A year from now, the federal government will start collecting a new tax on medical devices from tongue depressors to imaging machines, thanks to the sweeping health-care overhaul that Democrats enacted in the spring of 2010. People in the industry say it’s already having an effect.
In November, citing the new tax, Stryker Corp. (SYK), whose products include artificial hips and knees, announced that it would let go about 1,000 of its workers. Earlier last year, Covidien Plc (COV), maker of surgical instruments, said it would lay off 200 workers in the U.S. and move production to Costa Rica and Mexico. It, too, cited the tax.
Other companies in the field have announced similar measures -- or plans to expand production overseas but not in the U.S. -- without mentioning the tax. The sluggish economy is clearly part of the explanation, but the medical-devices industry had been a relative bright spot within U.S. manufacturing, losing only 1.1 percent of its employees during 2007-2008 while manufacturing as a whole lost 4.8 percent. A study done for AdvaMed, a trade association for the industry, claims the tax could ultimately cost more than 45,000 jobs.
Medical-device companies employ more than 400,000 Americans. Their wages are higher than the national average. The U.S. is a net exporter of medical devices.
The tax will change these numbers for the worse. It will be levied at 2.3 percent of sales; on average, profits make up less than 4 percent of sales in the industry. The AdvaMed study concludes, “The new 2.3 percent excise tax will roughly double their total tax bill and raise the average effective corporate income tax rate to one of the highest effective tax rates faced by any industry in the world.” . . .Richard S. Foster, the Medicare chief actuary, has estimated that if the tax is passed on to consumers it will raise national-health costs by $18.2 billion in 2018.
Earlier, restaurant chain CEO Andrew Puzder explained how the 2010 health care law is preventing jobs from being created in the restaurant industry, and resulting in layoffs in other industries. Fox News' John Stossel reported on how Obamacare is stopping businesses from hiring, and interviewed affected business owners.
Ponnuru says that Obamacare's medical-device tax will harm medical "innovation," noting industry predictions that it will lead to "reduced research and development." His conclusion is consistent with the opinions of the Dean of Harvard Medical School and Cato health policy analyst Michael Cannon, who likewise say that Obamacare will harm life-saving medical innovation. Obamacare taxes not just medical devices but also cosmetic surgery, and raises taxes on investors starting in 2013. Obamacare also breaks many campaign promises. Obamacare's tax increases reflect an overall hostility to business that worries even liberal businessmen: Democratic businessman Steve Wynn called Obama “the greatest wet blanket to business and progress and job creation in my lifetime.”