At first blush, there’s little in common between import restrictions on sugar and the medical device tax included in the Affordable Care Act. But recent public-policy debates have made clear that both Democratic and Republican lawmakers share a common perspective when it comes to these policies: What’s good for an industry is good for the economy.
Unfortunately, this isn’t a good guide to economic policy. The economy is more than simply the sum of its companies. It’s an interdependent system of organizations and individuals working together to produce goods and services people need and want. (I elaborated this point in my May 5 column.) In particular, keeping in place sugar quotas and eliminating the medical device tax definitely benefit Minnesota businesses but they may not be best for Minnesota’s economy.
Sugar supports
The U.S. Senate recently tabled an amendment to the farm bill that would have phased out the support programs for American sugar producers. According to the Star Tribune, Sen. Amy Klobuchar stated: “The sugar beet industry supports good jobs in the Red River Valley and is one of the major foundations of Minnesota’s strong rural economy.” Similarly, Sen. Al Franken asserted: “The U.S. sugar program supports thousands of Minnesota jobs and brings millions of dollars into communities all over the state.”
Is this good for Minnesota’s overall economy? It definitely puts more money in the hands of those who grow and process sugar beets. At the same time, however, some of this increased income comes by raising the costs to bakers and others who use sugar. These firms might be better off without the sugar program.
So, the relevant economic policy question to ask is: Do the sugar industry’s gains outweigh the other firms’ losses? Implicitly, Sens. Klobuchar and Franken answer yes.
Does the program support good jobs? It’s hard to tell, especially if you are a worker locked out of an American Crystal Sugar plant. (See Liz Fedor’s article on the labor dispute.) Again, the policy question is: Do the sugar industry’s gains outweigh the losses being inflicted on workers who have more slowly growing (or even declining) real compensation? I haven’t heard this question asked , let alone answered.
Medical device tax
The Star Tribune editorial page recently argued against repealing the medical device tax. The editorial prompted a strong response from Dale Wahlstrom, CEO of LifeScience Alley, in which he asserted that the tax cost Minnesotans jobs, income and lives.
Do the benefits of repealing the tax outweigh the costs? For instance, do the increased income of device makers and those who are employed by them outweigh loss of tax revenue and the resulting inability to subsidize insurance for low-income families?
The answer isn’t obvious. Studies commissioned by the medical device industry indicate that the benefits of repealing the tax far exceed the costs. On the other hand, analyses reported by the Center for Budget and Policy Priorities and MinnPost point to the opposite conclusion.
Yet all eight Minnesota representatives voted to repeal the medical device tax. None of them expressed any doubt or hesitation despite the lack of consensus regarding the economic effects of the repeal.
Promoting economic growth
Our senators and representatives seem to believe good economic policy starts with ensuring the health of companies such as American Crystal and Medtronic.
I don’t agree. A better way to encourage economic growth and development is to ensure that Minnesotans are well-educated and healthy and that all businesses, including newer businesses in emerging fields besides medical technology, have access to private capital and public infrastructure. Neither continuing the sugar support program nor repealing the medical device tax does anything in these regards.
Both special subsidy and targeted taxation are wrong
In the sugar example, the government is subsidizing the sugar industry, some would say to the detriment of other sweetener products. The cost of candy, soda pop and other food products that use sugar are directly affected by the subsidy. The government should not be subsidizing any private enterprise, which includes farming because they’re directly and indirectly picking winners and losers in the marketplace.
The tax on medical devices is even more egregious. They are being penalized and harmed by government with special taxation, which is the opposite of special subsidy, making it more difficult for them to survive financially and to compete with foreign manufacturers.
The government shouldn’t be interfering in the private sector. Whether its taxation, regulation or subsidy, they do more harm than good.
On an even more fundamental issue, does a vigorous medical device industry that feeds off of the bloated and relatively unchecked medical spending in the US signal a good thing for the economy or does it resemble Slim Pickens whooping it up on the bomb down?
With respect to the medical device tax, there is no doubt that the ultimate payer of the tax will be the consumers of health care, which obviously works against the idea of affordable care.
And THAT one of the fundamental issues that needs to be addressed–bringing down the cost of health care. It is what will determine the economic health and economic diversity of Minnesota.
Diversity is important. One day, in one form or another, UHG, Metronic and all of the other big employers in the medical fields will run up against the “customer inability to pay” wall. Then the Minnesota economy WILL be hurt.
No flood of new patients for medical device companies
As an associate professor and chair of the Department of Economics at the College of Saint Benedict and Saint John’s University, Louis D. Johnston should know better. I am John Eckberg, the media relations director for Cook Group, the nation’s largest family-owned medical device company. Reducing the number of uninsured will not increase the number of patients seeking medical devices. Here’s why:
Most medical technologies are either used today by patients in emergency situations or by elderly patients who are already insured by Medicare. There will be no windfall for our industry just because more, non-elderly patients have access to insurance. In the emergency room today, patients receive our technologies regardless of whether they have health insurance or not. Having or not having insurance does not determine if you receive a drainage catheter if you are the victim of blunt injury from a car wreck, for instance. Devices that are used in this setting include drainage catheters, tracheostomy tubes, intubation devices and myriad of other devices to maintain life. Federal law requires that all patients in need of emergency services be treated regardless of their ability to pay or whether they have health coverage. The Affordable Care Act does not change this paradigm.
