Repealing device tax? Unnecessary

Congressional drums are beating once again to repeal the 2.3-percent medical device tax that raises about $2 billion annually to cover subsidies to low-wage earners under the Affordable Care Act (ACA).

While previous repeal attempts have failed, this time the repeal forces — including Minnesota Democratic Sens. Amy Klobuchar and Al Franken and Republican Rep. Erik Paulsen — will gain important leverage as leaders of the incoming Republican majority look for ways to emasculate the ACA.

But repealing the tax would amount to coddling a wealthy special interest at the expense of those least able to pay for health care.

If a repeal bill gets to President Obama, he should veto it. The tax does not damage the medical device industry as claimed. And it will have no discernible effect on Minnesota's industry giants Medtronic, St. Jude and Boston Scientific, which will pay a large portion of the tax.

Yes, Minnesota has a large medical technology presence, as does Massachusetts. Klobuchar and Franken — and even liberal Massachusetts Sen. Elizabeth Warren — are on the repeal bandwagon. But it's disquieting that otherwise intelligent lawmakers are quick to genuflect to the industry even though simple examination shows its lobbyists are overreacting and distorting facts. Plus, the lawmakers won't explain their eagerness to help a prosperous industry that's spending millions to kill the tax at the expense of poor folks who have no lobbyists and no cash to throw at politicians.

A Nov. 6 article in the Star Tribune ("New Senate starts device-tax talk") said the tax is "blamed for exporting jobs and driving up the cost of medical devices" — verbatim talking points of AdvaMed, a medtech lobby. AdvaMed now claims the small excise tax will do great harm, but back when the ACA was being drafted, this group was a strong supporter because it saw a major growth opportunity for the devices.

The tax is on medical devices sold, with exemptions for many individual retail products such as eyeglasses, hearing aids and wheelchairs. And since the 2.3-percent figure is an excise tax that's deductible on other taxes, its effective rate is closer to 1.8 percent.

• "The tax will cause the export of 42,000 jobs," says the industry. But a Bloomberg analysis found the claim "not credible." The reality is that there's zero incentive to ship jobs overseas because the tax applies only to domestic sales and imports but not to exports, which are half of the estimated $110 billion in annual medtech revenue.

• "The tax will increase device cost." The same Bloomberg analysis and the nonpartisan Congressional Research Service said that the tax is too small to affect demand and that consumers will scarcely notice.

• "The tax will suppress research and development." Hardly. Every credible analysis shows that the ACA will increase demand, which is strong incentive to develop better, less costly devices. Indeed, there already is increased research and development (R&D) investment in companies and in small start-ups where much innovation occurs.

Respected industry analyst EvaluateMedTech reports that worldwide device sales will grow at a 5 percent compounded rate to $514 billion by 2020 and that R&D spending will increase 4.2 percent to $30.5 billion. The report also said that in the first half of 2014, the industry raised $1.3 billion in initial public offerings, or 44 percent more than raised in all of 2013.

Interestingly, the EvaluateMedTech report with its impressive growth prospects was released last month at the annual meeting of AdvaMed, the very industry group that peddles discredited notions that the device tax will kill jobs, suppress growth and blunt R&D.