Ending medical device tax: A win for K Street, a loss for tea party

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Obamacare created a 2.3 percent excise tax on the manufacture and import of medical devices.

Article Highlights

  • Republicans could do what they’ve always done in the past, and lend a hand to the well-connected.

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  • Americans increasingly realize the game is rigged in America, and that big government is doing the rigging.

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  • The Tea Party-infused GOP has an opportunity to tap into this frustration, and begin unrigging the game.

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  • When government gets more involved in our lives, the guys with the best lobbyists fare the best.

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Did Republicans go through this entire painful government shutdown business in order to save Johnson & Johnson 2.3 percent on the sale of its catheters?

In the second week of the Obamacare-related shutdown, the odds look decent Republicans will win only one concession from Democrats: repeal of the law's medical device tax. If the GOP wanted to reassure its longtime K Street allies and depress its Tea Party base, this would be the way to do it.

The medical device tax, like the rest of Obamacare, is bad. Congress is correct to repeal it. But the whole scene demonstrates again the way Washington works: Obamacare hurts many people and many industries, but those with access to power often escape the harm.

Obamacare created a 2.3 percent excise tax on the manufacture and import of medical devices. This tax doesn’t really fall on patients, except in very indirect ways.

According to Ernst & Young, the federal government — through Medicare, Medicaid, the Veterans Administration, and the Department of Defense—accounts for a majority of U.S. spending on medical devices. This limits device makers’ ability to mark up prices and pass along costs. This means most of the tax will come out of device makers’ profits, while private health-care institutions and consumers may also bear a portion of the cost.

How bad should we feel for the device makers?

USA Today reports: “Medtronic, the largest independent U.S. device maker, has gross profit margins of about 75 percent — compared with an average of 46 percent for the Standard & Poor's 500. ... Even after overhead and research and development, Medtronic reported pretax cash flow of 34 percent of its 2012 sales, well above the 24.5 percent average for U.S. corporate leaders.”

Also, Obamacare’s subsidies and mandates boost demand for medical devices. Market analyst Ducker Worldwide predicts “the newly insured will increase overall primary demand for the industry’s products by 3 percent after 2014.” Further: “The newly insured will demand medical products and services that are more expensive than they can now afford. This will support significant price increases.”

So why should conservatives care about these companies? “Evidence is so overwhelming that it is doing real harm to job growth in the country,” one leading Republican operative told me, pointing to device-makers who are cutting jobs and moving manufacturing overseas. He’s right. Congress should repeal this punitive tax. But why is it a priority? Why is it so important that it might be the only win in the budget debates?

As always, follow the money.

Medtronic spent $2.7 million on lobbying in the first half of this year – about $28,000 for every day Congress was in session.

The Cook Group, another leading device-maker, paid an extraordinary $40,000-a-month retainer to the K Street firm McGuire Woods, simply to lobby on this one issue, according to McGuire Woods’ lobbying filing. Cook’s lobbyists there include former Congressman L.F. Payne.

Two Obama-connected corporate giants have lobbied for repeal: Johnson & Johnson, where Obamacare author and former Obama appointee Liz Fowler runs the lobbying shop, and General Electric, whose CEO Jeff Immelt is Obama’s jobs czar.

Republicans are hearing the repeal drumbeat from the U.S. Chamber of Commerce and Americans for Tax Reform, according to lobbying filings.

Is the job-killing medical-device tax really the most onerous burden of Obamacare? What about the individual mandate that strips away individual liberty and forces people to buy a product from a government-run marketplace that doesn’t work? What about the workers reduced to 29-hours-a-week thanks to Obamacare? What about the people whose low-premium plans are now illegal? What about the Catholic nuns forced to pay for contraception coverage?

The difference: These groups can’t afford Liz Fowler or former congressman L.F. Payne. They don’t have $40,000 a month to spend on K Street. And so they bear the brunt of big government.

When government gets more involved in our lives, the guys with the best lobbyists fare the best – and that’s not Mom & Pop or the Little Sisters of the Poor.

Americans increasingly realize the game is rigged in America, and that big government is doing the rigging. The Tea Party-infused GOP has an opportunity to tap into this frustration, and begin unrigging the game.

Alternatively, Republicans could do what they’ve always done in the past, and lend a hand to the well-connected.

Timothy P. Carney, The Washington Examiner's senior political columnist, can be contacted at tcarney@washingtonexaminer.com. His column appears Sunday and Wednesday on washingtonexaminer.com.

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About the Author

 

Timothy P.
Carney
  • Timothy P. Carney helps direct AEI’s Culture of Competition Project, which examines barriers to competition in all areas of American life, from the economy to the world of ideas. Carney has over a decade of experience as a journalist covering the intersection of politics and economics. His work at AEI focuses on how to reinvigorate a competitive culture in America in which all can reap the benefits of a fair economy.


     


    Follow Timothy Carney on Twitter.

  • Email: timothy.carney@aei.org

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