Repealing the Medical Device Tax Is Not Cronyism

January 30, 2015

The Washington Post yesterday posted an editorial opposing the repeal of the Affordable Care Act’s medical device tax, on the grounds that it would constitute “caving in to special interests.”

That view of the situation is deeply troubling in a number of ways, and I feel especially compelled to comment on it because I’ve seen it more than once: at the conservative blog Red State, during the last major effort to defeat the tax, Editor-in-chief Erick Erickson made a somewhat similar argument, but from a pro-Obamacare-repeal position.

The Post, in contrast, seems to favor the Affordable Care Act more than not. The editorial argues: “the medical device tax isn’t particularly elegant policy. But it accomplishes its goal of helping to fund health care for the poor and middle class.” This is undeniably true. But it is an incredibly low bar for public policy. Grabbing me by my ankles, holding me upside down, and shaking me until money falls out of my pockets would also be inelegant policy that could help fund health care. That doesn’t mean it’s worth supporting.

Lobbying over taxes is rightly looked on with suspicion because some industries or firms attempt to get deductions or credits that apply only to them. This is obviously poor policy from a fairness perspective, but there’s also an economics issue at play. Taxes generally cause the least harm to people, overall, when they are distributed equally across all economic activities. The clichĂ© that we want “level playing field” is well-worn in tax policy, but it’s well-worn for a reason. To say things more fancily, most economic models show that the deadweight loss from a tax is roughly quadratic in the tax rate, and therefore, the solutions that optimize for highest revenue and lowest deadweight loss are uniform tax rates across the board.

The medical device tax is precisely the opposite of a special credit or deduction that only applies to one favored industry. Instead, it is a special tax that only applies to one disfavored industry. It is bad for growth for the exact same reasons that special credits are. A non-neutral tax policy causes more damage to the private sector, per dollar of revenue raised, than a neutral one does. So to the extent that the medical device industry wants repeal, it also wants – contra the Post – what’s best for America.

But enough about quadratic deadweight losses. The implications of the Post’s view are, frankly, disturbing. It’s not just tax policy; the principles of American life, more broadly, are also built around the idea of equal treatment under the law. The idea that those who are treated worst under the law should be attacked for objecting is both morally and intellectually horrifying in ways that extend deeply beyond taxes. People interested in being equal with the rest of the country aren’t an “interest group.”

The Post closes by worrying that other groups picked on with narrowly-based, arbitrary taxes will be emboldened by the success of the medical device industry, and also demand repeal.

We can only hope.

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