WASHINGTON — Rep. Erik Paulsen today called for the repeal of new fees on medical device manufacturers after some in other states suggested they might pack up factories and move operations to another country if the new taxes aren’t lifted.
Medical device manufacturing is one of the largest manufacturing industries in Minnesota, and some of the state’s most lucrative exports. Many of those firms are located in Paulsen’s 3rd District.
Under the health reform law, approved this week, medical devices would be subject to a 2.9 percent sales tax. The reconciliation bill moves that down to 2.3 percent and begins it in 2013. It’s expected to raise about $20 billion over the next 10 years. The tax doesn’t apply to basic medical supplies like eyeglasses, bandages and hearing aids.
It could have been higher. The original draft of the Senate’s legislation had the fees at $40 million over 10 years. A group of senators, including Amy Klobuchar and Al Franken, had pushed to remove that fee entirely though in the end they had to settle for what’s in the reconciliation bill now.
Klobuchar said she was proud of being able to reduce the tax by $20 billion, which she called a “big deal for Minnesota.”
“Minnesota is one of the largest medical device alleys in the country, with tens of thousands of jobs in the sector,” Paulsen said in a statement. “We can’t afford lost jobs or stifled innovation, which is why I tried to remove this tax before the health care bill was voted on last weekend.
“Jobs should be priority number one in Congress,” Paulsen said. “Despite multiple warnings about the negative impact of a tax on the tools of modern technology, the tax was passed anyway — and the results are already looking quite troublesome.”
According to a report in the Boston Herald, some of the largest manufacturers in Massachusetts may now be looking to move. And Gov. Deval Patrick, a personal friend of President Obama, has pledged to help do something about the new law.
“This bill is a jobs killer,” said Ernie Whiton, chief financial officer of Chelmsford’s Zoll Medical Corp., which employs about 650 people in Massachusetts. Many of those employees work in Zoll’s local manufacturing facility making heart defibrillators.
“We could be forced to (move) manufacturing overseas if we can’t pass along these costs to our customers,” said Whiton.
The threat — echoed by others in the critical Massachusetts industry — had the governor vowing to intervene to block the sales tax impact.
“I am obviously concerned about the medical device burden here on the commonwealth, which has a very robust industry around medical devices,” Patrick said yesterday.
Steven Cragle, senior director for Medtronic, a medical device manufacturer in Fridley, said relocation is not on the radar for them. “No, that is not a reaction or an opportunity that we’re looking at,” he said.
Cragle said his firm “would certainly prefer” a 2.3 percent tax than a 2.9 percent tax. And it’s a vast improvement over the doubled rate it could have been.
“Relative to some of these proposals in the past, this is certainly an improvement,” Cragle said. “That said, we still have concerns about the impact that the tax will have on innovation and on the industry’s overall global competitiveness.”
Paulsen attempted to put an amendment into the health care bill before the House passed it that would have eliminated the tax, but it (and every other amendment offered) was refused by the House Rules Committee.
Senate Republicans have offered several amendments during the current “Vote-a-rama” session in the Senate to eliminate the medical device tax either in whole or for select groups (like the military’s Tricare program). Each was tabled (effectively killed) with the support of both Minnesota senators.
As we said Wednesday, those amendments are designed to be tough votes for Democratic lawmakers.
Note: This report has been updated to include comments from Cragle and Klobuchar.