I.R.S. Moves Forward with New Tax on Medical Device Manufacturers

By February 3, 2012Taxation

Although one might think that it was near impossible, the U.S. tax code just got worse for manufacturers of medical devices. Manufacturers lament the IRS’s issuance of a new regulation to implement 2.3% excise tax on medical devices that was included in the President’s health care law. The NAM has opposed this tax because of the impact it will have on the ability of the medical device industry, a true American success story, from competing and innovating on the new products and devices that will help save lives.

This new tax appeared during the debate on the Patient Protection and Affordable Care Act, as a way to help “pay for” the bill. The 2.3% tax will have the effect of raising the effective tax rates for medical device companies – over 80% of which are small businesses with fewer than 50 employees – forcing these companies to have to make tough decisions about how to fill the earnings lost to additional taxes.

At a time when so much of the conversation in Washington centers on the need to increase jobs, stimulate growth and encourage innovation, the imposition of this excise tax completely contradicts these messages. U.S. medical device manufacturers are the world-leaders and the imposition of this new tax will have the effect of making the industry less competitive and reducing capital to invest in new R&D, new technologies and new employees. With contradictory actions like these, praising the industry for its life-saving innovations while slapping a new tax on them, it’s no wonder that so many have expressed a lack of faith in what’s going on in Washington.

Perhaps though, a step could be taken in the right direction if Congress can pass legislation, pending in both the House and Senate, to repeal this innovation-stifling tax. H.R. 436 by Rep. Paulsen already has overwhelming support in the House with 227 cosponsors and there are two bills also pending in the Senate, S. 17 by Sen. Hatch with 19 cosponsors and S. 262 by Sen. Brown (MA) with two. It’s time for Congress to repeal this tax.

Carolyn Lee is NAM’s Senior Director of Tax Policy

Carolyn Lee

Carolyn Lee

Senior Director of Tax Policy at National Association of Manufacturers
Carolyn Lee is Senior Director of Tax Policy at the National Association of Manufacturers (NAM), the nation's largest industrial trade association. In this role Carolyn is responsible for portions of the NAM's tax portfolio including issues individual marginal tax rates - which are a top priority for small and medium sized manufacturers - as well tax issues relating to investment income, energy efficiency and capital cost recovery.
Carolyn Lee

Join the discussion One Comment

  • After 40 years in the health care sector, this new tax in my opinion will only move our innovative health care sector closer to moving off shore. The U.S. health care field has been the principal leader in innovative product development for the past 50 years.

    Current government action clearly demonstrates that it wishes to move this sector of business from innovation into a generic classification. There is less and less incentive for companies or individual scientist to invest time and money into this field of work. We should be doing just the opposite to keep our world class leadership we should be reducing taxes and overly burden regulations in the market sector.

Leave a Reply