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The "Onerous" Medical Device Tax Is Actually Not So "Onerous"

Category: Erik Paulsen
Posted: 11/17/14 06:36

by Dave Mindeman

In the Star Tribune there is an Op-Ed about the Medical Device Tax from an industry investor....

Ron Way, of Edina, is an investor representative on the boards of five medical start-ups.

The points he makes are the same points this blog and others have been making for some time....

While previous repeal attempts have failed, this time the repeal forces -- including Minnesota Democratic Sens. Amy Klobuchar and Al Franken and Republican Rep. Erik Paulsen -- will gain important leverage as leaders of the incoming Republican majority look for ways to emasculate the ACA But repealing the tax would amount to coddling a wealthy special interest at the expense of those least able to pay for health care.

(Bold emphasis is mine).

Oh, so true. And Mr. Way also gets to the heart of the repeal arguments:

1. "The tax will cause the export of 42,000 jobs," says the industry. But a Bloomberg analysis found the claim "not credible." The reality is that there's zero incentive to ship jobs overseas because the tax applies only to domestic sales and imports but not to exports, which are half of the estimated $110 billion in annual medtech revenue.

2. "The tax will increase device cost." The same Bloomberg analysis and the nonpartisan Congressional Research Service said that the tax is too small to affect demand and that consumers will scarcely notice.

3. "The tax will suppress research and development." Hardly. Every credible analysis shows that the ACA will increase demand, which is strong incentive to develop better, less costly devices. Indeed, there already is increased research and development (R&D) investment in companies and in small start-ups where much innovation occurs.


As usual, the "onerous" medical device tax has not been the industry problem that repeal opponents have predicted with such "certainty".

Will our Congressional delegation listen to the other side? I doubt it. The lobbyists always seem to win out in the end.

Mr. Way concludes with the reality....

In the 20 months that the tax has been in place, the financial calamity predicted by the industry has not happened. Simply, there's no credible basis for repealing the tax.

So true.
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Medical Device Tax Repeal - Another Ploy To Undermine The ACA

Category: Erik Paulsen
Posted: 11/05/14 17:56

by Dave Mindeman

It is worth noting that during his news conference, Mitch McConnell mentioned some specific items that they would probably work on when his caucus gets control of the Senate. One of those items was the Medical Device Tax.

Mitch will have the support of just about every member of the Minnesota delegation. He may have an issue there that he can tout as truly bipartisan.

But let's try to get around the medical device industry glee for a moment and talk about how this fits into a bigger picture.

The Medical Device Tax is NOT killing jobs. It is NOT stifling innovation. The Medical Device industry thrives and when they are not looking for other taxes to evade (i.e. Medtronic's Irish ploy), the device tax itself is not putting a dent into sales or profits.

But what is important to note is that the medical device tax is part of the Obamacare financing system. The ACA cannot operate as a means of expansion of the insured or a method to keep costs down via exchanges and subsidies or as a method of moving Medicare solvency into the future....unless the entire system functions together as a self contained unit.

Take away the device tax and you leave a funding gap. A gap that will lead to a health care financing deficit. A gap that will allow Republicans to say that Obamacare is costing the country money.

Something to note from the linked article above:

The four-year-old Affordable Care Act has never been overwhelmingly popular with Americans, but the provision imposing a special tax on devices to fund the overall operation of the law has been the target of criticism from Republicans and Democrats alike. Minnesota's Democrat senators have both supported suspending the tax, and the leaders of the new Republican majority in the Senate have long wanted to repeal it.

Now do you think the voters went to the polls yesterday and thought to themselves - "I'm going to vote Republican to get rid of that onerous medical device tax."???

The answer is no. In fact, take a half dozen people off the street and ask them what it is and they wouldn't have a clue.

This is only of import to the medical device industry. They do not want to add a tax to their products. In reality it costs them nothing, but they don't want to have to deal with it or add it to their cost structure. It is a nuisance and they know that their presence in Minnesota has some clout with our Congressional delegation.

Another important note from the article...

The Internal Revenue Service began collecting the tax in 2013, and it did not send the industry into a financial nose-dive.

No, in fact, the industry has been thriving because more people are able to utilize their insurance to obtain these devices. The medical device tax has done the exact opposite of the industry's prediction.

And another thing...

Any stand-alone device-tax bill would face a likely veto threat by President Obama.

It will be vetoed because repealing the tax without an offset would cause a gaping hole in the ACA's funding. And that would lead to a structural problem within the intricate framework of how the ACA works and is paid for.

Here is more troubling news....

(Sen. Amy) Klobuchar, this year, offered an amendment to a bill that would have suspended collection of the tax for two years, but then-Sen. Majority Leader Harry Reid refused to allow inclusion of the measure. Sen. Al Franken, a Democrat who was re-elected Tuesday, also supported the suspension.

As part of a Republican controlled Congress, this measure can probably pass the Senate. But notice that it is a suspension without offsets. None of the money will be replenished from other sources. It will cause a deficit in funding - the kind of deficit that Republicans are supposed to be against. The kind of funding gap that ads to the national debt.

It is another ploy to undermine the structure of the ACA...and it looks like Democrats are going to allow it to happen.

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About Poor Medtronic And That 35% Tax Rate

Category: Erik Paulsen
Posted: 06/19/14 01:42, Edited: 06/19/14 23:12

by Dave Mindeman

Rep. Erik Paulsen has come out in defense of Medtronic's new Irish address as a simple response to a very "unfair" US tax code. A tax code that "forces" Medtronic to find offshore accounts to hide their profits and extort the country that has given them the economic system and environment to make all those profits.

All this uproar is over a corporate tax rate of 35% - which Paulsen is quick to point out is one of the highest in the world.

Except no corporate entity EVER pays 35%.

These convoluted statements from Paulsen and his cohorts about what the US gets in taxes from corporations is never the actual truth. Lobbyists for all these "maligned" corporations have set up so many deductions, and loopholes, and special privileges into the tax code that corporations pay much less than individual taxpayers.

The "effective" tax rate (or the amount actually paid) for Medtronic is 18% of profits. That's half the rate that Paulsen claims Medtronic is trying to escape from. Of course that is still more than the Irish corporate rate of 12.5% but Medtronic won't get an "effective" rate in Ireland - they will pay in full.

USA Today reported an analysis in February of 2014 of corporate tax....

A surprising number of companies in the Standard & Poor's 500, 57, have found ways to pay effective tax rates of zero, according to a USA TODAY analysis of data from S&P Capital IQ.

Verizon paid ZERO. Metlife paid ZERO. Seagate paid ZERO. And News Corp (owner of Fox) paid ZERO.

And when we get into these tax discussions on the poor overtaxed corporation, we get these faux calls for overhauling the tax code. The fact is these corporations have paid good lobbyist money to get all of these tax loopholes in place. They don't want a simpler tax code - they want it to be as complicated and unreadable as possible.

Because that's the way they wrote it.

Republicans can talk a lot of about the "unfair" tax code, but the only ones it is unfair to is John Q. Public who makes up the difference when Exxon pays ZERO on their profits. And I guarantee you that the Republican talk is just that - TALK! Because they won't change anything about the US tax code unless the corporate lawyers give them the changes in writing.
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