The Tennessean: Sen. Lamar Alexander seeks repeal of federal tax on medical devices

Posted on March 21, 2013

By Paul Barton

WASHINGTON — Sen. Lamar Alexander introduced legislation Thursday to repeal a new federal tax on one of Tennessee’s most important export products — medical devices.

The 2.3 percent excise tax went into effect Jan. 1 as part of the 2010 Patient Protection and Affordable Care Act, the comprehensive health care reform act that President Barack Obama pushed through Congress.

It is expected to raise about $30 billion over the next decade to help pay for extending health care coverage to millions of now uninsured Americans.

Alexander’s proposal, offered as an amendment to a fiscal year 2014 budget proposal, calls for negating the revenue loss by also repealing a tax credit for production of wind energy, a form of alternative power he has long opposed.

A vote on the amendment was not expected until late Thursday at the earliest.

“This amendment is about ending two damaging tax policies that are costing Americans billions of dollars, and costing Tennesseans good jobs,” the Tennessee Republican said in a prepared statement.

“It gets rid of a 20-year-old, multi-billion-dollar subsidy for unreliable, expensive wind energy that stands no chance of powering our nation’s 21st century economy, and it repeals the Obamacare tax on life-saving medical devices — Tennessee’s top export and an important source of good jobs.”

Officials at the Tennessee Department of Economic and Community Development immediately praised the action, saying passage would protect the state’s No. 1 export sector.

“It would be a very significant contribution to the Tennessee economy to get that tax repealed,” said Clint Brewer, agency spokesman.

In 2011 alone, Brewer said, export sales of medical devices from Tennessee companies totaled $3.1 billion, ranking second only to California. And from 2007 to 2012, Tennessee medical device exports totaled $15.4 billion.

“That’s very significant for a state the size of Tennessee,” Brewer said.

The industry’s nationwide revenues topped $116 billion.

Differing views

Specific medical device products range from surgical gloves to advanced imaging technology. Eyeglasses, contact lenses, hearing aids or other devices bought at retail for individual use are not covered.

Brewer said medical devices remain the state’s most valuable export, with the promise of further sales growth in the Asian and European markets.

Conservative economist Diana Furchtgott-Roth recently testified to the House Energy and Commerce Committee that the tax could both reduce demand for the products and shift production overseas.

Under “reasonable assumptions,” the Manhattan Institute expert testified, the tax could cost 43,000 jobs and $3.5 billion in lost wages nationwide.

Smith & Nephew, a medical device maker, announced last month that the tax would cause it to lay off 100 employees from its Tennessee and Massachusetts facilities.

But one of Washington’s most prominent liberal think tanks, the Center on Budget and Policy Priorities, argues that the tax needs to say.

“The excise tax is one of several new levies on sectors that will gain business due to health reform. The expansion of health coverage will increase the demand for medical devices and could offset the effect of the tax,” CBPP health policy analyst Paul N. Van de Water wrote earlier this month.

Van de Water also disputed another charge made by opponents of the tax — that it would discourage innovation.

“To the contrary, health reform may well spur medical device innovation by promoting more cost-effective ways of delivering care,” he said. “The industry’s lobbying campaign against the medical device tax is based on misinformation and exaggeration.”

The analyst added that new taxes are necessary so that an expansion of health care coverage will not add to budget deficits.

Originally, he said, the tax was higher, but industry lobbyists succeeded in significantly lowering it during 2010 negotiations.