—along with four other Obamacare taxes [4]—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 [5] 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 [4], 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 [6] 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 [7]—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 [8]. This is nonsense. Of course raising tax rates reduces economic growth [9] 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.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2012/12/18/medical-device-tax-is-latest-proof-that-taxes-matter/

URLs in this post:

[1] Image: http://blog.heritage.org/wp-content/uploads/hospital-computer.jpg

[2] 18 tax increases it contained: http://www.heritage.org/research/reports/2010/04/obamacare-impact-on-taxpayers

[3] 18 Senators: http://online.wsj.com/public/resources/documents/MedDeviceLetter12102012.pdf

[4] four other Obamacare taxes: http://www.heritage.org/research/reports/2012/06/delaying-obamacare-tax-increases-key-part-of-stopping-taxmageddon

[5] IRS recently released detailed regulations: http://www.healthreformgps.org/wp-content/uploads/DeviceTaxDec2012.pdf

[6] Layoffs of thousands of workers have already occurred at some manufacturers: http://www.washingtonpost.com/national/health-science/medical-device-tax-repeal-bill-gains-some-ground/2012/05/30/gJQAH3Zv2U_story.html

[7] lay off about 1,000 workers: http://www.mlive.com/business/west-michigan/index.ssf/2011/11/stryker_corp_layoff_plans_stri.html

[8] Warren Buffet is the chief distributor of this fallacy: http://blog.heritage.org../../../../../2012/11/26/warren-buffett-wrong-again-on-tax-increases/

[9] Of course raising tax rates reduces economic growth: http://blog.heritage.org../../../../../2012/04/25/of-course-higher-taxes-slow-growth-a-response-to-diamond-and-saez/

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