Tax Reform Proposal in the House Includes Medical Device Tax Repeal Language

Dave Camp (R-Mich.), chairman of the U.S. House of Representatives Ways & Means Committee, is renewing hope for medical device tax repeal. This glimmer of industry hope comes in the form of a tax reform proposal the congressman introduced on Feb. 26. It is one of the only items in the Affordable Care Act that the proposal addresses.
 
Under current law, the manufacturer, producer, or importer of any taxable medical device must pay an excise tax equal to 2.3 percent of the sales price of such device. The excise tax does not apply to eyeglasses, contact lenses, hearing aids, and any other medical device purchased by the general public at retail for individual use.
 
Under Camp’s proposal, the medical device excise tax would be repealed, and would take effect after the date of enactment. There was no discussion of a way to replace the revenue lost through repeal with another source of funding, which has been a sticking point for some lawmakers (mostly Democratic supporters) regarding the tax’s removal
 
According to the congressional Joint Committee on Taxation (JCT), the provision would reduce government revenues by $29.5 billion between now and 2023.

The kicker is, however, that tax reform is doubtful this year, with mid-term elections in November.

“This legislation does not reflect ideas solely advanced by Democrats or ideas solely advanced by Republicans, nor is it limited to the halls of Congress,” said Camp. “Instead, this is a comprehensive plan that reflects input and ideas championed by Congress, the Administration and, most importantly, the American people. In other words, it recognizes that everyone is a part of this effort and can benefit when we have a code that is simpler and fairer.  I am hopeful that lawmakers on both sides of the aisle—and partners at both ends of Pennsylvania Avenue—take a close look at this plan and share their thoughts and ideas, and those of their constituents. The bottom line: just saying ‘no’ is not a solution.  Washington must make real progress on the critical issues of the day, the most important of which is strengthening the economy. We can, and need, to work together to craft a plan that fixes our broken code and strengthens the economy so there are more jobs and bigger paychecks for hardworking taxpayers.”

House Speaker John Boehner called the plan “the beginning of [a] conversation.”

The Advanced Medical Technology Association (AdvaMed) was quick to support Camp’s medical device industry olive branch.

“We commend Chairman Camp for this blueprint and for continuing to advance comprehensive tax reform. We are very pleased Rep. Camp has included repeal of the medical device tax in his priorities for comprehensive tax reform,” said Steve Ubl, president and CEO of AdvaMed in a statement. “This $30 billion tax is a drag on job creation, economic growth and medical progress and repealing this onerous tax enjoys broad bipartisan, bicameral support. AdvaMed supports comprehensive tax reform and we are carefully reviewing the proposal for other important tax elements that could have significant impact on the future of R&D and small company capital formation.”

AdvaMed recently published a study on the impact of the device tax.
 
Highlights of the plan not related to medical devices, include:
 
New individual and corporate rate structures would be implemented. The proposal Flattens the code by reducing rates and collapsing today’s brackets into two brackets of 10 and 25 percent for virtually all taxable income, ensuring that over 99 percent of all taxpayers face maximum rates of 25 percent or less.  The plan also reduces the corporate rate to 25 percent. 

Currently there are seven individual income tax rates ranging from 10 to 39.6 percent. Camp would reduce them to three: 10, 25 and 35 percent. The highest bracket would apply to the income that today is subject to the 39.6 percent bracket, which is income over $400,000 for singles and $450,000 for married couples filing jointly.

But many tax breaks, such as the one workers get for employer contributions to their health coverage, would only be allowed against income up to the 25 percent bracket. So their total value would be reduced or even eliminated for very high-income filers.
Income from some types of domestic manufacturing would only be taxed at 25 percent.

The proposal also would raise the standard deduction to $11,000 for individuals and $22,000 for couples. The net result would be fewer taxpayers who itemize their deductions, thereby simplifying the tax filing experience. As a result, the vast majority of filers would only have to file a basic IRS 1040A form, according to Camp.

But the standard deduction is one of those deductions that would start to phase out for high-income filers.
The per-child tax credit would be increased to $1,500 from $1,000 and would be allowed for kids up to the age of 18, versus 17 today. But, again, the credit would phase out for very high-income filers.

The mortgage interest deduction currently is allowed on mortgages up to $1 million. Under Camp’s proposal the cap would be lowered to $500,000. The plan would also place new restrictions on the tax-free gains homeowners enjoy when they sell their home.
Taxpayers are allowed today to deduct their state and local income taxes on their federal return. That would no longer be allowed under the proposal.

Camp said nonpartisan economists at the JCT had estimated that streamlining the tax code would increase the size of the economy by $3.4 trillion over the next decade.

“This will lead to nearly two million new jobs—and producing up to $700 billion in additional federal revenues,” he wrote in an op-ed published online by The Wall Street Journal.

He went on to predict that families at the median income level—$51,000 for a family of four—would “have on average an extra $1,300 in their pocket at the end of the year.”