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Six Month Countdown to Repeal the HIT Tax

Today marks the six-month countdown to derail the health insurance tax (HIT) that was included in the Affordable Care Act (ACA). Unless Congress acts, beginning in 2014, the HIT tax will significantly drive up the costs for small and medium-size manufacturers that buy health insurance in the fully insured market.  While this tax will fall directly on health insurance companies, CBO has stated the majority of these costs will be experienced by small businesses and their employees.

A bipartisan group of members of Congress including Senators Orin Hatch (R-UT) and John Barrasso (R-WY) and Representatives Charles Boustany (R-LA) and Jim Matheson (D-UT), have introduced legislation to repeal this tax on manufacturers which will have the effect of impeding job creation in an ever challenging economic environment. The NAM supports these efforts and hopes that Congress will find a solution to make health care coverage more affordable before the 2014 deadline goes into effect.

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The New Billion Dollar Tax

The medical device industry made history this week when they passed the billion dollar mark in excise taxes paid to the IRS since January 1st, 2013. That comes to about $194 million per month. Needless to say, this is nothing to celebrate.  The money thats going to taxes is money medical device manufacturers would have used to invest in R&D, their facilities and most of all – new jobs.

As we’ve said many times before, this tax is not only a threat to innovation but also to the United States’ position as the global industry leader in medical devices. We appreciate the Senates 79-20 vote in March in favor of resolution to repeal the medical device tax and the bipartisan support for, “The Protect Medication Innovation Act” legislation in the House, which currently has 253 co-sponsors, and its related Senate bill, “The Medical Device Access and Innovation Protection Act,” that was introduced on a bipartisan basis by Senators Klobuchar (D-MN.) and Hatch (R-UT) and currently has 34 co-sponsors. We urge Congress to finish the job and get rid of this job-killing tax ASAP.

Manufacturers cannot afford for policy makers to sit back and continue to let the medical device tax take away from job creation, innovation and patient care. We hope that leadership in both the House and Senate understand that time is of the essence and work together to advance the repeal of this onerous tax.

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California State Legislators Highlight Negative Impact of the for Medical Device Tax

Kudos to the Democratic members of the California state legislature who recently sent a letter to the California delegation in the US House of Representatives expressing serious concern about the impact of the medical device excise tax. California has more than 1,200 medical technology companies —highest in the nation—which provide for nearly 72,000 jobs in the state. Recognizing that this tax is a direct threat to medical technology investment and innovation in California, the legislators urge Congress to repeal this onerous tax.

Many states are already feeling the negative effect the medical device tax has taken on the U.S. medical device industry, which currently is the global leader. This damaging trend will only get worse if Congress does not act. We hope that Leader Pelosi and the rest of the California delegation listen to these concerns and work together to find a solution to repeal this destructive tax.

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A Big Thank You to Indiana for Weighing in Against the Medical Device Tax

Last week the Indiana Legislature sent a letter to President Obama and Congress with a resolution passed by the 118th Indiana General Assembly urging Congress to repeal the 2.3% medical device excise tax. Like other states, Indiana recognizes the enormous economic value that the medical device industry is providing for its communities in terms of good-paying jobs, R&D development and plans for further expansion of local facilities. As a result of the tax, more than 60,000 jobs are currently at risk in Indiana alone. We urge the Administration to seriously consider Indiana’s resolution and for Congress to take swift action to repeal this onerous tax.

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The Administration Must Recognize the Real World Negative Consequences of the Medical Device Tax

We were disappointed to hear Treasury Secretary Jack Lew defend yesterday the onerous medical device tax that went into effect on January 1st as part of the Affordable Care Act. While Lew admitted that the idea behind the tax was not to target startup medical device companies, the reality is the 2.3 excise tax impairs innovation as it is imposed on all revenues rather than just profit. It is clear that Lew is out of touch with the greater comprehension of the harmful nature of the tax as just last month 79 senators voted in favor of its repeal, demonstrating strong bipartisan support during the budget debate.

The NAM urges the Administration to look at the real world effects the medical device tax is having on manufacturers competing in the global marketplace and to recognize the Senate’s strong vote as marker of bipartisan understanding that the tax is indeed hurting jobs, investment and the ability for the United States to maintain its position as the global leader in medical technology innovation.

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Manufacturers Agree—the HIT Tax Has to Go

We were pleased to read a bi-partisan op-ed by Senator Orrin Hatch (R-UT) and Congressman Jim Matheson (D-UT), who have recently introduced legislation to repeal the Health Insurance Tax (HIT) provision of the Affordable Care Act (ACA), highlighting the escalating costs of health care on small businesses and the adverse relationship this tax will have on their ability to grow jobs in our economy.

As nearly 70 percent of the NAM’s small and medium-sized manufacturers buy health insurance in the fully insured marketplace, the HIT tax will significantly drive up the cost of coverage which comes on top of the nearly 10 percent average increases in premiums that companies’ experienced last year. While the tax technically falls on insurers, CBO has confirmed that it “would be largely passed through to consumers [small business owners and their employees] in the form of higher premiums for private coverage.”

Manufacturers believe it is critical that Congress take action to repeal the HIT tax to help make health care coverage more affordable and to encourage employer provided health insurance for employees before it goes into effect beginning in 2014.

