Medtech tax repeal misses again – but suspension still in place

The withdrawal of US healthcare legislation means that the latest attempt to repeal the medical device tax fully and permanently has foundered. But the Republican administration intends to have another try, via its wide-reaching efforts to reform tax across all industries.

The ignominious failure of the healthcare bill has left some people wondering whether tax reform will make it onto the statute books either. Still, strict repeal could be unnecessary in practical terms. The medical device tax is on hiatus anyway until 2018 – and there is no obvious reason why, with Republicans holding both the House and the Senate, that this hiatus cannot simply be extended.

Job killer?

Last week Advamed, the lobby group for the US device industry, released a statement urging the House of Representatives to pass the American Health Care Act, aka Trumpcare, “so we can continue the push to end this tax once and for all”. The group contends that the “onerous” tax – a 2.3% levy on exports of medical devices – is responsible for “a significant loss of American jobs” and also limits patients’ access to the latest technologies.

The medical device tax was instituted in 2013 as one of the revenue sources to fund former President Barack Obama’s flagship Affordable Care Act. The claim that it has led to job losses has been made for many years by Advamed and other parties, including US politicians.

But the link was questioned last week by fact-checkers at the Washington Post, which pointed out that job losses did not correlate with the years the tax was in effect and stated that there was no evidence that jobs had been moved overseas. They also pointed out that the effective tax rate was only around 1.5% since businesses can claim a deduction from their federal taxes. 

This chimes with EP Vantage’s analyses, which found little impact from the medical device tax on employment in the sector (Medtech employment buoyant in 2012 despite tax fears, August 13, 2013). Looking at the sector overall, the number of jobs increased 6% from 2012 to 2013, the point at which the tax became law. 

Repeal or re-pause?

Be that as it may, the anti-tax lobby scored a great coup at the end of 2015, winning a two-year halt of the tax (US comes closest yet to repeal of device tax, December 17, 2015). At the time it was suggested that this hiatus could simply be voted on once more after two years or so and, if the votes are there, extended for another two years. With a Republican clean sweep at the election in November votes for a tax holiday will not be hard to find. 

A repeal for good and all might, therefore, not be strictly necessary. But it is still a cherished ambition of lobby groups and many Republican – and some Democrat – politicians. The next opportunity for repeal could come with the tax reform bill to which the Trump administration has pivoted after the healthcare effort crashed and burned.

The planned tax reforms are extensive and wide-ranging, with the main priority being a scything of the 35% corporate tax rate. The medtech tax will be of vanishing significance amid such a push, but will surely be included, despite House Speaker Paul Ryan’s enigmatic statement on Friday that “Obamacare taxes stay with Obamacare – we're going to fix the rest of the tax code”.

Still, the inability of President Trump to get the AHCA past his own party raises questions of whether the tax changes will hit the same obstacles – it could end up being too drastic for the moderates and at the same time to underpowered for the fervently anti-tax Freedom Caucus. It is more than possible that the current situation will simply be extended: no definite repeal for the medtech tax, but no one actually paying it for the foreseeable future.

To contact the writer of this story email Elizabeth Cairns in London at elizabethc@epvantage.com or follow @LizEPVantage on Twitter

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