Repeal Tax on Medical Devices

Dan Coats

By: Dan Coats - U.S. Senator, Indiana (R)

Categories: Manufacturing, Taxes

Winston Churchill famously said that a nation trying to tax itself into prosperity "is like a man standing in a bucket and trying to lift himself up by the handle." Unfortunately, one of Indiana's most vibrant, growing industries is currently stuck in this position because of a small provision tucked away in the 2,000-page Obamacare law.

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The 2.3 percent excise tax on total sales of medical devices imposed by this law is hindering Hoosier innovation and job creation.

Medical device manufacturers directly employ 20,000 Hoosiers and indirectly support thousands of additional jobs. These are jobs that pay, on average, 56 percent higher wages than the average wage rate in Indiana.

With more than 300 FDA-registered medical device manufacturers in Indiana, this industry is boosting our state's economy and producing technologies that are changing and saving lives. Products ranging from wheelchair van lifts to artificial knees to catheters used in heart procedures have improved or saved the lives of many Hoosiers and countless others across the globe.

Since its implementation in 2013, this destructive tax has caused companies to lay off workers and shelve plans to expand and build new facilities. A recent survey by the Advanced Medical Technology Association found that the device tax resulted in 18,500 lost jobs while the industry will forgo hiring 20,500 workers over the next five years.

The device tax disincentivizes medical device manufacturers from expanding research and development, capital investment and employee compensation. We have already seen several examples of this in Indiana.

Cook Medical of Bloomington was forced to table plans for a major expansion because of the device tax. In 2013 testimony before the Senate Budget Committee, Cook Medical chairman Steve Ferguson stated, “Cook has made the difficult decision that without repeal [of the medical device tax], we will move important new product lines outside of the U.S. Our previous plans to open up five new manufacturing facilities in American towns are now on hold as we use capital intended for these projects to pay the excise tax.”

The negative impact of this tax is not only felt by large employers like Cook Medical. This tax is particularly unfair because it is assessed on the gross sales of companies, not their net profits.

As a result, it is especially harmful to companies that are not yet profitable and may be struggling to launch a new innovation to save or improve lives. A small, Warsaw-based device manufacturer that develops and sells orthopedic implants for children had to shelve two important projects simply because it had to use its resources to pay the medical device tax.

After the tax was implemented, an employee of that company shared its story with me. Because of this tax, this manufacturer is now largely inhibited from working on important new products, such as a device that reduces a wheelchair-bound child's discomfort.

How ironic is it that Obamacare, which President Obama said would increase health care coverage, is actually a barrier to improving lives and health outcomes?
I recently joined with nine of my Senate colleagues, including five Democrats, to introduce the Medical Device Access and Innovation Protection Act. Our legislation, with bipartisan support, would eliminate this tax.

My hope is that the strong support from Republicans and Democrats to permanently eliminate this harmful tax will force President Obama to join us on this issue. It is long past time for Washington to stop punishing medical device innovators in Indiana and across the country.

Dan Coats is a U.S. Senator from Indiana.

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