Paulsen’s wrong: Sometimes a tax can grow an industry

Erik Paulsen believes that he is defending Minnesota’s medical device industry. He believes the device tax will “stifle” the industry.

Outside of using a word I haven’t heard since TV’s Archie Bunker days, Paulsen is exaggerating the problem.

There are a number of illogical conclusions Paulsen makes here. This is the basic one:

Unless Congress or the Supreme Court steps in by the end of the year, a new $29 billion tax on American medical devices will be triggered. This tax is part of the president’s health care law and includes all types of medical devices, from heart stents and implantable defibrillators to artificial hips and wheelchairs. Suddenly, our medical-device industry will face one of the highest tax rates of any industry in the world. This is not a tax on profit; it’s a 2.3 percent excise tax on revenue, regardless of whether a company is profitable.

This tax is part of the cost support for the health care law. In essence, the medical device industry is paying a surcharge that will automatically grow their business. With more people covered under the Federal program, the available market for these devices will simply grow.

This type of tax is very similar to the provider tax that Minnesota has used to fund MnCare. This tax has been basically passed on to the ultimate consumer of the medical products, which is the health care patient…or more precisely, their patient’s insurer. This has not produced any slowdowns in medical care and it hasn’t produced much of a burden on the consumer. It gets absorbed into the nether world of health care billing.

Paulsen postulates another premise:

This is nothing more than a tax on U.S. medical innovation, and it will hit states like Minnesota hard. These medical-technology companies will be forced to reduce investments in the industry’s lifeblood: research and development.

I am trying to figure out why this would be true. Research and development is not taxed. As I understand it, the tax would only be applicable to FDA approved devices and the sale of such devices. Why would that curtail research during an FDA approval process? I can see no logical reason for that assumption by Paulsen.

The medical device industry will benefit from the new health care law. Their market will expand considerably. Yet, they feel that they do not have to contribute to the costs taken on by the government for that market expansion.

Without this fixed portion of the cost structure in the bill, health care will lose $30 billion a year….and force more pressure on the deficit.

Paulsen also tries to use scare tactics on jobs.

Some studies estimate the new tax will cost our nation as much as 10 percent of the medical-device industry’s workforce — including thousands of jobs right here in Minnesota.

Paulsen doesn’t tell us where these studies come from, but most of the estimates that have been made public, use data that makes false assumptions or assumes no growth in the industry. Pure speculation at best and more than likely completely false.

I realize that the medical device lobby has the ear of the entire Minnesota delegation. And medical devices ARE an integral part of the Minnesota economy. But we can’t keep rejecting tax revenue for every industry. We can’t keep refusing to pay for a vital program such as health care.

This is essentially a user fee and it is based on the ability to pay. We have to stop making false assumptions on the use of any tax revenue. Paulsen loves to promote criticism of the health care program and relishes a role as a champion for Minnesota companies. But it all based on a false premise.

The medical device industry will prosper with Federal Health Care and I doubt that they will complain about, or give back, the excess profits derived from it.

This post was written David Mindeman and originally published on mnpACT! Progressive Political Blog. Follow Dave on Twitter: @newtbuster.

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