I don’t generally follow the day-to-day, in the trenches battles going on across the nation but Steve from America’s Watchtower and Dean at Beers with Demo brought to my attention the laying off of 1,000 (5% of its workforce) employees because of “new fees on device makers required by the U.S. health care law.”
Curious, I decided to look into this “fee” in order to see what it was all about:
The [Medical Device Excise Tax], which is part of the Patient Protection and Affordable Care Act signed into law on March 23, 2010 by President Barack Obama, requires the makers of various medical devices — from replacement hip joints to metal bedpans — to pay 2.3 percent of their gross U.S. revenues on such products beginning in 2013.
This tax was estimated, at the time of drafting, to send about “$19.2 billion over ten years” to the Federal government.
Since the new tax goes into effect on January 1, 2013. Stryker estimates that the planned layoffs will save the company about $100 million.
The Advanced Medical Technology Association, a lobbying group, said the new tax will cost up to 43,000 jobs if it is not repealed.
Medical devices not covered by the tax (perhaps because they would be paid directly by the consumer) are products bought at a retail counter (hearing aids, etc…).
By taking this money away from these companies in the form of a tax, they must reduce internal costs which means two things: cut jobs and/or cut research and development expenses. Cutting jobs obviously means increasing the unemployment rate and cutting R&D means longer development times for newer, better products or the cutting of new products entirely.
If there is no economic incentive to produce a newer product then why do it? This is why Socialist countries are not known for their consumer technological and manufacturing prowess and why the Soviets and East Germans were driving around bad copies of bad cars for as long as those countries existed.
We have to assume that figures provided by industry lobbying groups will be as inflated as possible as will revenue projections by the government but, even if they are off by 50%, that still means 21,500 lost jobs and $9.6 billion in “revenue.” The loss of future products, however, cannot be estimated but should be assumed due to the natural responses of businesses when new taxes are imposed on their products.
There is also the law of unintended consequences such as supply issues (people on a waiting list for replacement hips, for example) or companies exporting production work to cut costs to places where the quality is not as high and thus a rise in defective products.
This Medical Device Excise Tax might only be a tiny piece of Obamacare but with a bill that ran 1,800 pages which many in Congress admitted they never even read we don’t know how many other taxes and fees might be out there waiting to negatively effect private industry.