Monday, November 23, 2009

Harry Reid's Medical Device Tax

As a part of Harry Reid's -- kill the health care industry -- health care reform bill, there is a provision to levy a 3.5% tax on the medical device industry. Now, this is not a tax on profits. It is a tax on revenues; like a sales tax. The anticipated annual revenue is about $40 billion. If you average this against every single man, woman, and child in America, it comes to approximately $133 each that all of us, in some fashion, will have to pay.

This tax is stupid. Since it is a pre-income tax on revenues, it will reduce income for the companies that it is applied to. Therefore, that tax will be deductible against any company's Federal Income tax; since double-taxation is unconstitutional. As a consequence, Federal and State income taxes will be reduced accordingly. Literally, Harry's plan is to rob Peter to pay Paul. Except in this case, Peter and Paul are the same Federal Government, with another victim being the State governments that rely on State income taxes for their revenues.

For, those companies who aren't profitable, this levied tax could absolutely be the straw that breaks their backs and puts them completely out of business. Especially if their competition can hold prices. It could also kill startup companies who would logically have little or no profits anyway. Finally, this could also give an edge to foreign manufacturers of medical devices who would not be subject to this tax.

What is more than likely to happen is that many medical device manufacturers will be forced to raise prices in order to preserve profits. This means that all medical insurers, even Medicare and Medicaid, will have to pay higher prices for everything from artificial hip joints, breast implants (for reconstructive surgery), stents, pacemakers, to even things like tongue depressors and syringes. So, the cost of all insurance coverage will have to go up. Further, because Medicaid and Medicare will also be affected, this tax will ultimately come around and punish our own Federal Government with higher payouts for any procedure that utilizes a medical device. There aren't many that don't!

So, when all is said and done, you have to really wonder how effective Harry's tax really will be. The IRS will lose some amount of income tax revenues. Any Federally-run and State-run medical programs will pay higher prices. Americans will have to pay higher insurance costs, and, some number of medical device companies will either lose business to foreign competition or, go out of business completely. That does not make this tax a win-win for our country and health care in America!

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