Will the Medical Device Tax Go over the Fiscal Cliff?

Will the Medical Device Tax Go over the Fiscal Cliff?

Mark Crawford

At the time of this writing the fiscal cliff still looms large—as Republicans and Democrats parry and thrust regarding what gets cuts and what doesn’t, some members of Congress are trying hard to get medical device tax cut from the final spending bill.

U.S. Senator Al Franken, a Minnesota Democrat who is also a member of the Health, Education, Labor and Pensions Committee,  is adamant about repealing, or at least delaying, the medical device excise tax, which goes into effect January 1, 2013. The tax applies to manufacturers of medical devices and equals 2.3% of the manufacturer sales.

“I want to repeal the medical device tax altogether,” Franken says. “But I am concerned that we are running out of time before this job-killing tax goes into effect. So, for now, the best thing to do to ensure that this important industry continues to create jobs and producing life-saving devices is to delay this unwise tax. I’m pushing Senate Majority Leader Harry Reid to include such a delay in the current fiscal-cliff negotiations. The medical device industry creates tens of thousands of good paying jobs in Minnesota. We should do everything we can to protect it.”

In a letter to Reid (and cosigned by 17 other senators), Franken indicates that:

“The medical technology industry directly employs over 400,000 people in the United States and is responsible for a total of two million high-skilled manufacturing jobs. Additionally, this industry is also one of the few that enjoys a net trade surplus, significantly boosting U.S. exports around the globe. In an environment focused on increasing exports, promoting small businesses, and growing high-tech manufacturing jobs for the future, we must do all we can to ensure that our country maintains its global leadership position in the medical technology industry and keeps good jobs here at home.

“With this year quickly drawing to a close, the medical device industry has received little guidance about how to comply with the tax-causing significant uncertainty and confusion for businesses. As we work together to develop a long-term solution to help move our economy forward, reduce our debt and reform our tax code, we urge you to support delaying enactment of this provision in a fiscally responsible manner.”

U.S. Representative Erik Paulsen (also from Minnesota and an opponent to the tax) is encouraged by the support he sees among Democrats and Republicans for repealing the tax. “The one bright spot that sort of sticks out is the bipartisan support in both bodies now,” he says. “And that is important.”

However, with January 1 just days away, the odds of anything being resolved regarding the fiscal cliff and the medical device tax are incredibly low, which makes delay seem the most probable outcome, followed by deeper discussions about repeal as part of a tax overhaul.

“There’s no doubt that outright repeal is much more difficult,” admits Paulsen. “However, Senate Democrats are also talking about delaying the tax and acknowledging that, because there are implications of the tax from a jobs perspective, it would make sense to delay the tax going into the New Year and addressing the issue in more comprehensive tax reform. So the dollar amount becomes a lot smaller.”

“In fact,” writes Suzy Khimm in the Washington Post, “some Democrats are feeling so bullish that they are already jumping ahead to what they anticipate will happen in Part 2 of a fiscal cliff deal—not just the Bush tax cuts that are set to expire, but the broader reforms that they expect to happen later next year, as part of the big fiscal cliff package.”

Mark McCarty states in Medical Device Daily that a repeal of the device tax faces longish odds.

“Opponents of the tax have punted to a suspension of the tax, as was disclosed by a letter from nearly 20 members of the U.S. Senate, a move purportedly prompted by the short turnaround from the date of the IRS’s final rule to the effective date of the tax [only a few weeks],” he says.

A serious problem for the device tax is the intractability of the positions of the two sides, which has “already clobbered any prospect of repeal and now seems likely to KO even a suspension,” McCarty continues.

“There’s an old saying in the public relations business that basically says, ‘may your bad news be buried under even worse news,’” says McCarty. “Conversely, the prospect of legislation being buried under something politically heftier is a problem, which is precisely the dilemma faced by opponents of the device tax.”

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