The Corner

Obama’s Medical-Device Tax Already Killing Jobs and Cures

Americans for Tax Reform has discovered 20 new or higher taxes embedded in Obamacare, totaling at least $500 billion. Among them, the $20 billion medical-device tax is the most baffling, unfair, and potentially deadly. While almost every business tax ever conceived targets profits or gains, Obama’s brilliant “change” to this tradition is to tax the gross revenues of medical-device makers, whether or not they generate profits. Thus, companies that create new, life-saving inventions can lose money as their products struggle to succeed and then suffer the unnecessary blow of a 2.3 percent tax on their losses.

As my old college friend Quin Hillyer explains in a compelling and disturbing opinion piece in the November 2 USA Today, what looks like a tiny levy actually translates into serious bucks for many companies that yield slim returns, even in good times.

“For smaller device manufacturers with narrow profit margins,” Hillyer writes, “the tax could actually exceed their profits, pushing them into the red.”

Brilliant! Just what America needs is to bankrupt companies that are busy trying to create tomorrow’s vascular stents, cardiac pacemakers, and orthotic prosthetics, such as those used by America’s brave GIs who return from Afghanistan, Iraq, and elsewhere with missing limbs. Rather than applaud the producers of such instruments and hand them medals, Obama thanks them with a punitive tax and a prosthetic middle finger.

For a leading device maker called Cook Group, Hillyer reports, Obama’s 2.3 percent tax on total sales equals some 15 percent of its earnings. “Added to a base corporate income tax rate of 35% and state taxes of 6%, the total tax rate exceeds 50%,” Hillyer explains.

Once taxes chew up more than half of what a company earns, people who have built businesses start to get cold feet.

“We were looking to build five new plants to employ about 300 people each,” said Cook Group CEO Steve Ferguson. “Now we’ve had to put them on hold, to see what will happen with this tax.” So, 1,500 Americans who could be headed to work instead wake up each morning and stare at a giant question mark.

Other business owners and executives also ask themselves, “Why bother?” and “Who needs this?” Golf courses and beach towels suddenly look more appealing than shop floors and research laboratories.

Even if one couldn’t care less about CEOs, Obama’s medical-device tax is pure poison for this industry’s working men and women. As Hillyer notes, Zimmer Holdings already has announced 450 layoffs at its facilities in Nevada, Minnesota, Ohio, and Pennsylvania. Michigan-based Stryker has declared that it will sack 1,000 employees. Advamed, this industry’s association, foresees a stunning 43,000 layoffs thanks to Obama’s new tax.

Meanwhile, venture capital for the medical-device sector has slid for three consecutive quarters. This literally means less money invested to keep Americans healthy and happy.

#more#For me, this issue is personal. 

As an asthmatic, I look forward to improvements in nebulizers and other devices to make life easier for me and others with my condition. Higher taxes only will shift resources from building better inhalers to fattening the U.S. Treasury.

More significantly, my best friend and research associate, Mr. Brett A. Shisler, is a Type 1 diabetic. Brett, a Manhattan financier, relies on a Medtronic insulin pump to stay alive. The insulin-pump market is not huge. Consequently, this technology sees little research funding, even as control freaks at the Food and Drug Administration have stymied efforts to fashion an artificial pancreas.

Minnesota-based Medtronic expects to pay between $40 million and $60 million next year in medical-device taxes. “We’re going to have to make the tradeoffs and there’s probably going to be things that we can’t do as a result of that,” Medtronic CFO Gary Ellis told investors earlier this year. “It means we won’t have as much to invest going forward.”

Every dollar that Medtronic and similar companies surrender to Washington for Obama’s destructive medical-device tax is a dollar that cannot be spent to enhance insulin pumps for Brett and other diabetics. I resent the president of the United States and his boneheaded tax for making life more difficult and challenging for my best friend and other diabetics.

Every vote for Governor Mitt Romney and Republican congressional candidates is a vote to repeal the hideous medical-device tax and the abominable, 2,801-page Obamacare law that inflicted this monstrosity. 

Deroy Murdock is a Manhattan-based Fox News contributor, a contributor to National Review Online, and a senior fellow with the London Center for Policy Research.


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