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Eric "Santa Claus" Paulsen

Category: Taxes
Posted: 12/16/15 19:11

by Dave Mindeman

Rep. Erik Paulsen is playing corporate Santa Claus.

In the budget deal that was just announced there is a provision to suspend the Medical Device Tax for 2 years.

I am still searching for a legitimate reason why this corporate giveaway is needed. Let's take a look at the propaganda...

The U.S. House and Senate are poised to suspend a sales tax on medical devices for two years after intense lobbying on behalf of the medical technology industry that employs tens of thousands of people in Minnesota.

The lobbyists always frame their request in terms that their industry "employs tens of thousands of people in Minnesota". While this is true...is there any evidence that those employees would benefit from this corporate break? I have not seen any yet. I have seen enormous benefits for companies like Medtronic which received a $9 billion windfall for its merger with Covidian. Again, with little evidence that employees benefit.

So what is the benefit?

"This is a significant breakthrough," said Chris Swonger, government relations chief at Plymouth-based Smiths Medical. "This is a move to reinvest in innovation."

The tax package deal already has a research and development tax break in it. I have yet to see where stopping the Medical Device Tax will in any way ramp up more research and development. In fact, these companies have to keep increasing R&D or their business model fails.

Here is another talking point.

It is a tax on gross sales, not profits. Critics, including Klobuchar, argued that it pushed investment in medical technology to other countries

With all due respect, Senator Klobuchar, I would like to see any evidence of that. I mean real hard evidence. If device makers here see a competitive threat, they simply buy them out.

Here is another one....

Device tax opponents also profited from recent analyses by the Congressional Budget Office that the Affordable Care Act (ACA) is going to cost $176 billion less to implement over 10 years than had been expected, Klobuchar said. The downward shifting estimate offered wiggle room in negotiations with the White House.

Would someone please give us a true picture here? Is the ACA bankrupting the economy? or is it saving us money? Everybody seems to have a nice selection of the facts that suit their purposes. I would like to hear Paulsen use that "the ACA is a cost saver" argument in his next pitch.

This provision is just a small part of a huge budget deal, so if it stays in the conference bill, it will probably pass and Obama will sign it, because there are so many layers, it would be impossible to single out any one provision.

So Paulsen can tie this up in a pretty little bow and put it under the Repeal the Device Tax tree and proudly state.....

See donors? You got your money's worth!
comments (31) permalink
12/21/15 22:10
I think you are getting lost in your own definitions...
"This excise tax is a burden on the producer, who is saddled with the burden of passing the cost on to consumers"

Is that not what constitutes sales tax?
12/21/15 18:23
Tariff is a term normally used to describe a tax on imports and exports. But protective tariffs are common elsewhere.


Sin tax is a tariff tax: a tax on a product to discourage its use, such as in gambling, tobacco, booze.

Revenue raising tariff is what we have here. This excise tax is a burden on the producer, who is saddled with the burden of passing the cost on to consumers. In this case, it only serves to increase premiums paid by healthy people.
12/21/15 17:46
Martin Shkreli has been exposed for what he is. But the process brings to light a dirty little secret no drug company is willing to share...

Vanity fair had an interesting interview of Shkreli.


"Turing recently announced discounts of Daraprim for hospitals, and Shkreli says that for people without insurance it will cost only $1 a pill. For everybody else, insurance, which he argues is paid for by corporate America's profits, will cover the cost."

Your insurance company has to pay $750 for each of those pills. Cancel your insurance policy and get it for $1 instead? What kind of quirky public policy created this monster?

A local dental clinic is running ads on TV for "free x-rays for those who do NOT have dental insurance."

Remember, premiums are average claims plus a reasonable income. Cost plus 15% is common.

The current payment mechanism created this monster. Some blame Obamacare. Nonsense. This is what you end up with when insurance companies (or the government in the case of single-payer) are paying the bill. The patient thinks it's free. And it may well be free to that patient covered. But it is NOT free.
12/17/15 12:42
Dave, great write-up.

Not sure why the word "tariff" is being used.

This is an excise tax ... exports are exempt but an imported device as well as domestically produced devices carry the same tax. If anything, by removing the import tax, may encourage some manufacturers to have more product made overseas where labor/overhead/materials may be lower.

Since, this tax has been collected for effectively three years, it has already been factored into the selling price of the product ... suspending it will only improve the profits of the manufacturers.

I appreciate Ford's comment about wanting the consumer being in charge, yet medical care is something that consumers don't shop around for ... many times there only choice is : Do I seek medical attention or live with it.

Instead of spending Congressional time "suspending" this revenue stream, Congress should be looking at the rising cost of prescription drugs -- which has a greater impact on rising healthcare costs than other sources.

12/17/15 11:30
couple of points - you say the "tariff" would cause them to make the product elsewhere. That is simply false. The tax is charged on the sale of the device, not the manufacture of it. They can make it anywhere they want, but the tax will be assessed on its sale.

Second: The consumer has really never been a part of the health care process. In fact, they can't possibly pay all the costs that are involved with health care. This is a technology driven business - and the pricing structure is driven by hospitals, insurance companies, and medical technology. If medical care was driven by what the consumer could actually pay up front, then we would have no innovation whatsoever. Could consumers drive paying for MRI machines? Artificial limbs and hearts?

It is not a consumer model. Never has been a consumer model. Never will be a consumer model.
12/17/15 10:16
Claims paid by insurance companies are absolutely paid by the consumer. To suggest otherwise is to expose complete and total ignorance when it comes to actuarial science.

Dave, you illustrate exactly the problem we have with health care costs today. The medical device tax is inconsequential to the real problem. What is that problem? It is that the patient is no longer the consumer. The patient is not in charge. The insurance company is in charge of cost control. And they have an incentive to pay claims. Yes, an incentive. The higher the claims, the more they make.

When you make an insurance claim, the claims adjuster examines the item to see if it is appropriate to pay. Does it meet the contractual obligation? If yes, then it gets paid. The actuarial scientists then add that payment to the cost of your policy. At the end of the day, they justify your premium based on claims. The executives get bonus money based on how much they make in total. Claims plus a reasonable income is what the regulators will allow. Since the executives cannot change "reasonable," they are stuck with a percentage of claims. Increasing reasonable only happens when claims are higher.

Getting back to this device tax... The makers of these products can make them anyplace. And they are. Adding costs in the form of a medical device tariff incentivizes them to build them elsewhere.

So the tariff makes higher costs, which the insurance company dutifully pays, and passes that cost on to the consumers with an additional "fee" in the form of insurance company profit.

Until we can agree to advocate solving the real problem with health care, we will be stuck simply disagreeing on how to fix it. The patient needs to be the customer. The patient needs to bear the responsibility for their care decisions. And those decisions should be between the care provider and the patient, not the claims adjusters/actuaries/executives/politicians like we have it set up today.
12/17/15 08:58
In full reality, the tax is paid by insurance companies because it is added to the cost of the device. However, the more important point to note here is that the revenue removed from Obamacare is not replaced. So, what is happening is that without the device tax, the deficit and debt will probably be the ones that suffer. The main idea is that we should pay for things - I assume that conservatives agree with that.
12/16/15 20:57
Tariff on medical devices? This is a strategy? Removing the tariff is a 'corporate giveaway?'

You are trying to re-write economic theory again Dave. Tariff taxes are not paid by the provider, but by the consumer. And waiting for them to leave the country to provide you with "evidence" is a day late and more than just a few dollars short.


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