To our America readers: want to feel proud?
Medical device manufacturing is one of the nation’s most dynamic and vibrant industries. The United States is the global leader in medical technology innovation, and it is one of the few major industries with a net trade surplus. This industry is responsible for more than 400,000 American jobs—and is indirectly responsible for almost two million more that supply and support this highly skilled workforce. Most important, its products are essential elements of modern medical care. They include everything from CT scanners and pacemakers to blood pressure cuffs and robots used by surgeons.
As the old joke goes: coffee break’s over; everyone back on their heads.
Yet instead of protecting this paragon of American ingenuity and innovation, the Obama administration and Congress have viewed the industry as a cash cow from which they could milk profits to help pay for the president’s health law. So they added to the Affordable Care Act a 2.3% excise tax on medical devices that will take effect at the beginning of 2013.
This tax is especially pernicious because it is assessed on sales, not profits. To put this in perspective, imagine that you’ve manufactured medical devices and had sales of $1 million, after all your costs and expenses—everything from materials and labor to research and development—your profit was $100,000. The excise tax would be $23,000, wiping out almost 25% of your profits.
Many medical device companies have to ramp up sales before they become profitable. Due to the long, draconian and sometimes unpredictable regulatory process that must be negotiated before a product can be sold, it can take from $70 million to $100 million in total sales before these businesses make their first cent of profits. Nevertheless, they would have to pay the excise tax on their revenue.
The nation’s medical device industry is vulnerable. It is not comprised of behemoths: 80% of its companies have 50 or fewer employees, the very businesses we are relying on to turn the U.S. economy around. The new excise tax comes when regulatory delays and uncertainty are increasing, and as many device firms are shutting down or moving abroad to take advantage of the more favorable tax and regulatory climate in Europe. The tax will force companies to lay off employees, cut back on research and development, or diminish capital investment.
Another symbolic news story (see below): government can encourage private industry (often best by leaving it the hell alone), or it can prey on it. I’ll give you one guess.
I’m reminded of an episode of The Sopranos.
At the brokerage, Christopher is apologizing for the Monkey Boys’ behavior. Then he calls them into the office for a stern dressing-down…. They explain the concept of “pump-and-dump,” and how they’re pawning all the stock off on old ladies. It’s up to eighty, though, and they want to sell. Christopher teaches a little Racketeering 101, laying down the primary rule: “When you’re bleeding a guy, you don’t bleed him dry right away. You wait, so you can bleed him next week, and the week after.”… Christopher goes on to tell them, “If any more Porsches disappear, make it two towns over, and I want a taste.”
And we all know what happens when Christopher doesn’t get his “taste”.
Your government at work.