Minnesota lawmakers begin new push to kill medical device tax

WASHINGTON - Minnesotans from both parties in Congress are leading a new fight to undo a multibillion-dollar medical device tax levied under President Obama's health care overhaul, signaling a growing urgency for an industry that includes hundreds of companies in the state.

The first salvo is being fired by Minnesota Republican Erik Paulsen, who introduced legislation Wednesday in the U.S. House to repeal the tax. The second shot comes Thursday, when Minnesota Democrats Amy Klobuchar and Al Franken will co-sponsor a companion bill in the Senate.

The orchestrated one-two punch is designed to reignite a repeal effort that faltered last year, ushering in a 2.3 percent excise tax on medical devices last month that already has collected $97 million nationwide.

The first repeal measure, which faced a White House veto threat, passed overwhelmingly in the Republican-led House in June, supported by all four of Minnesota's House Democrats.

But the proposal died in the Senate, where Democratic leaders tabled it to protect health care reforms that are supposed to expand insurance to 30 million Americans next year.

Industry lobbyists say the fight is far from over. But political analysts give the repeal measure a slim chance of survival. Eliminating the medical device tax would blow a $30 billion hole over the next decade.

Back at square one, the repeal effort comes amid a major budget battle between the White House and congressional Republicans that will focus largely on spending cuts and maintaining government revenues.

The push also combines a pair of potential Senate rivals, with Paulsen frequently mentioned as a potential GOP challenger for Franken's seat next year.

'Panic button'

Paulsen, who shepherded the repeal bill through the House, said that with tax collections underway, lawmakers on both sides of the aisle are coming on board earlier in the debate than they did last time.

"Now the urgency is there," Paulsen said Wednesday. "It's time to hit the panic button, and I think some of my colleagues realize that."

Paulsen's chief co-sponsor this time is Democratic U.S. Rep. Ron Kind of Wisconsin, a state with a significant medical technology industry much like that in Minnesota, which hosts industry leaders such as Medtronic, St. Jude Medical and Boston Scientific.

Medtronic has said the tax could cost the company as much as $175 million annually. St. Jude has said its bill could be $60 million this year. The company publicly cited the tax bite as a factor in its decision to lay off 800 workers since August.

Critics call the tax on medical devices a tax on innovation and job creation.

"It makes no sense to have tax policy that encourages less American innovation, fewer American-made life-saving technologies and devices, and encourages that development offshore," Paulsen said. "Ultimately, that means less revenue for the government."

Laying out his rationale for the tax, Obama contends that medical device makers will benefit from the new business created by the expansion of coverage to Americans who are now uninsured. Industry representatives say that many of the newly insured will be young and that the increase in business will not offset the tax.

The Senate bill being introduced Thursday is sponsored by four Republicans and four Democrats, including Klobuchar and Franken, who had sought to delay implementation of the tax as part of the fiscal cliff deal struck at the start of the year.

Lost revenue

Unlike Paulsen, the two Minnesota Democrats voted for the 2010 health care bill, though they also worked to cut the medical device tax in half after it was first proposed.

"The medical device industry has created tens of thousands of good-paying jobs in Minnesota and 400,000 nationwide -- and helps save countless lives every year," Franken said.

But while Franken and Klobuchar have vowed to get the repeal through the Senate, they differ on the key sticking point of how to make up for the revenue that would be lost from medical device makers.

Last year's House-passed bill offset the lost tax revenue by trimming insurance subsidies for low- and middle-income workers under the health care law. Franken has criticized the GOP plan, saying it would undermine the goal of affordable health care. Klobuchar has endorsed the idea, though she and Paulsen say they are open to other proposals.

Klobuchar, who is leading the push in the Senate, said the ongoing budget debate could open up new possibilities.

"Its best chance is as part of comprehensive tax reform, or else part of a major deal that could come with the budget," she said.

Besides Klobuchar and Franken, the other Minnesota Democrats who have lined up behind the new repeal effort are U.S. Reps. Betty McCollum, Tim Walz and Rick Nolan, all supporters of the health care law.

While some analysts predict long odds against dislodging a tax already in place, the bill's backers say the tax toll on the industry -- particularly smaller start-ups -- will raise the stakes for the public.

Said Klobuchar: "It makes it more urgent for us, the industry and for consumers."

Kevin Diaz is a correspondent in the Star Tribune Washington Bureau.