Curtis Dubay / Medical device tax proves tax increases cost U.S. jobs - pressofAtlanticCity.com: Commentary

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Curtis Dubay / Medical device tax proves tax increases cost U.S. jobs

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Posted: Thursday, December 27, 2012 12:01 am

Curtis Dubay / Medical device tax proves tax increases cost U.S. jobs

The more time passes, the more we get to see the real-life consequences of Obamacare. Back when the Affordable Care Act was passed, some of us warned that the 18 tax increases it contained would do serious damage to the economy. Only now that the damage is about to take hold are some in Congress taking note.

The specific tax that has caught the attention of 18 senators, most of whom voted for Obamacare, is the medical device tax. This tax begins on Jan. 1 - along with four other Obamacare taxes - and levies a 2.3 percent excise tax on the sales of companies that manufacture and import medical devices.

Medical devices include a broad range of instruments commonly used in medical offices - everything from MRI and X-ray machines to syringes and stethoscopes. They also include products used directly by patients, such as prosthetics. The senators want a delay in the implementation of the tax.

The senators said they asked for the delay because of uncertainty about how the tax will be implemented. But the IRS recently released detailed regulations about how it will implement that tax, clearing up much of the lingering uncertainty. The more likely reason for their concern is that these senators are worried about the job losses that will mount once the tax goes into effect.

Depending on how these businesses pass the tax on, it could result in higher prices for their customers (i.e., patients), lower returns to their shareholders or fewer jobs for their workers.

Evidence is mounting that it is their workers who will bear the brunt of the tax. Layoffs of thousands of workers have already occurred at some manufacturers that have anticipated the tax's impact on their businesses.

For instance, Stryker Corp. of Kalamazoo, Mich., announced it will lay off about 1,000 workers (about 5 percent of its workforce) because of the tax. Many of those job losses will occur in the company's research and development department. This will stifle the company's ability to innovate to create new products or improve existing products.

More job losses could follow as more medical device manufacturers and importers realize the impact that the tax will have on them. The jobs already lost will remain lost unless Congress repeals the tax.

The fallout from the medical device tax may surprise these senators, but it shouldn't. After all, for the most part, they support raising taxes on carbon, cigarettes and gas, for instance, to dissuade their use. Raising taxes on medical devices was bound to have some adverse consequence, which they should have known if they truly believe taxes can be used to alter behavior.

These senators should apply what they have just realized about the medical device tax to the other taxes about to hit with the fiscal cliff. In that debate, the argument for raising tax rates on "the rich" (which President Barack Obama defines as a family making more than $250,000 a year) is that raising their rates will not impact jobs.

The argument goes that higher rates on these taxpayers, who just so happen to be mostly small businesses and investors, won't reduce their incentives to invest, an incentive that spurs growth and creates jobs. Warren Buffet is the chief distributor of this fallacy. This is nonsense. Of course raising tax rates reduces economic growth and costs jobs.

The 18 senators who want the medical device tax delayed to put off its negative impact on jobs should also reconsider their support for Obama's other tax rate increases, which will have a much greater negative impact on jobs. Doing so would at least be intellectually consistent.

Curtis Dubay is a senior policy analyst at The Heritage Foundation.

Posted in on Thursday, December 27, 2012 12:01 am.

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