Erik Paulsen’s Long War Against The Medical Device Tax

Rep. Erik Paulsen (R-Minn.) has made a name for himself in Congress by working on two big legislative areas: health and taxes. More than half of all the bills he’s sponsored have dealt with taxation, and 28 percent of the bills he’s sponsored have dealt with health.

One of his biggest policy projects in both areas is the repeal of the medical device tax. The tax imposes a 2.3 percent sales tax on X-ray machines, MRI equipment, pacemakers, and surgical equipment, but doesn’t apply to hearing aids, contact lenses, and other medical equipment that the general public might buy. The tax was bundled into Obamacare and was estimated to bring in $29 billion over 10 years.

Proponents of the tax argued that medical device makers shouldered at least some of the blame for rising healthcare costs. As Cory Zurowski of City Pages recently wrote: “Hospitals paid as much as $13,000 for hip implants that cost $350 to manufacture. Other companies didn’t hesitate to mark up prices at double, triple, quadruple their costs. Still others had been fined for paying kickbacks to surgeons. The industry had sketched a blueprint for price-gouging that would later be adopted by drugmakers.”

The Third Congressional District that Paulsen represents is home to many medical device manufacturers, and they’ve lobbied aggressively to keep Paulsen in their pocket. In the 2009-2010 congressional fundraising cycle, he took almost $40,000 from the medical device and supplies industry. In the run-up to last year’s election, he became the industry’s top recipient in the House, snagging over $145,000 from industry donors.

In exchange, Paulsen became one of the tax’s earliest critics, calling it a “job-killing” measure. “Once it takes effect, this tax will harm job growth, slow innovation and raise costs,” he said in 2010. “The right thing to do is stop this tax now, before its negative impact takes hold.”

In 2013, Paulsen and other congressional Republicans successfully instituted a two-year moratorium on the tax, effective from December 2015.

Yet analysts found scant evidence that the tax had led to economic hardship. Prior to the moratorium in 2015, the Congressional Research Service found that the medical device tax had changed employment payrolls by no more than two-tenths of 1 percent. In a separate survey that same year, most of the executives in the U.S. medical device industry said their companies did not make significant business changes in 2014 in response to the tax. And in 2015, the industry added 24,000 jobs and saw its profits rise by almost $3 billion.

Yet the war against the medical device tax rages on. It was Paulsen’s hope in 2015 that the moratorium would spell the end of the medical device tax. After winning reelection last year, he said his “first initiative” in 2017 was to permanently repeal the tax.

And what have Paulsen’s allies in the medical device industry done with the savings they reaped due to the moratorium on the tax? Increased their executive pay, of course! City Pages reports that between 2012 and 2014, executive pay at medical device manufacturer Zimmer Biomet averaged $8.6 million. But last year, the company’s CEO pulled in nearly $11.5 million.

This is what Rep. Paulsen’s efforts to repeal the law are really about: making money for corporate leaders who, in turn, kick at least some of that money back to him for his reelection bids.

Paulsen has been captured by the special interests. He is the swamp that the de facto head of his party, Donald Trump, pledged to drain. How long Paulsen is allowed to represent the Third Congressional District, however, isn’t up to Trump - it’s up to the district’s voters, who will be going to the polls next year for midterm elections.

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