Survey Says Obamacare’s Medical Device Tax has Reduced Industry Employment by 33,000

February 21, 2014

According to a new survey by the Advanced Medical Technology Association (AdvaMed), a medical device industry group, the Affordable Care Act’s medical device excise tax has reduced employment by 33,000 jobs since it went into force in January 2013.

“The tax has led to employment reductions of approximately 14,000 industry workers and foregone hiring of 19,000 workers. The total job impact of the tax on industry employment was approximately 33,000.

“The report also found that almost one-third of respondents (30.6 percent) said they had reduced R&D as a result of the tax. Almost ten percent of respondents said they had relocated manufacturing outside of the U.S. or expanded manufacturing abroad because of the tax.”

While this is merely a survey, which are notorious for not being entirely accurate, the basic logic behind the effects of the tax leads one to believe that the tax has reduced employment and research development to some extent.

A Tax on Sales not Profit

Since this is an excise tax, and not an income tax, medical device firms need to pay the tax on sales, without regard to whether they are making money or not. This could create effective tax rates of up to 100 percent on a company’s profits.

High Compliance Cost

Beyond its direct cost, the medical device excise tax has the potential for high compliance costs. With multiple definitions and standards of what the IRS considers taxable devices in addition to a retail exemptions and constructed sales price regulations, businesses will have to spend more time and money focusing on making sure they are paying the correct tax. The IRS itself has admitted that “the medical device industry will likely face some implementation issues” when the tax goes into effect.

The burden of this tax falls hard on companies, especially smaller companies. As the survey found and as we have argued before, businesses will have less money for research and development and employment.

Whether you believe the accuracy of the survey or not, this tax is not good policy. It targets a single industry, increases the price of innovation, and adds unnecessary complexity to the tax code. If the funding for Obamacare is so vital, politicians should have raised its revenue with a less distortive, broad-based tax.

More on the Medical Device Excise Tax: Here.

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