Ways and Means to Consider Device Tax Repeal

June 1, 2015

The House Ways And Means Committee will tomorrow consider a bill to repeal the Medical Device Tax levied by the Affordable Care Act. The tax, a 2.3% excise tax on sales of devices, has caused trouble for manufacturers and accounting firms due to its difficult base. As a result, it has not raised as much revenue as planned.

The most universal principle of sound tax policy is that taxes should have broad bases and low rates. The Medical Device Tax is essentially the opposite of that. It’s a narrow base, applying only to a particular industry. And even within that narrow base, there’s an unruly mess of deductions.

The point of the broad-base low-rates principle is that if everyone pays, taxes can actually fund some serious projects without being too burdensome. In contrast, if one relies only on a small set of unlucky taxpayers to shoulder a large burden, the weight is much more difficult to carry.

One of the great victories of this principle is that a lot of “special pleading” – lobbying for especially good tax treatment – has been denied over the last three decades. But especially bad tax treatment should be avoided, for much the same reason.

A single, unified system of taxation that treats all businesses equally is the ideal imagined by most voters and policy experts. Repeal of the Device Tax would bring us closer to that goal.

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