Device tax, if not stopped, will stifle

  • Article by: ERIK PAULSEN
  • Updated: June 6, 2012 - 9:21 PM

Congress can preempt this burden on medical innovation and jobs.

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As Minnesotans, we can lay claim to some of the best this country has to offer. In the arenas of education, the arts and enterprise, our state has contributed a lot to the success of our nation over the last 154 years.

One of the brightest spots in our state's identity is our propensity for ingenuity and innovation in the development of life-improving and life-saving medical technologies. We may be the land of 10,000 lakes, but we are also home to more than 400 medical-technology companies that are responsible for more than 35,000 jobs.

We have all come to know the titans of the device industry -- like Medtronic, which began in a Minneapolis garage in 1949. With just a small amount of seed capital from his mother, Earl Bakken started a medical equipment repair shop that would go on to create the first battery-powered external artificial pacemaker, and grow into the largest medical-technology company in the world.

Almost every week I get the opportunity to tour medical-device innovators -- large or small, established or new, profitable or upstarts. Many of them only have five or 10 employees, but it's exciting to see these engineers, doctor, and entrepreneurs passionately developing new products to improve lives and restore health to millions of Americans. The stories are all different, but they share a common theme: a drive to research, develop and innovate.

Unfortunately, this Minnesota success story is under attack by a looming tax on an industry that accounts for 423,000 American jobs.

Unless Congress or the Supreme Court steps in by the end of the year, a new $29 billion tax on American medical devices will be triggered. This tax is part of the president's health care law and includes all types of medical devices, from heart stents and implantable defibrillators to artificial hips and wheelchairs. Suddenly, our medical-device industry will face one of the highest tax rates of any industry in the world. This is not a tax on profit; it's a 2.3 percent excise tax on revenue, regardless of whether a company is profitable.

This is nothing more than a tax on U.S. medical innovation, and it will hit states like Minnesota hard. These medical-technology companies will be forced to reduce investments in the industry's lifeblood: research and development.

Recently, I visited BridgePoint Medical, which produces state-of-the-art medical technologies for removing life-threatening cardiac blood clots and has grown from 15 to 45 employees in the last 14 months. However, as an early-stage company with high-growth potential, BridgePoint Medical does not project profitability for at least six more quarters.

The company's CEO, Denis Harrington, is frustrated. He's building a company, adding high-paying jobs and saving lives -- but with the new tax looming, Denis is pausing to consider what cuts must be made to address this financial burden. Job creators like Denis should be able to focus on patient care and the growth of their business.

After hearing countless stories like BridgePoint's, it's evident that this new tax is putting our state's global leadership in this important industry in serious jeopardy.

Some studies estimate the new tax will cost our nation as much as 10 percent of the medical-device industry's workforce -- including thousands of jobs right here in Minnesota.

At a time when our economic recovery is still fragile, we should not be placing extra burdens on entrepreneurs and startups that have the potential to grow from a garage, a back yard or a laboratory into the next generation of Medtronics. We should be encouraging these courageous innovators to ensure that Americans have access to new, potentially life-saving technologies well into the future.

Soon, Congress will take up the Protect Medical Innovation Act, my bipartisan legislation to repeal this onerous and wrong-headed tax. With 239 cosponsors from both sides of the aisle, now is the time to stop this tax on innovation and defuse this ticking time bomb before it's too late.

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Erik Paulsen, a Republican, is a member of the U.S. House. He represents Minnesota's Third Congressional District.

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