Shirley: Medical device tax will impact jobs and costs
By Neil Shirley
Posted October 27, 2012 at 3 p.m.
Boston Scientific anticipates $100 million in additional taxes next year, with layoffs to follow. Medtronic estimates a $175 million loss in 2013 and will cut 1,000 workers. Stryker plans 1,170 job cuts.
Other medical manufacturers will follow: Smith & Nephew, with 770 layoffs; Abbott Labs, 700; Covidien, 595; Kinetic Concepts, 427; St. Jude Medical, 300; Welch Allyn 275; and Hill Rom, 200.
In January, medical device manufacturers in the U.S. will be asked to take a 2.3 percent hit to their bottom line in the form of a 2.3 percent tax on medical devices, part of the Affordable Care Act, aka Obamacare.
The 2.3 percent tax will be imposed on gross sales of products from elastic bandages to pacemakers to imaging systems. Although the tax is intended to raise $28.5 billion over 10 years to help cover the costs of Obamacare, opponents warn there will be unintended consequences.
Not all medical manufacturers are multinational, multibillion dollar conglomerates that won't feel a 2.3 percent pinch. It may sound like a small amount, but 2.3 percent of gross sales is equivalent to about 15 percent in gross profit. In a medium- or small-sized company, 15 percent of gross profit could be the entire budget of a product team. Some could be literally taxed out of business.
The industry won't stand idle to "pay their fair share" either. Corporations will simply move their operations where they can enjoy a lower tax burden. Since the U.S. currently has the highest corporate tax rate in the world, isn't the "fair share" burden already being met?
Medical companies are taking the hint. Cook Medical put plans for five new U.S. manufacturing facilities on hold and will likely redirect growth overseas. Boston Scientific recently announced a $150 million investment in China over the next five years for new manufacturing facilities and 1,000 employees.
Costs will be offset with layoffs, cutting R&D, and higher prices to their customers, hospitals and provider groups. Hospitals will pass it to insurance providers, who will pass it to us in higher insurance premiums. The Wall Street Journal calls this the "Obamacare trifecta," less innovation, fewer jobs and higher health costs.
But this tax on medical devices is just a microcosm of the overarching philosophy that raising taxes will increase funding for government. It appears simple enough. Introduce higher tax rates, or a new tax, and tax revenues increase accordingly.
The Obama administration wants to raise taxes on rich people also.
Will they merrily send more money to the government? No. Accountants will devise strategies for them to protect their wealth. And federal tax revenues will go down, not up.
Despite the math, lower taxes have long been shown to be the recipe for increased tax revenues.
Read more: http://www.vcstar.com/news/2012/oct/...#ixzz2Brprp1mv