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Taxing amputees: The medical device tax in context

April 30. 2013 7:54PM

Taxing "the wealthy" or "businesses" to pay for emotionally appealing government initiatives - such as expanding health insurance coverage for the general public - tends to be a winning political move as long as the benefits fall on a majority of voters while the costs fall on a demonized minority. What happens, though, when that minority turns out to be heroic?

When Obamacare was being strong-armed through Congress, the American people were told that the benefits would accrue to everyone while the costs fell on sinister corporations and the wealthy. Among the dark and mysterious business interests that would bear the cost of the new law was the medical device industry. Obamacare included a 2.3 percent tax on the sales price of medical devices - not on profits, so even startups that have yet to make a profit have to pay the tax on every device they sell.

Since Obamacare became law in 2010, a funny thing has happened to employment in the medical device industry. It has fallen. U.S. employment in the industry hit 409,000 in 2009, according to research by Diana Furchtgott-Roth of the Manhattan Institute. Through 2011, the latest year for which data are available, it fell to 387,000. During the recession years of 2007-2009, medical device manufacturing grew from 3.2 percent of the U.S. manufacturing sector to 3.7 percent. But after 2009, its share declined.

Cheerleaders for Obamacare mock opponents of this tax as pawns of rich business interests. The New York Times on April 2 editorialized against the entire medical device industry, portraying it as a wicked puppet master in an editorial titled "One industry's hold on the Senate."

Wrote the Times, "there has been a forceful and well-financed campaign to repeal the tax - waged, naturally, by the medical device industry. It has donated generously to lawmakers and candidates, taken them on tours of their plants and spent tens of millions in lobbying."

Heaven forbid that business owners singled out for taxation exercise their rights of speech and assembly to educate their elected representatives about the actual effects of said taxation.

The Times' editorial was inspired by a non-binding Senate vote on the medical device tax. The March vote was 79-20 in favor of repealing the tax. Even Al Franken and Elizabeth Warren voted for repeal. The Times blames their switch on the corrupting influence of money in politics. But perhaps seeing firsthand how the tax hurts employment and production in an industry that saves, prolongs and improves the lives of people with serious medical problems might also have had an effect.

To some ideologues, no business can possibly be noble or heroic. Yet the artificial legs and feet that will be worn by the at least 15 amputee victims of the Boston Marathon bombings, and have been worn by countless veterans of Iraq and Afghanistan, have to come from somewhere. They will be manufactured by companies like Next Step Orthotics in Manchester - companies that have spent years urging their elected officials to repeal the tax that costs jobs, impedes innovation and slows growth in their industry, making artificial limbs more expensive.

Demonizing medical device manufacturers so the American people will support extracting $29 million from them over the next decade might make for good politics, but it is horrible policy. No one would come out and say, "let's tax amputees to support Obamacare." But that is precisely what the medical device tax does. Let's kill it before it does lasting damage to an important and once-growing American manufacturing industry.

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