Still More Bogus Economics From the Medical Device Industry

February 20, 2014 at 12:02 pm

The medical device industry’s trade association, AdvaMed, has released a survey of manufacturers claiming that health reform’s 2.3-percent excise tax on the devices has forced them to move operations overseas, eliminate U.S. jobs, and cut back research and development.  But we debunked these claims long ago, and the surveyed firms blame the tax for developments that stem from other factors buffeting the industry.

First, assertions that firms have moved jobs abroad because of the excise tax are simply not credible.  The tax creates no incentive whatsoever to move production overseas.  As we’ve explained time after time, it applies equally to imported and domestically produced devices, so it won’t make imported devices any more attractive to domestic purchasers.  Also, devices produced in the United States for export are exempt from the tax, so it won’t reduce the competitiveness of U.S.-made devices in international markets.

Second, AdvaMed’s estimate of job loss doesn’t take into account offsetting changes in federal fiscal policy.  If the device tax were repealed, Congress would have to offset the revenue loss by raising other taxes or cutting spending — either of which would reduce the demand for goods and services and for workers.

Third, innovation in the medical device industry has slowed in recent years for reasons unrelated to the excise tax.  The tax itself will have little effect on innovation.  In almost all cases, the 2.3-percent tax will not turn a profitable new device into an unprofitable one.

Fourth, the survey is very small and likely not representative, covering only 38 of the more than 1,700 medical device manufacturers.

The medical device industry faces many challenges, including widely publicized safety concerns and product recalls, tighter federal regulations to improve product safety and effectiveness, growing pressure from larger health care providers to keep device prices down, and weak demand in developed countries.  It’s easy to blame the industry’s problems on the medical device tax — but it’s not accurate.

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More About Paul N. Van de Water

Paul N. Van de Water

Paul N. Van de Water is a Senior Fellow at the Center on Budget and Policy Priorities, where he specializes in Medicare, Social Security, and health coverage issues.

Full bio | Blog Archive | Research archive at CBPP.org

1 Comments Add Yours ↓

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  1. 1

    The recent AdvaMed survey of member companies showed large job losses and other negative impacts from the medical device tax. The survey is both credible and sobering. The firms participating in the survey represented 40% of total AdvaMed member U.S. revenues and more than one-fifth of the total U.S. revenues of the entire industry. This survey is the only data available on the real-world impact of the tax as opposed to the theoretical arguments deployed by both sides.
    Paul argues that firms won’t move jobs abroad because the tax applies to goods sold in the U.S. wherever they are manufactured. While the movement of jobs abroad is a relatively small–although significant–portion of the short-term job loss related to the tax, moving manufacturing abroad to lower tax jurisdictions is one way to reduce the additional costs the tax imposes: an increase of almost 30% in the already uncompetitive U.S. effective tax rate on profits from activities conducted in the U.S..
    Perhaps most important, Paul is correct that the industry is facing a number of headwinds that are eroding the U.S.’s leadership in this dynamic, high-paying manufacturing sector. All the more reason to remove this gratuitous ball and chain on its ability to grow good manufacturing jobs and create life-saving treatments.
    The full study can be found at http://advamed.org/res.download/427



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