The Republicans are set to take over Congress on Jan. 7, and the Affordable Care Act will be in their crosshairs. While a repeal of the entire law will meet President Obama's veto pen, the elimination of the medical device tax is more feasible, and an appealing way for Republicans to gut the law. Remember, the tax was even brought up during the 16-day government shutdown of October 2013.
On cue, Rep. Erik Paulsen, a Republican from the medical device hub of Minnesota, will introduce his third bill to repeal the 2.3% medical device excise on Jan. 7, according to MassDevice. Paulsen's previous two attempts to repeal the tax failed after it failed to get a vote in the House or the Senate, but the final outcome is far more unpredictable this time around since Republicans are on the cusp of owning both chambers.
Adding to the intrigue is tepid Democratic support for a repeal. The bill will be cosponsored by Rep. Ron Kind, a Democrat from Wisconsin. Paulsen's first attempt to eliminate the tax passed the House in 2012 by a bipartisan vote of 242-173, and in March 2013 the Senate voted 79-20 to repeal the tax in a nonbinding resolution.
One of the criticisms of the tax is that it has underperformed as a revenue raiser. MassDevice reports that the tax raised $1.4 billion in 2013, which is not on pace for the goal $30 billion over 10 years. A look at the number of filers reveals a large part of the problem. Out of an anticipation as high as 15,000 filers, only 5,107 medical device tax forms were filed.
"The IRS cannot identify the population of medical device manufacturers registered with the Food and Drug Administration that are required to file a Form 720 and pay the excise tax," the federal Treasury Inspector General wrote in a July 2014 report.
And industry, led by trade association AdvaMed, complains that the dreaded device tax kills jobs and med tech innovations. But in November 2014, the Congressional Research Service released to the public a report claiming the medical device tax will only result in a 0.2% decrease in device industry jobs and output, much to the dismay of the tax's critics.
President Obama has made it clear that he will defend the Affordable Care Act over the next two years, but it is not clear if that means vetoing a repeal of the medical device tax.
If that were to happen, the Republicans could force the bill to his desk again by voting for it a second (or third, or fourth) time and hope that he caves, or more substantively, they could try to incorporate a repeal in more comprehensive legislation in the event that corporate tax reform discussions become serious. That is another maybe, though it was made more likely by the advent of M&A deals--like the Medtronic ($MDT)-Covidien ($COV) deal--utilizing the tax saving tactic known as inversion.
- read the Mass Device article