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According to a September 2011 paper for the Manhattan Institute, the effects of a new excise tax on the medical device industry will be disastrous.
The study deals with a provision of the president’s massive health care overhaul law that levies an excise tax on the medical device industry. The tax will take effect at the start of 2013. This tax, the study finds, will shrink employment in the industry by cutting demand for medical devices and by “encouraging American firms to shift production overseas.” In effect a double whammy to the Obama administration’s goal of creating more jobs and keeping employment from moving to other countries.
The paper was written by Diana Furchtgott-Roth and Harold Furchtgott-Roth. She is a senior fellow at the Manhattan Institute and former chief economist of the U.S. Labor Department. He is president of Furchtgott-Roth Economic Enterprises and former commissioner of the Federal Communication Commission, as well as a former congressional economist.
This tax, one of many taxes in the ObamaCare law, is an excise tax on medical device manufacturers. It is deceptive. While small in amount—2.3 percent—the levy is taken from the revenue line, not the bottom line, magnifying its impact. According to the Advanced Medical Technology Association (AdvaMed), medical device makers reported taxable income of $13.7 billion in 2006 and paid $3.1 billion in corporate taxes. When the new tax goes into effect, the tax burden will roughly double and “raise the average effective corporate income tax rate to one of the highest…in the world,” the Furchtgott-Roth said.
The devices include such items as coronary stents, X-ray machines, in vitro diagnostic substances, MRIs, artificial joints, surgical equipment, and a variety of other medical technologies.
The tax would be especially burdensome to companies that create novel technologies. “The new tax could force companies that would otherwise never leave the U.S. to make difficult choices based on stark economic realty,” said Stephen J. Ubl, president and CEO of AdvaMed. He said it’s “important for the Administration and Congress to understand the device tax is counterproductive to economic growth and … putting more Americans to work.”
Under the provision, eyeglasses, contact lenses, and hearing aids — items sold at retail — are exempt from the new excise tax. It’s just the more vital and life-prolonging devices and apparatuses that are to be taxed.
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