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Opinion Pieces

Healthcare reform tax on medical devices is a mistake

As appeared in The Hill's Congress Blog

During a time when our nation’s economy struggles to stabilize and manufacturing jobs continue to diminish there has been one industry within the manufacturing sector that has ascended as a global leader – America’s medical device industry. This industry, described as an American success story, has brought us lifesaving technologies such as pacemakers, CT scanners, artificial joints, defibrillators, and cardiac stents; as well as many jobs here at home.
The medical device industry employs over 400,000 Americans directly and is indirectly accountable for roughly 2 million high-skilled manufacturing jobs. According to a 2012 Battelle Technology Partnership Practice report, over 14,000 people are directly employed in Ohio by the medical technology industry. Further, from a Lewin Group report, for every medical technology job an additional 1.9 positions are created in the state.

While Americans are currently experiencing a decrease in wages, the average annual salary within the medical device industry is 40 percent above the national average, according to the Medical Device Manufacturers Association. In Ohio, the average medical technology employee earns 12.8 percent more than the average employee earnings in the state.
Unfortunately, the future of this growing and innovative industry is confronted with much uncertainty as it prepares for the implementation of the Affordable Care Act (also known as ObamaCare), specifically a 2.3 percent excise tax on the sale of any medical device. A 2.3 percent excise tax will be devastating to the medical device industry, threatening to stifle innovation and the creation of American jobs. Once estimated to be a $20 billion excise tax, but now is estimated to collect over $30 billion in taxes, this ObamaCare pay-for went into effect January 1, 2013.
Combined with a 35 percent corporate tax rate, state and local taxes, and the 2.3 percent tax on its sales, not profits, many medical device manufacturers are faced with a severe tax hike. As a result, companies are looking at a host of options to offset this tax in order to remain competitive and profitable, including increased consumer prices, relocating business to overseas where tax rates are much lower, and layoffs. In a recent Reuters report, publicly traded medical technology companies have cut approximately 7,000 American jobs in 2012, and according to an AdvaMed survey conducted in late December of last year, 62 percent of companies surveyed said they are planning layoffs or reduced hiring to help offset the tax.
Along with the loss of domestic jobs, budgets for research and development have been slashed. A report from the Pacific Research Institute shows that it is estimated that the medical device tax will reduce industry research and development investment by $2 billion annually. Ultimately, medical devices will be produced outside of the United States and our national health care quality hindered.
While we move forward to spur our economic growth, we cannot afford burdensome tax policies, such as the medical device tax that create a hostile business environment and hamper job retention and creation. With a strong manufacturing presence and numerous innovative, world-class hospitals and medical centers, Ohio stands to lose on jobs and economic growth should this tax not be repealed.  In addition to jobs in Ohio, full repeal of this tax will save up to 47,000 jobs nationally, support medical innovation, and provide American families with more choices and flexibility.
Congress must act to repeal the medical device tax before the policy becomes irreversible. In June of last year, a bill of which I am a cosponsor, H.R. 436 sponsored by Rep. Erik Paulsen (R-Minn.), to repeal the medical device tax, passed the U.S. House; however, it was not taken up in the Senate, despite its growing bipartisan support.
There are few industries that have had such positive growth over the past several years as the medical device industry, and in this fragile economy, these jobs are more important than ever. The medical device tax is one of the most onerous taxes contained in the health care law, and must be repealed.
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