Report: Device tax is hard to decipher and kills jobs

The drumbeat to repeal the 2.3% medical device tax continues unabated, and the nonprofit Tax Foundation is the latest to sound off on all the damage the measure could cause to med tech job growth, innovation and day-to-day business. Its conclusions add new wrinkles to arguments the industry increasingly cites to build support for a repeal.

Among the most sobering: Extra costs generated by the tax could eliminate 45,000 U.S. medical device jobs over the next several years either through outright cuts or moves overseas, the report concludes. For what it's worth, that's higher than the "as many as 43,000 jobs" that AdvaMed CEO Stephen Ubl predicted in December would be lost because the tax.

Another concern the report notes is that medical device manufacturers will have to pay the tax whether or not they make a profit. "As a result," the Tax Foundation concludes, "firms will take on fewer risks, and less research and development" in order to preserve their cash reserves. What's more, the report notes, the tax is so complex that companies are having trouble figuring out how to implement it properly, which means many companies need to focus limited financial resources on tax compliance rather than day-to-day business.

Even worse, the Tax Foundation predicts the tax will add stress and more cutthroat practices to the marketplace. As FierceMedicalDevices and others have reported, the Tax Foundation also predicts that manufacturers will boost prices in an effort to pass the device tax on to its clients. But as the report notes, hospitals are already complaining. The Tax Foundation predicts that hospital market power could undercut this effort, because many medical device companies are smaller, with fewer than 50 employees, and so "the industry likely lacks bargaining power, and the effects on business could be great."

Clearly, the data to support a tax repeal continues to come out. But some observers want the industry to stop complaining and focus on making due with the new reality created by the tax, even in the wake of the U.S. Senate's symbolic majority vote recently to support the tax's repeal. Forbes contributor and tax policy expert Dean Zerbe reminds us that the tax, for all its flaws, is likely to stay in place unless Congress can come up with an offset. So companies, he argues, should focus more on figuring out how to limit their exposure to the tax rather than hoping for its repeal.

- read the report
- here's Albuquerque Business First's take
- check out Dean Zerbe's perspective at Forbes

Special Report: 5 Things You Need To Know About the Medical Device Tax