Paulsen and Gerlach: Medical Device Tax Hinders Innovation

Posted October 2, 2011 at 8:47am

At a time when our greatest priority needs to be creating jobs for our unemployed citizens, the government is on the verge of implementing a new medical device excise tax that will eliminate more than 40,000 well-paying jobs and imperil America’s global competitiveness in one of our leading industrial and technological sectors.

When asked earlier this year in a House committee hearing about the new tax on medical devices that will take effect in 2013, the secretary of Health and Human Services called the $20 billion tax “modest” and said, essentially, that it was so inconsequential that it would barely be noticed.

Now, we have verification of the damage this measure will do. A new study by two noted economists — one who was a former chief economist of the Labor Department and the other who was previously the chief economist of the House Energy and Commerce Committee — has found that, under reasonable assumptions, the medical device excise tax will result in 43,000 lost jobs and $3.5 billion in vanished wages and benefits. That’s a tremendous blow to a reeling economy.

This may be the most anti-innovation piece of legislation to come along in some time. The tax hits well-established companies and startup businesses that are suffering losses in their initial years while they invest heavily in the research and development of their first innovation for patients.

Thanks to this tax, companies could be forced to close factories in this country and look overseas where foreign governments are extremely eager to jump-start their high-tech sectors.

In worst-case scenarios, those potentially lifesaving and life-changing medical devices might never find their way to hospital beds and operating rooms.

The new device tax hits Americans in two extremely painful ways.

First, it increases the number of unemployed citizens and transforms a vibrant job-creating economic sector into one that has fewer resources to put people in this country to work.

But it also raises the cost of a wide range of technologies — from cardiac stents to artificial knees and hips — which means there are going to be American men and women who will be deprived of the innovations that can transform their lives.

It’s tragic that at a time when we have the manufacturing and intellectual capability to make America healthier, an ill-conceived tax is pulling us in the opposite direction.

That is why we have introduced legislation to repeal the 2.3 percent excise tax on medical equipment and devices that was created as part of the Affordable Care Act.

When the concept of this tax was first brought to light, common sense told us it was a bad idea. At a time when we need to generate more jobs, make health care more affordable and boost the nation’s leadership in technological innovation, this burdensome tax would undermine each of those goals.

This innovation tax will essentially double the tax bill of many U.S. medical device companies while also reducing demand for health care technology because of increased costs, leaving the companies with no choice but to lay off workers.

President Barack Obama has said repeatedly that our goal must be to “win the future.” No one can argue with that sentiment. But nothing defines the future more compellingly than a medical technology sector that is creating jobs, improving lives and developing exciting new innovations to confront and conquer disease and disability.

If Congress and the administration truly want to win the future, an essential first step is to support our effort to repeal this destructive and counterproductive medical device tax.

Rep. Erik Paulsen (R-Minn.) is co-chairman of the House Medical Technology Caucus, of which Rep. Jim Gerlach (R-Pa.) is a member.