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Jobs and Health Consequences of the Obamacare Tax on Medical Devices

by John A. Sparks ,  Washington Times | 2013-01-15

The first wave of the Obamacare tax unintended consequences are to be seen in the following months. Concerns for the potentially harmful features of the law that has gone into effect in 2013 are beginning to unveil. The tax on medical device manufacturers is at 2.3 % for the revenues of companies that produce medical devices.

Heart valves, insulin pumps and hundreds of thousands of carefully engineered and regularly improved testing, diagnostic and treatment products make modern medicine in the United States the envy of the world.

Undoubtedly, higher taxes on companies that develop and manufacture these needed devices will have consequences on the production. This saying is true: If you want less of something, tax it. How will this burden the medical devices industry, and thus affect the health of all Americans?

Hoover Institution fellow Henry I. Miller noted the “tax is especially pernicious because it is assessed on sales, not profits.” A small firm developing a new medical device usually receives sales revenues of, say, $2 million in the first year of sales. The actual profit on those sales is of $75,000 after taking into account research and development costs. Because the medical devices tax applies to sales, however, it imposes a tax of over $45,000. That means more than 60 percent of the net profits on that device confiscated with the tax. The federal government siphoned that company’s capital and, therefore, cannot be sent back into more research and development. The Medical Device Manufacturers Association (MDMA) predicts that product innovation will be “choked” by the tax.

Consequences of the tax have been anticipated in August 2012. A study released last summer showed that investors, in anticipation of the burdensome tax, prepared to divert investment dollars away from biotechnology and medical devices. Investors are looking for profits and growth, both of which are made less likely by the Obamacare tax.

The story continues. There are more negative impacts for medical device manufacturers.

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