Analysis: Prominent Democrats Call for Medical Device Tax Repeal

Analysis: Prominent Democrats Call for Medical Device Tax Repeal
January 15, 2013

It’s not often that cynical official Washington is outraged by chutzpah, but it happened recently when 18 Democrat senators and senators-elect sent a letter to Senate Majority Leader Harry Reid asking for a delay in the effective date of Obamacare’s medical device tax.

One of 20 new or higher taxes in Obamacare, the medical device tax is particularly harmful. As the letter points out, this industry employs 400,000 people who make everything from pacemakers to prosthetics to catheters.

The tax hike, scheduled to take effect on New Year’s Day 2013, is often misreported as a 2.3 percent excise tax on medical device manufacturers. In fact, it’s not a tax on their profits—it’s a gross tax on their revenue. Even if a manufacturer loses money, it still has to pay Uncle Sam 2.3 percent of the revenues that came in through the door.

For most of these companies, a 2.3 percent gross receipts tax translates into a profits tax of up to 50 percent—and this is on top of the regular income tax they will have to pay.

Did Senators Read the Law?

These Democrat senators and senators-elect—including Al Franken (MN), Richard Durbin (IL), Charles Schumer (NY), John Kerry (MA), Kirsten Gillibrand (NY), Robert Casey (PA), and more—all knew this (or should have) when they voted for or advocated Obama’s law back in 2010. They knew this tax increase would likely cripple if not kill this entire industry. Yet they passed the law, anyway. Now they want a sweetheart exemption, leaving the rest of us to pay the remainder of the 20 new or higher taxes in the Obamacare law.

“Every one of these Democrat senators either voted for or strongly supported Obamacare,” said Americans for Tax Reform President Grover Norquist. “How is it news to them that this tax hike was on the way? Have they never actually read the law, or did they want to pass it so that they could find out what was in it?”

Potential for Concessions

If this sounds familiar, it should. A similar “golly gosh, that was in there?” moment came for Democrats in 2011 when they had to take out the increased 1099 information reporting requirements for businesses. Even the Internal Revenue Service (IRS) said the torrent of new paperwork would shut down that agency—basically, businesses would have to report all business transactions of any meaningful size to the IRS.

The 1099 provision of the law was repealed, and congressional Republicans got a concession in return: the subsidies to purchase Obamacare’s mandated insurance were clawed back, making the mandate even less palatable to taxpayers.

Congressional Republicans should respond in kind today with the following offer: we’ll fix the medical device tax problem you Democrats caused, but we’re going to pay for it by partially repealing Obamacare subsidies. No free lunch after the fact.

Ryan Ellis (rellis@atr.org) is tax policy director at Americans for Tax Reform.