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ELIZABETH FLORES • Star Tribune 2011 A Medtronic pacemaker.

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That sure is some phony outrage over the medical device tax

  • Article by: Paul John Scott
  • October 9, 2013 - 6:26 PM

Minnesotans are supposed to be troubled by the medical device tax, but the campaign against it is hollow. The tax, a 2.3-percent levy on sales of medical devices, was written into law under the Affordable Care Act as a way to help pay for expanding access to medical insurance. The tax’s repeal is a recurring cause in the news, especially during the current shutdown standoff, and nowhere more so than here in Minnesota, home of many leading device makers.

To judge from the howls and furrowed brows, this thing is worse than the Beard Tax of 1533.

Undoing this tax has become a personal obsession for two members of Minnesota’s congressional delegation, Rep. Erik Paulsen, a Republican, and Sen. Amy Klobuchar, a Democrat. It has the support of Democratic Sen. Al Franken and Rep. Keith Ellison as well.

To have Democrats favoring this repeal is, of course, unusual. The ACA is the signature accomplishment of their standard-bearer. Moreover, it’s hard to imagine that a single Minnesotan pulled the lever for Franken or Ellison to reign in corporate taxes. But Washington changes people.

As opposed to the sweeping GOP fatwa against all things Obamacare, the Democrats depict the device tax as a bad part of a good law, an error that can be tossed aside as long as replacement funding is found. It’s been a heroic effort. Echoing the arguments of the device industry, the delegation has depicted the tax as an unfair burden that will kill jobs and stifle innovation. Because even hard-left Democrats from device-making states like Massachusetts (Sen. Elizabeth Warren) and Illinois (Sen. Dick Durbin) have opposed the tax, it’s increasingly presented as one of the few, if not only, issues that can unite the two parties.

The repeal effort is undying, floated again and again as the only thing that could end the current stalemate. Imagine the good fortune of the people at AdvaMed, the med-tech lobbying arm. Their cause has been successfully depicted as the great uniting issue of our times.

Under the proposed trade-off, Tea Party Republicans would vote to raise the debt limit, and for their troubles, Democrats would send them back to their gerrymandered districts with a scalp from Obamacare in the form of the device tax.

It’s hard to fault Paulsen for his zeal. His party is single-minded about opposing taxation in all forms, and as a legislator opposed to the ACA, his tone is at least nonapocalyptic. He makes using your congressional seat as an extension of private industry look somehow less dishonorable than it is. But if Franken and Klobuchar believe they are doing anything greater than advancing the pet grievance of a powerful lobby, it’s a hard sell. The crying has been loud, but the outrage is phony.

The burden of the tax is not onerous. For start-up device businesses, the tax is a small slice of a small number, and if 2.3 percent of revenues will threaten your survival, perhaps your company has other problems. For large companies — and 85 percent of the tax would be paid by large companies — the tax is even less likely to cause a shedding of jobs. As one analyst recently wrote, the hit a company like Medtronic takes on 2.3 percent of its sales is comparable to the sort of dips it routinely weathers as the dollar rises in global markets. Nor is the structure of the tax unreasonable. It targets revenue because profits can be hidden, and because failing to do so would have been like using electronic pulltabs to finance a new stadium.

Nor is the device industry in some special category of virtue. It may employ 35,000 Minnesotans and sell the hardware of health care, but it arguably benefits from our region as much if not more than it gives back. It does things that resemble the worst of corporate America: It has been fined for defrauding the federal government. It uses the courts to deny repayment to those harmed by its goods. It charges inflated prices for its products, buys off Washington and has bought off doctors, and has no transparency in its cost structure.

Nor is there anything unique about the tax. The industry was one of four health care stakeholders asked to help pay for the expansion of care, an expansion from which they will benefit in the form of 30 million new customers. The insurance industry chipped in $60 billion; the hospitals, $155 billion, and drugmakers, $80 billion. Even tanning salons are paying. But the device industry wants to pay nothing. This is after having an initial $40 billion contribution cut down to $29 billion by you-know-who.

Perhaps the least persuasive argument has been that, because the device industry’s products largely serve people already covered by Medicare, it won’t benefit from the new younger customers and should not have to help pay for their care. The device industry, however, has profited for decades thanks to our broken health care system. It should be part of the solution.

The Minnesota spirit was once one of chipping in and stepping up to shared challenges. This unending obsession with repealing the device tax is precisely the opposite. It is more of the same unproductive urge, bad for civic engagement, to reargue settled law, an urge that has turned Washington into a legislative version of “Crossfire.”

The device tax is not about you or me, and it should not be the subject of so much of our legislators’ energies. It is about a desire by a manufacturing sector to continue making a lot of money. We can wish the industry well and admire its goods without taking up its cause.

 

Paul John Scott is a health sciences writer living in Rochester. On Twitter: @pauljohnscott1.

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