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Medical-device tax foes misled

We’re all for bipartisanship, but just because Republicans and Democrats agree on a particular policy doesn’t necessarily mean it’s a good one. Case in point: Thursday’s Senate vote to repeal a 2.3 percent excise tax on medical devices that will help fund Obamacare to the tune of $30 billion over the next decade. Every Republican senator voted for this shortsighted measure, as did 33 Democrats.

Reforming health insurance and expanding coverage costs money – a lot of money. The medical device tax is one part of a funding package that will enable the health care law to cover 27 million previously uninsured people, at a projected cost of just less than $1.2 trillion over 10 years, without adding to the projected federal deficit. Asking the medical device industry to chip in 2.5 percent of that doesn’t seem unreasonable, given the $100 billion-plus sector’s profitability – which is bolstered by Medicare and Medicaid.

Senate opponents were swayed by industry claims that the tax will eliminate jobs, slow the pace of life-saving innovation and burden one of the few net exporters among U.S. manufacturing industries. Such arguments are not inherently phony; certainly it’s superficially plausible that higher costs will force the industry to cut back.

But the doomsday scenario falls apart on closer inspection. The tax will be at least partially offset by higher sales to all the new customers that Obamacare’s coverage expansion will create. Consumer demand for medical care in general, and devices in particular, is relatively “inelastic” – that is, it doesn’t vary much as prices go up and down.

As for exports, the tax will not apply to devices sold abroad, but it will apply to imported equipment. It gives foreign firms no advantage and gives U.S. companies no incentive to shift production overseas.

There’s little reason to suppose that the tax will destroy 43,000 jobs, the number industry lobbyists have been tossing around. The Republicans who voted against the tax are guilty of a budget-busting mistake, but at least it’s consistent with their anti-tax ideology and opposition to Obamacare. The Democrats don’t have any such excuses.

Fortunately for the country, the vote was on a nonbinding resolution. For now, the damage to the medical-device tax, and to health reform, is only symbolic.

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