What’s more, the demographic group that will most benefit under the ACA are the non-elderly and young people do not normally need stenting or other vascular or organ repairs for aging related conditions. Most of the patients that use our products are elderly and today they are either treated in the emergency room without regard to health insurance or they are covered by Medicare that already reimburses hospitals for medical devices. This analysis is borne out in Massachusetts, which has a similar universal health care approach. Internal analysis shows that medical device sales did not increase beyond the increase expected prior to enactment of the Massachusetts new health law.
The reason why the entire Minnesota delegation voted to repeal the tax on top line sales was because they understood that this tax has more in common with piracy than sound public policy. If not repealed, it will harm patients, kill jobs and discourage research and development funding. It’s ironic that 10s of thousands of Minnesota jobs and tens of thousands of Minnesota patients who look to the medical device industry for breakthroughs are being held hostage by a Nevada Senator, Harry Reid, who represents a state that barely has the population of the Greater St.Paul-Minneapolis. Reid refuses to introduce a Senate repeal and enable debate. It’s time for Minnesota’s senators to lead a rebellion against Reid. Too much is on the line to let just one Senator from a state that has next-to-no medical device industry in it create a legislative log-jam.
….
On sugar beets and excise taxes
Colin Peterson’s district received over $73 million in sugar beet subsidies between 1995 and 2010, according to one source:
http://farm.ewg.org/progdetail.php?fips=00000&progcode=sugarbeet&page=district
That’s close to one-third (30.2%) of the national total for that period, the largest concentration in the country. Of course he’s not going to vote to eliminate it. Why the others in Minnesota’s House delegation would support it is less clear. Tim Walz’s district received a paltry $123,000 or 0.1% of the national payout. (No other Minnesota House member is listed.) Obviously, neither Franken nor Klobuchar is going to give up that kind of money for their constituents.
As for medical devices, we’re talking about an excise tax, intended to be passed on to the end-user or the person paying for the end user, be that Medicare, Medicaid or a private insurer. It does not put manufacturers at any competitive disadvantage, though it might erode their profit margins to some extent. (I doubt very much that any manufacturer will open its books to the extent necessary to make that argument successfully, assuming that this is possible. A skeptic might argue that manufacturers are only concerned with the tax depressing the market for their devices or limiting the amount the market will bear for their products.)
It’s a bit disingenuous of Mr. Eckberg to downplay the use of such devices by those under age 65. My extended family is littered with those who received the benefits of such devices while under the age of 65 or from non-traumatic conditions. (I’m one of them.) But then, as he admits, he’s writing as the flack (media relations director) for his employer.
Unfortunately, winning the intellectual debate over agricultural subsidies is far from sufficient to motivate politicians to begin opposing them in earnest. The combination of rural status anxiety and the lobbying heft of the agribusiness giants should be enough to keep laying the hurt on the world’s poor farmers and grain consumers for a long time to come.
Campaign cash…
…you all didn’t contribute to their campaigns did ya John?
Last paragraph, fallacy?
Louis,
Your last paragraph is a bit fallacious. I agree that improved education is good for the economy. You imply that since repealing the device tax or ending sugar beet subsides does not do this then they are bad.
Those activities are not mutually exclusive with improving education. A person could support sugar beet subsidies and improving education. And a host of other things for that matter.
All the best,
Frank
“Do the benefits of repealing the tax outweigh the costs? For instance, do the increased income of device makers and those who are employed by them outweigh loss of tax revenue and the resulting inability to subsidize insurance for low-income families?”
So medical device makers are responsible for helping to subsidize insurance for low-income families? Why are the taxes paid by the companies and the people that they employ not enough already? Come to think of it, I’d love to know what level of taxation Mr. Johnston would consider to be too much?
Okay
It has not sunk in that in the complex and competitive world of medical device pricing, price increases cannot simply be passed on to group purchasing organizations, independent delivery networks and hospitals. We compete in the U.S. with companies based in Zurich (or Ireland) that manufacature in other low-tax and low-wage nations and then sell those to GPOs based in the U.S. Those companies start from a low-tax base and that advantage remains throughout the supply chain. A 2.3 percent tax on gross sales translates for many companies, like ours, into a tax of 15 percent of our earnings. It’s more akin to piracy than sound public policy.
As for this message string, let’s see, I’m being accused of buying influence by being a campaign contributor (I’m not) and was quickly called a derogatory name…flack. At least it wasn’t hack. I think it’s time to exit this chat. My email for those who want to know more about how this tax will slam innovation and has already exacted a toll in jobs in the U.S., please reach me at john.eckberg@cookmedical.com
Lobbying
One piece of this puzzle that hasn’t been mentioned is the enormous amount of money spent on special interest lobbying in Washington, DC. It is estimated that the lobbying industry in DC is around a Billion dollars a year in client billing. The revolving door between Capital Hill and K Street keeps lobbying firms well connected.
Lobbying works just ask Senator John McCain who once made the comment that you can’t walk a hall of Congress without running into a lobbyist from Boeing. Boeing spents millions in lobbying to land the multi-billion dollar Air Force tanker project.