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Medical Device Tax Repeal Has Healthy Bipartisan Support

Today H.R. 523 – the Protect Medical Innovation Act – was introduced in the House by Representatives Erik Paulsen (R-MN) and Ron Kind (D-WI). This bill aims to repeal the prohibitory 2.3 percent excise tax on medical device manufactures.

As of January 1st, the excise tax went into effect and manufacturers are already experiencing significant, negative consequences on job growth and innovation as a result of having to cut R&D budgets. A recent study found that as many as an estimated 43,000 jobs will now be at risk as a result of this tax. The NAM has always strongly opposed industry and product specific taxes, as they serve to inhibit growth in targeted sectors and impede on the ability of targeted companies to compete in the global marketplace.

Manufacturers are pleased to see members of Congress working together across the aisle to eliminate this avoidable hindrance to the global success of our medical device companies. We anticipate similar legislation will soon be introduced in the Senate by Senators Orin Hatch (R-UT) and Amy Klobuchar (D-MN). In addition, Senators Al Franken (D-MN), Pat Toomey (R-PA), Joe Donnelly (D-IN), Richard Burr (R-NC), John Cornyn (R-TX) and Robert Casey (D-PA) have also come out in support of repealing this onerous tax.

As this is clearly a bipartisan issue of great concern to American manufacturing, we hope to continue to see members of both parties come together to solve this problem in the coming months.

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Keeping in Mind the Medical Device Tax as We Move Closer to the Election

In the past two weeks we’ve seen op-eds from Indiana Senator Dan Coats in Politico and former Senator Evan Bayh in the Wall Street Journal emphasizing the devastating effects the medical device tax will have on manufacturers and American competitiveness come January 1st, 2013. To date, the medical device industry employs more than 400,000 employees in the United States and continues to be a global leader in the sector for delivering groundbreaking technology and innovation.

As a result of the health care reform legislation, medical device manufacturers will face a 2.3% excise tax on every medical device sale. Senator Coats states that the device tax is estimated to cost the industry more than $20 billion over next decade. A direct consequence of this tax is that companies have already begun to scale back their workforce and abandon plans for expanding their operations. Senator Bayh mentions that for a typical company, the 2.3% tax on sales amounts to a 15% tax on profits. When combined with the 35% corporate tax and state corporate tax rate, the tax rate for medical device manufacturers would exceed 50% in many jurisdictions. It is clear that the effect of this tax will be particularly devastating for small and medium sized manufacturers.

With only 25 days until the election, we must ensure that Congress repeals the medical device tax when they return to Washington in November to make sure the success this industry has generated continues into the future and that American jobs do not move off-shore.

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Industrial Production Down 0.1 Percent in May

Today the Federal Reserve reported that industrial production figures for May are down 0.1 percent after having gained 1.0 percent in April.  While total industrial production in May was 4.7 percent higher than in the previous year, the capacity utilization rate for total industry declined 0.2 percentage point to 79.0 percent, a rate 1.3 percentage points below its long-run (1972—2011) average.

May’s 0.4 percent decrease for manufacturing production partially reversed the large increase that occurred in April. As a whole, both durable and nondurable goods production fell in May.

 The production index for durable goods declined 0.5 percent after a gain of 1.4 percent in the previous month. The capacity utilization for durable goods manufacturing was 78.0 percent, a rate 5.0 percentage points higher than the previous year and 0.9 percentage point above its long-run average. The largest increase among major durable goods industries was for wood products (up 1.0 percent) and smaller gains were recorded by fabricated metals; electrical equipment, appliances, and components; and miscellaneous manufacturing. Industries with decreases of more than 1.0 percent included nonmetallic mineral products, primary metals, motor vehicles and parts, and furniture and related products. The production of non-durables decreased by 0.2 percent, making May the third consecutive month without a gain for non-durables despite increases of around 1.0 percent in apparel, leather, petroleum and coal products.

Overall, the index for Manufacturing in May was 5.2 percent above the previous year level, reflecting a longer-term positive trend.

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The Downfalls of Taxing Innovation

Tomorrow the Ways and Means committee will mark up the Protect Medical Innovation Act of 2011 (H.R. 436), repealing the 2.3% excise tax on the gross sales of medical devices included in the health care reform law. Set to take effect in 2013, this excise tax is estimated to cost US businesses close to $30 billion in new taxes. This will effectively back companies into a corner to scale back operations and cut resources for R&D, thus stifling innovation and forcing job cuts.

This industry-specific tax will be particularly harmful for small to medium sized manufacturers (80 percent are companies with 50 or less employees, 98 percent have 500 employees or less), as the tax is assessed on a company’s sales rather than profits. In fact, many companies have already announced layoffs in anticipation of the effective date.

Medical device manufacturers have been a shining star throughout our economic recession and the US continues to be the world leader in manufacturing life-saving and life-enhancing treatments. We should not constrain this segment of the manufacturing community, but rather see that their success continues well into the future. The NAM strongly supports rolling back this tax before it takes effect.  We need to ensure that medical device manufacturers are able to remain dynamic and innovative in order to improve the quality of life of patients.

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