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Industry: Medical device tax endangers 43,000 jobs

by Brendon Nafziger , DOTmed News Associate Editor
An industry-funded report says a 2.3 percent excise tax on medical device manufacturers set to go into effect in 2013 could endanger almost 43,000 U.S. jobs while making health care slightly more expensive to consumers.

In a report released Wednesday, the Advanced Medical Technology Association, a trade lobby, said the coming tax will cut into companies' revenues and force them to move manufacturing facilities offshore in order to escape the growing U.S. tax burden.

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"The device tax could cost thousands of jobs, depending on the cutback and what percent of the industry moves offshore," Diana Furchtgott-Roth, co-author of the report and a senior fellow with the Manhattan Institute, a New York-based think tank, told reporters on a call Wednesday. "We assume a loss of about 43,000 jobs in the medical device industry, if for example just 10 percent of manufacturers' activity moves offshore."

The group also warns that the tax could stifle U.S innovation and give a leg up to foreign competitors. Also, because the tax applies to revenue, and not profits, companies with smaller profit margins could be devastated, and end up owing Uncle Sam money despite operating at a loss.

The tax was included in the Affordable Care Act and is meant to raise $20 billion over the next decade to help pay for the costs of health reform -- that is, adding millions of new Americans to the insurance rolls. Earlier versions of the bill included a higher tax on device companies, but it was brought down for the final bill.

Direct-to-consumer and retail products like contact lenses are exempt from the tax, although it's unclear if it applies to home equipment, like motorized wheelchairs.

While the actual guidelines have to be finalized, the study, "Employment Effects of the New Excise Tax on the Medical Device Industry," tried to calculate the effect on employers when the tax comes online, from what's known now.

Naturally, when faced with the tax, companies will try to make up for it by raising prices and cutting costs. That is, part of the tax would be passed on to consumers: the researchers estimate after-tax prices for devices could rise about 1 percent. But also, companies could shift some amount of employment overseas.

The authors say under "reasonable assumptions" up to 10 percent of jobs could move abroad, resulting in U.S. job losses of 43,000 and labor compensation losses of about $3.5 billion.

In 2009, the domestic device manufacturing industry employed over 400,000 people, who earned about $33 billion in labor compensation, according to the study.
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Jeff Buske

GE beat them to the punch!

September 10, 2011 10:37

Brendon, perhaps moving companies out of the US was one purpose of the tax part of the new "Jobs program?" GE x-ray/Med Systems ironically is now moving to China, looks like they got a jump on the competition. RONPAUL2012


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Galen Hiveley

medical device tax

September 08, 2011 11:08

Leave it to our government. They've screwed up the health care industry which is 1/6 of the nations GDP. They've thrown the country into a depression and are too dumb to realize it. We need to change Washington while there is still something left of the country. 2012 is the earliest we can do it. We just all have to hope there is something left of the country at that time and that it can still be salvaged.

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Jeff Buske

Excise/privilege tax on medical devices?

September 10, 2011 10:37

An excise tax is a privilege tax on par with sales (also an excise) taxes on staple food items levied by for example, Boulder Colorado and other cities. Twisted logic being eating and medical devices/treatments are a privilege. One more way to keep people from getting fat or living to long to collect SS. Consider Dr. Ron Paul a medical Doc. not an attorney or flip-flopper to restore common sense to DC.

P.S. You can avoid the tax and FDA approval cost by making "non-medical" airport/security x-ray scanners. New systems can still check you for kidney stones.

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Ted Huss

Obama Care, Med. Dev. Tax, All Around Killer

September 08, 2011 11:08

This is a healthcare plan with it's own virus. A plan that is actually a parasite (kills its host).
Reforming healthcare is definitely needed, but this big government solution is about as far from what will have a positive effect for consumers, taxpayers and business as one can get. My customers are really going to enjoy adding 2.3% to their average sales taxes of 8-9.5%. Yeah, sure. Will they delay purchases, do without? You bet. Just like you do if you are on a limited budget and make choices at the market.

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