No, the industry is not exaggerating effects to get sympathy.
Oh, how bad can a 2.3 percent excise tax be, really? Unfortunately, we will get to find that out in Indiana if Obamacare is not killed by Congress. The tax, which is imposed by Obamacare on medical devices, is estimated to bring in $29 billion over the next 10 years.
The medical-device industry is big and getting bigger – the field now employs more than 400,000 Americans. And many of those Americans are in Indiana. In an otherwise dismal economic climate in the past few years, the industry has thrived here, creating an estimated economic impact of more than $10 billion a year. All told, more than 20,000 Hoosiers are employed in the field, with nearly 6,800 in nearby Warsaw alone.
And all that is threatened by the new Obamacare tax.
Consider the effect on Indiana-based Cook Medical Inc., which estimates it will have to pay between $20 million and $30 million a year in new taxes. It has announced that because of those new expenses it is canceling plans to build five plants in the Midwest.
Some supporters of the excise tax claim that the companies are exaggerating the effects of the tax just to gain sympathy. More health care spending in general will make up for their losses.
But that’s the kind of argument advanced by those who have no concept of how the private sector really works. They have yet to learn that we end up with less of anything that is taxed.
About 70 percent of medical-device manufacturers are classified as small businesses, and they have two special needs: They have to compete for top and expensive talent, and they have to spend tremendously on research and development. They don’t have great margins within which to turn a profit.
For example, it took Abiomed 30 years to show a profit building specialized heart pumps – $1.5 million in fiscal 2012. If the medical-device tax had been in effect, company officials said, the company would have had to turn in every penny of its profits and another $1.4 million on top of that.
In an op-ed earlier this year, U.S. Rep. and GOP gubernatorial candidate Mike Pence said the tax will cost the state more than 2,000 jobs. And it’s impossible to even calculate how harmful this will be to the people who need the medical devices.
Pence was one of the sponsors of legislation to repeal the medical-device tax. The House voted for the repeal in June, but the legislation has stalled in the Senate. Maybe Sen. Richard Mourdock should make that his first order of business. It’s time to jump-start this stalled federalism beast.
