Repealing The Medical Device Tax Could Lead To $20 Billion Budget Shortfall

Reps. Erik Paulsen (R.-Minn.) and Jackie Walorski (R-Ind.), both of whom sit on the influential House Ways and Means Committee, introduced a bill last month to extend the temporary ban on the medical device tax for five years.

The tax places a 2.3 percent sales tax on gross receipts for medical devices like X-ray and MRI machines, pacemakers, and surgical instruments. After its introduction in 2013, the tax came under fire from medical device makers, hundreds of which are based in Minnesota. The industry has spent millions lobbying against the tax, and Republicans in Congress rewarded the effort by implementing a moratorium on it from 2016 through the end of last year.

The tax has come under fire from both sides of the aisle, but Democrats fear that repealing the tax could open the door to undoing the entirety of Obamacare.

Paulsen, meanwhile, has said that a full repeal of the tax is his “top priority” in 2018. Since 2016, he argues, medical device companies have expanded their operations significantly enough to justify a permanent repeal.

But much of this expansion is in Japan, Europe, and elsewhere overseas. Moreover, many medical device manufacturers did a brisk business even while the tax was in effect. Twin Cities-based Medtronic, for instance, grossed about $3.5 billion in both 2013 (when the tax was first introduced) and in 2016 (when the tax was shelved). Zimmer Biomet, a manufacturer of artificial joint orthopedics and dental prostheses based in Indiana, earned an average of $549 million each year that the tax was in effect.

Since it’s coupled with the Affordable Care Act, Republicans couldn’t eliminate the medical device tax outright when they drafted their tax-cutting legislation late last year. That frustrated medical device makers, who - despite the nearly 15 percent drop in the corporate tax rate - still want the medical device tax eliminated.

And how can Paulsen say no? In 2016, Medtronic was the second-largest donor to his campaign committee, and the Center for Diagnostic Imaging was among his top donors in the 2014 midterms. Since taking office, Paulsen has collected nearly $1.8 million from the pharmaceutical industry, makers of health products, and health professionals.

During the three years it was collected, the medical device tax brought over $5 billion to federal coffers. An analysis from the Joint Committee on Taxation found that a full repeal would cost the U.S. $20 billion over a decade. Those lost revenues will follow on the $135 billion hole the GOP’s tax plan will blow in this year’s budget and the estimated $280 billion shortfall in government revenues the tax plan is expected to incur next year.

Featured image via YouTube.

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