Med-tech industry lobbies for tax credit

  • Article by: JANET MOORE , Star Tribune
  • Updated: March 16, 2011 - 11:46 PM

Paulsen co-sponsors a bill in the U.S. House for a bigger research-and-development tax break.

The big guns in medical technology are lining up to support a bill recently introduced in Congress that would make a research-and-development tax credit a permanent part of the federal tax code.

The bill, called the American Research and Competitiveness Act, was introduced last week by Rep. Kevin Brady, R-Texas, and has attracted bipartisan support, including Rep. Erik Paulsen, R-Minn., a co-sponsor whose suburban Twin Cities district is home to several med-tech companies.

"Research and development is imperative to our country's competitiveness in the global marketplace," Paulsen said. "We need a tax code that spurs innovation and promotes sustainable job growth in industries like medical technology, which provides thousands of high-paying jobs in Minnesota."

The tax credit would be extended to all types of companies investing in research and development, not just med-tech concerns.

But because big med-tech companies spend anywhere from 8 to 13 percent of their annual revenue on R&D -- a crucial component in the development of new products -- the bill has attracted considerable interest in Minnesota. The state is home to more than 300 medical device firms, including the world's largest, Fridley-based Medtronic Inc.

The United States was the first nation to offer a tax incentive for research and development in 1981, but now it ranks 24th out of 38 nations examined in a recent study by the International Organization for Economic Cooperation and Development. The R&D tax credit in the United States has always been extended on a short-term basis -- 14 times in the past 30 years.

The proposed bill would also strengthen the amount companies can recoup for investing in R&D from the current 14 percent up to 20 percent. According to the med-tech industry organization AdvaMed, increasing the credit to 20 percent would boost economic output by $90 billion.

Stephen Ubl, the Minnesota native who heads Washington, D.C.-based AdvaMed, said the United States' current leadership position in R&D "is by no means assured."

"American tax policy must sufficiently support research and development for industries like medical technology to level the playing field with foreign governments eager to attract American jobs and develop home-grown competitors to American firms," he said.

Likewise, Mark Leahey, CEO of the Medical Device Manufacturers Association, said "innovators need to plan for future investments and strategies, and this can only be done when there are predictable tax and regulatory policies in place."

In fiscal 2010, Medtronic spent 9.2 percent of its annual revenue, or $1.4 billion, on R&D. Natick, Mass.-based Boston Scientific Corp., which employs about 5,000 in the Twin Cities, spent about $1 billion on research and development last year. And St. Jude Medical Inc., of Little Canada, spent $631 million, or 12.2 percent of net sales, on R&D in 2010.

However, a report by the Government Accountability Office said concerns have been raised over the years about the cost-effectiveness of the current credit and its administrative and compliance costs.

Janet Moore • 612-673-7752

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