A Tax for a Health Fiscal Cliff

It joins Democratic Presidential Candidate Barack Obama’s enormous tax hike he has taking place at the start of the new year, and it also creates a health cliff for the nearby future as it actively stifles medical innovation in the US.  “It” is the 2.3% tax that will be charged to American medical device manufacturers—on top line revenue—sales—not on profit.  Former Governor and US Senator from Indiana, Evan Bayh (D, IN), offered some thoughts on this problem in a recent Wall Street Journal op-ed.

As a result of this problem,

For a typical company, a 2.3% tax on revenues equals a 15% tax on profits.  When combined with a 35% corporate tax and state corporate taxes, the tax rate for the medical-device industry will exceed 50% in most jurisdictions.

[This inflicts an] added cost of $30 billion—according to the Congressional Budget Office—to the industry.  This tax comes straight out of a company’s bottom line.  Because many devices are sold to hospitals, physicians and other providers through multiyear contracts, the prices are already locked in, so the tax cannot be passed on to the buyer.

Think about the effects this will have on medical innovation.  Governor Bayh did:

America is a global leader in medical-device production and sales.  Last year the US device industry earned $5.4 billion more in exports than we spent on imports of such devices.

Even more important to the average American is the industry’s role in saving and sustaining life.  Medical devices have contributed to remarkable advances in numerous areas: artificial hips and knees, and devices used in the treatment of cancer, and for angioplasty, vascular surgery and in-vitro fertilization, to name a few.  Many of these devices have not only improved the quality of life for patients, but also produced health-care cost savings—for instance, each time an angioplastic balloon made open-heart surgery unnecessary.


Especially hard hit could be the hundreds of small companies developing medical software applications. These apps promise to revolutionize the practice of medicine—for instance, by delivering blood-sugar test results for diabetics.

But now

Thirty billion dollars must be taken out of operations or R&D.  Who knows what lifesaving devices that might have been developed will fall victim to this tax?

What about jobs?

Many US device companies, in response, have already announced layoffs, canceled plans for domestic expansion and slashed research-and-development budgets.  This month, Welch Allyn—a maker of stethoscopes and blood-pressure cuffs—announced that it will lay off 10% of its global workforce over the next three years, but all of the jobs being cut are in the US[]


In my state of Indiana alone, Cook Medical has canceled plans to build one new US facility annually in each of the next several years, and Zimmer plans to lay off 450 workers, while Hill-Rom expects to lay off 200.  Stryker, based in Michigan, anticipates having to lay off 1,000 workers[]


[P]roduction is moving overseas, good jobs are going to Europe and Asia, and cutting-edge medical devices will now be produced elsewhere for import into the US.

Of course Obama and his Progressive Congressmen knew this when they wrote the tax; it’s part of why the entire bill was written behind closed doors in the back of Harry Reid’s office suite, and why Nancy Pelosi was so anxious to get the bill passed before “we can find out what is in it.”  So much for Obama’s concern for the little guy.  So much for Obama’s concern for the health of Americans.  So much for Obama’s concern for America’s innovation leadership.

Update: added the actual name of the man in the first paragraph.

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