The recently passed healthcare reform’s 2.3 percent excise tax on medical device manufacturers, which go into effect on 2013, could wind up killing more than 43,000 jobs, according to a new report from the Advanced Medical Technology Association (AdvaMed).
The report, Employment Effects of the New Excise Tax on the Medical Device Industry, made several key points:
- In 2009, the medical device industry provided well-paying jobs to more than 409,000 employees, who earned more than $33 billion dollars in labor compensation.
- Under reasonable assumptions, the tax could result in job losses in excess of 43,000 and employment compensation losses in excess of $3.5 billion.
- The tax will also especially harm states with large employment in the medical device industry including California, Florida, Illinois, Indiana, Massachusetts, Minnesota, New Jersey, New York, Ohio, Pennsylvania, Texas, and Wisconsin.
- The new 2.3 percent excise tax will roughly double the device industry’s total tax bill and raise the average effective corporate income tax rate to one the highest effective tax rates faced by any industry in the world. Moreover, the new tax will be paid both by firms that have net income and those that do not. The tax will be especially harmful to companies that innovate and tend to suffer losses in the first years or when investing in research and development for a new product but would still be required to pay the tax.
- Under the tax, U.S. manufacturers will be more likely to close plants in the United States and replace them with plants in foreign countries.
- Foreign manufacturers will improve their competitiveness relative to American firms, and U.S. leadership in this industry could be threatened.
- The Joint Tax Committee estimates that the tax will raise $20 billion in revenues over the period 2013-2019, a cost to device companies and the American consumer. The economic impact of the tax on wages and output will be significantly higher.
The report also makes the point that these job losses might wind up costing the government more than they save.
“At the time of passage of the new law, the Joint Committee on Taxationestimated tax revenue at between $2.7 billion and $3.4 billion annually between 2014 and 2019,” the report reads. “The excise tax was estimated at the time of enactment to raise $20 billion over the period 2013-2019. These estimated revenues are likely less than lost labor income and capital income from displacement as the result of the tax.”
The full report can be downloaded by clicking here.