The latest voice to join in efforts to repeal the medical device tax came from Henry Miller of the Hoover Institute, a conservative policy think tank, who wrote that the impending 2.3% levy threatens to stunt the U.S. medical technology industry.
"The new excise tax comes when regulatory delays and uncertainty are increasing, and as many device firms are shutting down or moving abroad to take advantage of the more favorable tax and regulatory climate in Europe," Miller wrote. "The tax will force companies to lay off employees, cut back on research and development, or diminish capital investment."
Miller outlined his objections to the device tax in an editorial for the Wall Street Journal, joining fellow conservative George Will, who penned a critique for the Washington Post last week.
The editorials come amid growing momentum in efforts to repeal the tax, which span lobbying efforts from the nation’s medical device industry trade groups to grassroots campaigns driven by LinkedIn groups.
Opponents of the tax seem to be getting louder in recent weeks, as their voices appear in more news outlets and in more contexts as the levy looms in the near future. The levy is set to take effect Jan. 1, 2013, comprising a 2.3% tax on every applicable medical device sold in the U.S.
"This tax is especially pernicious because it is assessed on sales, not profits," Miller wrote. "To put this in perspective, imagine that you’ve manufactured medical devices and had sales of $1 million, after all your costs and expenses – everything from materials and labor to research and development – your profit was $100,000. The excise tax would be $23,000, wiping out almost 25% of your profits."
Some medical device makers are set to pony up large sums to satisfy the tax, with wildly disproportionate effects for companies based on their revenues and profitability.
Had the tax taken effect in 2011, Johnson & Johnson (NYSE:JNJ) would have paid $262 million, which represents about 2.7% of its $9.67 billion in profits.
Smaller companies, which make up the bulk of the industry, face a different burden. Integra LifeSciences (NSDQ:IART) would have paid $14 million for 2011, half of its $28 million in profits for the year.
"The nation’s medical device industry is vulnerable," Miller wrote. "It is not comprised of behemoths: 80% of its companies have 50 or fewer employees, the very businesses we are relying on to turn the U.S. economy around."
"The new excise tax comes when regulatory delays and uncertainty are increasing, and as many device firms are shutting down or moving abroad to take advantage of the more favorable tax and regulatory climate in Europe," he added. "The tax will force companies to lay off employees, cut back on research and development, or diminish capital investment."
Even as lobbyists scurry to limit the damage to their clients, the effects of the tax are already being felt on the street, as companies announce layoffs ahead of its implementation.
"Even if the market would tolerate that – which is surely questionable given the current pressure to drive down costs – it would, ironically, raise the costs of medical care," Miller wrote. "That was not supposed to be an outcome of ObamaCare."
"We need to create a more nurturing entrepreneurial climate, one in which ingenuity and innovation are rewarded, not penalized," he added. "Legislation has been introduced in both the House and Senate to repeal the medical device excise tax. That would be a good start."
