President Against Device Tax Delay

President-elect Barack Obama disappointed many in an interview on Dec. 12 with Minnesota’s WCCO-TV, a CBS affiliate, when he said he would not be willing to see the medical device tax delayed. In light of the recent letter spearheaded by Sens. Amy Klobuchar (D-Minn.) and Kay Hagan (D-N.C.) urging tax delay, interviewer Frank Vascellaro asked the president whether he’d be willing to budge on an issue that would, in particular, have “a huge impact on Minnesota companies.”

“No,” the president said. “And here’s why: The healthcare bill is going to provide those healthcare companies 30 million new customers. It’s going to be great for business and they’re doing really well right now and they’re going to get 30 million more customers as a consequence, so this additional tax essentially comes back to them as new customers.”

The medtech industry has addressed this point before—that pointing to an increase in business as a result of better healthcare coverage is a red herring. The argument is that it is older populations that use more medical devices, and these populations are already covered under Medicare. Opponents to the tax also argue that any positive impact from the tax will be countered by companies moving business overseas and laying off employees.

“It’s not just medical device folks, hospitals are doing a little bit more because they know now they’re not going to have uncompensated care in emergency rooms, everybody’s going to have some kind of insurance,” continued President Obama. “Doctors, same kind of thing. So this is not unique to the medical device industry. The idea is that when you have 30 million more people coming in, you’re going to make money, you can do a little more to help facilitate and make sure people are getting the health care they need.”

At a recent hearing before the U.S. Internal Revenue Service (IRS), U.S. Rep. Erik Paulsen (R-Minn.) pointed out that Form 637, the application for registration dealing with excise taxes, included taxes on gas guzzlers, tobacco and alcohol, illustrating that the “public policy rationale in the past for excise taxes has historically been to deter certain activities.” Paulsen went on to say, “The last thing we want to do is deter creation or innovation.” It’s clear that excise taxes are traditionally seen as a way to deter consumable items that have a negative impact on public wellbeing—so indeed, as the president said, excise taxes are not unique to the medical device industry; but it is unique to impose such a tax on an industry that does not have a known negative impact in any way.

Threats of downsizing are not empty: Companies including Zimmer, Stryker and St. Jude Medical have completed rounds of layoffs already. St. Jude maintains the layoffs were not in connection to the tax but Zimmer and Stryker executives are forthcoming about their layoffs being in anticipation of the added expenses the excise tax will bring. However, skeptics have pointed out that corporations proceed with layoffs and moving production overseas all the time in order to increase profits, and the tax may just be a convenient scapegoat.

Photo: Frank Vascellaro and President Barack Obama, courtesy of the White House.