Beginning in January of next year, the Affordable Care Act (ACA) will impose a 2.3% excise tax on manufacturers and importers of medical devices. There will be just a few exemptions for items such as eyeglasses, contact lenses, and over-the-counter kits and tests, but most every device used by doctors, hospitals, nursing homes and ambulance crews will be affected by the tax. In its first 10 years the tax will add $20 billion to federal coffers.
At the same time, the tax will be certain to cost Americans their jobs.
For starters, this is not an income-based tax. It is a tax levied solely against revenues, regardless of whether the company actually had a profit. So, a manufacturer that might be in the red -- maybe it’s having a bad year from an operations standpoint or is investing heavily in growth -- will have to pony up, which can set them on the path to financial destruction.
Likewise, a company operating at a low profit margin (which is likely in this highly-competitive global economy) might see its profits split in half, pushing it to unacceptably-low levels which will inhibit investments in assets, research and development, and expansion.
This new tax will also lead to more outsourcing. It’s not that the gap between domestic and foreign manufacturers is directly widening because of the tax (the excise is equally applied to imported goods), but, it is widening indirectly. If American firms adjust their selling prices upwards to compensate for the government’s pilfering of their revenues, lower-priced products produced offshore will become even more attractive to cost-conscious purchasing agents at hospitals and medical device distribution companies.
The excise is an act of hypocrisy from an Administration and Congress that alleges a focus on job creation. There are currently 400,000 people working in the medical device industry in the United States, and one study estimates that more than 10% of them could become unemployed because of the tax.
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The conspiracy theorist in me is made uncomfortable by a new reporting requirement of the ACA.
Beginning this year, employers with more than 250 employees must list on each W2 form the dollar value of the company’s contribution to that worker’s health insurance. Doing so is optional for firms employing less than 250. Theoretically, it’s being done to educate the masses about the real cost of health insurance.
I theorize, though, that the W2 requirement is really about future taxation. Incrementalism is the way that change is brought about in public policy; bit by bit you add or remove things until, over years, the issue is completely altered from its original state. This could be one of those subtle changes that accumulate over time: Get people used to seeing health benefits on their W2 which gets them into ultimately believing that it’s taxable income, and, sooner or later, you can start taxing them.
The Democrats have been quick to say that my theory – shared by many others of the very far right persuasion – is hogwash, that they won’t tax employer-provided insurance.
Well, that’s not what the recent past shows. Both they and the Republicans alike have hinted at such a new revenue stream.
In 2010, President Obama’s deficit commission – led by Erskine Bowles – was adamant in its desire to eliminate the current tax exemption and treat insurance as taxable income. So, if your employer paid half of your health insurance, you would have to pay taxes on that half. The commission believed this would bring in a staggering $100 billion per year, something that surely had the political class licking their chops.
That same year, in his “Roadmap for America’s Future”, the Chairman of the House Budget Committee, Republican Congressman Paul Ryan, called for the elimination of the tax exemption on employer-provided insurance. He would replace it with a tax credit that could be used by individuals to purchase insurance on their own. This would only increase the ranks of the uninsured: the credit ($2,290 single, $5,170 family) wouldn’t even come close to allowing the individual to cover what would have been the employer’s contribution to insurance, thus making insurance even more unaffordable for millions of Americans.
So, it’s not like taxing health insurance isn’t being debated in Washington circles. It certainly is, adding some legitimacy to the conspiracy theory.
Bob Confer is a Gasport resident and vice president of Confer Plastics Inc. in North Tonawanda. E-mail him at bobconfer@juno.com.
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This column originally ran in the 30 July 2012 Greater Niagara Newspapers
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