WASHINGTON, D.C. — A proposed tax on medical devices that’s expected to raise $20 billion over the next 10 years should be capped to make sure it doesn’t cost the industry any more than that, Rep. Erik Paulsen said today.
Paulsen joined California Democrat Anna Eshoo in outlining the proposal in a letter to House Speaker Nancy Pelosi. The pair also proposed eliminating any medical device tax on small businesses, defined as those with less than $100 million in annual sales, with some level of tax breaks for those with sales between $100 and $150 million.
“While I continue to oppose this tax altogether, at the very least Congress should seek to minimize the negative impact this tax will have on jobs and life-saving innovations,” Paulsen said. “By exempting small businesses, we can attempt to encourage innovation and protect jobs. Moreover, by establishing a guardrail against additional tax collections, we can provide certainty that this tax will not spill over beyond its established purpose.”
The $20 billion medical device tax is included in both the House and Senate health care reform bills, though details of how and when the tax would be collected differ between the bills. Pelosi and Senate Majority Leader Harry Reid are expected to begin negotiations to merge the two bills in the next few days, with the goal of approving identical legislation in both chambers and sending it to the president for his signature by the State of the Union address.
Here is the text of letter:
“As you know, we have strong interests in the medical technology industry in California and Minnesota, and the life-saving medical devices the industry produces. While we appreciate the reduced tax on medical devices, there are two provisions related to collecting those taxes that we believe would promote greater equity without reducing the revenue target.
“First, we propose an exemption from the tax for small businesses. It takes a significant amount of venture capital and R&D funding to develop a medical device product and bring it to market. Much of the actual innovation is done by small companies which are subsequently bought by larger companies. Maintaining the $20 billion tax but exempting small device companies would collect the same amount of revenue to pay for healthcare reform, while encouraging new developments in medical devices. The industry suggests companies with $100 million in annual sales be exempt, and a smaller tax for companies from $100 million to $150 million, but we understand that both you and the Committee Chairmen will need to establish what constitutes a small business.
“Second, H.R. 3932 sets the device tax rate at 2.5 percent tax on all medical device manufacturers to raise $20 billion by 2020, a rate devised by the Joint Committee on Taxation. There are concerns that this rate will raise significantly more than $20 billion and we propose a “guardrail” to stop the collection of taxes after $20 billion has been met. A freeze of the tax after the total has been met will allow the industry to continue to grow without reducing the $20 billion targeted for healthcare reform costs.
“We appreciate your consideration of these two potential modifications to the medical device tax.”