Excise Tax on Medical Devices Should Not Be Repealed — Center on Budget and Policy Priorities

 

By Paul N. Van de Water

Updated May 31, 2012

The House will soon consider legislation to repeal the excise tax on medical devices that was enacted to help pay for health reform.  The provision is sound, however, and the industry lobbying campaign aimed at repealing it is based on misinformation and exaggeration.

• The medical device industry is not being singled out.  The excise tax is one of several new levies on sectors that will gain business due to health reform. The expansion of health coverage will increase the demand for medical devices and could offset the effect of the tax.
• The tax will not cause manufacturers to shift production overseas.  The tax applies equally to imported and domestically produced devices, and devices produced in the United States for export are tax-exempt.
• The tax will have little effect on innovation in the medical device industry.  To the contrary, health reform may well spur medical device innovation by promoting more cost-effective ways of delivering care.

The Joint Committee on Taxation estimates that repealing the excise tax would cost $29 billion over the 2013-2022 period.[1]   Repealing the tax would undercut health reform in at least two ways.  Pay-as-you-go procedures would require Congress to offset the cost of repeal by increasing other taxes or reducing spending; one likely target would be the provisions of the Affordable Care Act (ACA) that expand health coverage to 33 million more Americans.  Also, repealing the tax would encourage efforts to repeal other revenue-raising provisions of the ACA, which in turn would either require still more painful offsets or increase the budget deficit (if Congress failed to offset the cost).

Excise Tax on Medical Devices Should Not Be Repealed — Center on Budget and Policy Priorities

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