With voters calling health care a top priority heading into the 2020 election, Congress has an opportunity to prevent a new tax on Americans’ health care — a tax that will kill an estimated 21,390 jobs in the next two years and reduce our GDP by $1.7 billion, according to a new report from the Tax Foundation think tank.
That’s a steep price to pay for a policy that virtually everyone agrees is a bad idea, and with good reason.
When the tax was in effect from 2013 through 2015, the U.S. Department of Commerce found that it cost the medical technology industry nearly 29,000 jobs. Small businesses were hit particularly hard. Eighty percent of our industry is composed of companies with 50 or fewer employees, which means that this tax on their revenues forced some medtech doors to close for good while it forced other companies to forego or dramatically cut R&D. We can’t possibly know what life-saving and life-improving technologies never made it to market as a result of the tax’s stifling effect.
As the Tax Foundation explains, history will repeat itself if the tax goes back into effect: “Smaller companies, particularly new start-ups, will suffer disproportionately as their margins are usually smaller. According to a study of the industry from 2013, many small device manufacturers and start-ups average net annual losses.”
And because it “is a tax on sales, with no regard for profitability, companies with smaller profit margins would face greater tax burdens than companies with larger profit margins,” the Tax Foundation continues. “In fact, manufacturers could end up paying over 100 percent of their profits in taxes, and even businesses posting losses would face the tax.”
That’s precisely why bipartisan congressional majorities, and both a Democratic and Republican president, have suspended the medical device tax multiple times, at this point for longer than it was ever in place. Everyone now understands the use of an excise tax on a life-saving industry is simply bad economic policy, bad tax policy and bad health care policy.
But while the policy debate has largely been settled, the politics of inaction is getting in the way. That’s not right.
If the loss of 21,390 jobs isn’t convincing enough, here are a few more reasons to consider:
- Advanced medical devices and diagnostics allow people to live longer, healthier, more productive and independent lives. Between 1980 and 2015, medical advancements helped add more than five years to U.S. life expectancy, while fatalities from heart disease and stroke were cut by more than half. Why would we allow the U.S. Tax Code to make it more, not less, expensive for medical innovators to innovate? As the Tax Foundation put it, not only does the tax fail to lower overall health care costs, as its architects intended, it actually “increases costs and burdens on the health care industry.”
- The tax would devour approximately $25 billion over the next decade from the very companies responsible for these incredible medical strides — $25 billion that would otherwise be put toward the development of new life-saving technologies. Indeed, after the tax was first suspended, nearly three-quarters of medtech companies reported adding workers or preventing layoffs; 4 out of 5 reported raising, or at the very least no longer cutting, R&D funding; a third reported investing in a new research facility or lab; and nearly a quarter boosted investment in start-up companies.
- The U.S. is the largest medical device market in the world, making up over 40 percent of the global market. Our tax policy should encourage America’s innovation advantage, not hinder it.
The clock is running out. The tax is set to return New Year’s Day if Congress doesn’t act.
We saw the first time what the medical device excise tax did to the medical technology industry, to innovation, to jobs, and ultimately to the American patients our industry serves.
If Congress doesn’t repeal this tax, we will see it again.
Scott Whitaker is President and CEO of AdvaMed, the world’s largest medical technology association.
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