Candidate Barack Obama promised he would tax only the rich. President Obama insist he has kept that vow. Maybe he should look more closely at his signature achievement, Obamacare.
Henry Miller, a physician and molecular biologist, as well as a fellow at the Hoover Institution and the Competitive Enterprise Institute, writes:
Medical device manufacturing is one of the nation’s most dynamic and vibrant industries. The United States is the global leader in medical technology innovation, and it is one of the few major industries with a net trade surplus. This industry is responsible for more than 400,000 American jobs—and is indirectly responsible for almost two million more that supply and support this highly skilled workforce. Most important, its products are essential elements of modern medical care. They include everything from CT scanners and pacemakers to blood pressure cuffs and robots used by surgeons.
Yet instead of protecting this paragon of American ingenuity and innovation, the Obama administration and Congress have viewed the industry as a cash cow from which they could milk profits to help pay for the president’s health law. So they added to the Affordable Care Act a 2.3% excise tax on medical devices that will take effect at the beginning of 2013.
Miller notes that “80% of [the medical device industry’s] companies have 50 or fewer employees, the very businesses we are relying on to turn the U.S. economy around.” He cites evidence these companies are already retrenching, laying off employees an cutting back on research. (George Will provides a handy guide to some of these cutbacks.)
The Congressional Research Service explained in a 2010 report: “For ordinary medical devices with many producers, the tax should be fully passed on to consumers, although some of the cost, depending on the device, will be paid by insurers and lead to higher insurance payments, still ultimately falling on consumers. For unique devices already existing and under patent, where the producer has a monopoly position, some of the costs will be absorbed by the producer, although to the extent that the costs are covered by health insurance that effect would be muted. In the longer run, the tax could discourage investment in developing new innovative devices, an argument that has been made by industry spokesmen.”
So that tax on medical device companies is really a tax on users of medical devices (everything from insulin pumps to heart defibrillators), and it will inevitably be passed on to the consumer, rich and poor alike.
A medical device is any “instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article” that meets any of the following three tests: (1) is recognized in the National Formulary or the United States Pharmacopeia (or a supplement); (2) is used for the diagnosis, cure, mitigation, treatment, or prevention of disease; or (3) is intended to affect the structure or any function of the body through other than chemical means (or is not dependent upon being metabolized to achieve its primary intended purpose).” That means wheelchairs, dialysis machines, EpiPens, blood pressure cuffs, catheters — virtually every medical object a patient would come in contact with.
Like any consumption tax, the medical device tax is regressive. This one is especially pernicious because those affected the most are sick, non-rich people. Imagine if George W. Bush proposed taxing heart patients’ pacemakers. (The headlines would read: “Bush to heart patients: Drop dead!”)
If you tried, it would be hard to come up with a more flawed revenue mechanism than this one. But it does one thing extremely well: It hides the cost of Obamacare. It therefore serves Obama’s political purposes very well. The medical device tax has every negative attribute a tax can have. It is nontransparent, regressive and anti-technology. If for no reason other than dumping this tax, Obamacare should be abolished. We could hardly do worse starting from scratch