A proposed excise tax on the medicaldevice industry would result in the loss of 43,000 jobs and further impede medtech innovation, according to a new study released by the Advanced Medical Technology Association (AdvaMed).
The report by the Washington, D.C.-based organization outlined the full effect of the proposed tax on the industry. Study co-author Diana Furchtgott-Roth, senior fellow at the Manhattan Institute in New York, N.Y., and former chief economist of the U.S. Department of Labor, presented the analysis, which was compiled with Harold Furchtgott-Roth, senior fellow at the Hudson Institute in Washington, D.C.
The proposed 2.3 percent medicaldevice excise tax, set to begin in 2013, could cost the industry $2.67 billion in additional annual taxes and cut almost 11 percent of jobs, according to the study commissioned by AdvaMed.
“This is the time we want to encourage job creation in the United States, and adding an excise tax on the medical device sector will have the opposite effect,” Furchtgott-Roth said.
The effect on job creation is of primary concern—not only does the study estimate the loss of 43,000 jobs in the industry because of a lack of money for employment compensation, it also portends that U.S.- based innovation would take a huge hit.
“In terms of the burden of the ability to compete, I think [the tax] will hurt smaller firms the most,” said David Nexon, senior executive vice president of policy. The proposed tax must be paid by companies regardless of their net income; it is unlikely that start-up companies will have the means to pay the tax while researching and developing new products in their formative years.
“We need to look at the stream of jobs that will be created in the future,” Furchtgott-Roth said. “[Various studies] show that most new jobs are created within new firms, within the first five years. These firms might be discouraged from starting up altogether, and we would lose that potential stream of jobs.”
The tax also could discourage smaller firms from starting up in the United States and drive larger companies with vast financial resources to move operations overseas.
“This new tax burden could force companies that would otherwise never leave the United States to make difficult choices based on stark economic reality,” Stephen J. Ubl, president and CEO of AdvaMed, said in a statement.
Furchtgott-Roth pointed out that a trend in moving operations to other countries already has begun due to high taxes and stringent regulatory practices in the United States.
“This is especially important, because the medical device industry is one of the most innovative in the United States and creates well-paying jobs,” Furchtgott-Roth said.
The negative effects on employment could be felt around the country, but especially in Minnesota, Indiana, Massachusetts and Colorado, where a large number of people are employed by the medical device industry, the report noted.