2.3% medical device tax resumes after 2-year hiatus
- After a two-year break, medical device manufacturers are again subject to a 2.3% excise tax on their products, effective Jan. 1.
- The unpopular tax, mandated by the Affordable Care Act, originally took effect in 2013, but was suspended for 2016 and 2017 amid a major push by industry, who claimed it would be a drag on innovation and sales of medical technology.
- Proponents of the tax said it would bring in $29 billion over 10 years and help finance the ACA. Republicans and some Democrats oppose the tax, but a deal to permanently repeal or temporarily extend the suspension of the tax failed to be included in the GOP tax overhaul.
The device industry has long pushed for repeal of the excise tax, recruiting unconventional allies including Democratic lawmakers from states with big industry in Massachusetts and Minnesota. The Advanced Medical Technology Association (AdvaMed), the industry’s main trade association, has argued the tax hurts research and development and cost 29,000 medtech jobs during the three years it was in effect.
According to group, employment at medical device companies dipped slightly in 2012, ahead of the tax’s implementation, then fell 1.1% in 2013 and 6.6% in 2014 after it took effect. Between 2011 and 2014, the overall number of people employed in the industry fell from 402,000 to 370,000.
The Congressional Research Service has cast doubt on that argument, though has noted the tax would fall mostly on consumers, not the industry itself.
Critics of the excise tax used it as anti-ACA fodder during the 2016 election cycle with AdvaMed and major device companies like Medtronic and St. Jude Medical pumping large campaign contributions into candidates who opposed the levy.
The device industry lobbied heavily to have the tax repealed before it could be resumed in 2018, appealing directly to President Donald Trump in a letter at the end of 2017 to direct the Internal Revenue Service to provide administrative relief from the bi-weekly deposit requirements. AdvaMed CEO Scott Whitaker warned that retroactive action by Congress in 2018 "cannot fully undo the impact of allowing this tax to be triggered."
Opponents hoped the tax would die with ACA repeal efforts last year, but those ultimately failed, and the tax overhaul legislation approved last month by Congress and signed into law by Trump did not address the medical device tax. While the new law cuts the corporate tax rate from 35% to 21%, device manufacturers are not giving up the fight to abolish the 2.3% excise tax.
While the tax hiatus is over for now, it's likely the industry and its backers will keep up their repeal efforts in the coming year.
- Associated Press Tax on medical devices to resume after 2-year suspension