Industry economists: Healthcare reform tax will kill medical device jobs

The day before President Barack Obama presented Congress with a new plan to tackle high unemployment, two noted economists forecasted a loss of 43,000 American jobs in the medical device industry. The culprit, they explained in a report released Sept. 7, will be the President’s healthcare reform law.

The 30-page report zeroes in on a provision in the gradually unfolding law that, as of 2013, will impose a 2.3 percent excise tax on medical devices. This tax, the authors wrote, will double the tax burden on device manufacturers and “raise the average effective corporate income tax rate to one of the highest effective tax rates faced by any industry in the world.” The effect, they predict, will be to force manufacturers to close some facilities and move others overseas, costing local economies in this country close to $3.5 billion.

The report was prepared by Diana Furchtgott-Roth, former chief economist with the U.S. Department of Labor and now a senior fellow with the Manhattan Institute, and Harold Furchtgott-Roth, who served as commissioner of the Federal Communications Commission and chief economist for the House commerce committee before founding an economic consulting firm. They were commissioned the work by the Advanced Medical Technology Association (AdvaMed), a trade group and lobbying organization.

Stated in the report:

• In 2009, the medical device industry provided well-paying jobs to more than 409,000 employees, who earned more than $33 billion in labor compensation.
• The tax will especially harm states with large employment in the medical device industry, including California, Florida, Illinois, Indiana, Massachusetts, Minnesota, New Jersey, New York, Ohio, Pennsylvania, Texas and Wisconsin.
• [T]he new tax will be paid both by firms that have net income and those that do not. The tax will be especially harmful to companies that innovate and tend to suffer losses in the first years or when investing in research and development for a new product but would still be required to pay the tax.
• Foreign manufacturers will improve their competitiveness relative to American firms, and U.S. leadership in this industry could be threatened.
• The Joint Tax Committee estimates that the tax will raise $20 billion in revenues over the period 2013-2019, a cost to device companies and the American consumer.  The economic impact of the tax on wages and output will be significantly higher.

The report also specifies that California stands to lose 8,500 jobs and $700 million in commerce, while North Carolina is looking at losses of 900 jobs and a hit of about $70 million.

Commenting on the relatively subdued response from the medical-device industry in the face of the substantial economic threat—apart from AdvaMed’s high-profile objection—an unnamed industry advocate told The Daily Caller, an online news outlet based in Washington, D.C., that the industry’s leading executives “tend to lean Democratic, and are reluctant to publicly oppose Democrats in the federal government. That’s partly because many of the leading companies are located in Democratic-dominated areas, such as the Boston and San Francisco metro regions.”

Supporters of the tax have countered that makers of medical devices ought to pony up for healthcare reform because demand for their products will rise as more Americans get health insurance. As reported in The Wall Street Journal and elsewhere, Senate Finance Chair Max Baucus (D-Mont.), has been leading the charge from the pro-tax side.

Three bills to repeal the tax have been introduced in the House, according to The Hill.

The Library of Congress’ online legislative database, THOMAS, shows that one such bill, the Protect Medical Innovation Act of 2011 sponsored by Rep. Erik Paulsen (R-Minn.), has bipartisan support from 190 co-sponsors.

To download the AdvaMed report, titled “Employment Effects of the New Excise Tax on the Medical Device Industry,” click here.