>
Opinion

Threatened Tariffs and Taxes A One-Two Punch to American Medical Technology Companies

|
Posted: Oct 02, 2018 11:45 AM
The opinions expressed by columnists are their own and do not represent the views of Townhall.com.
Threatened Tariffs and Taxes A One-Two Punch to American Medical Technology Companies

We’ve just passed the 600-day mark since Trump took office and – to the disappointment of his many critics – the American economy is still going strong. The economy added 201,000 new jobs in August, sending the unemployment rate down to a historically low 3.9 percent. Wages are up too. Twenty straight months of continuous job growth is great news and a trend that should continue with pro-growth policies.

The success of the Trump administration’s relentless focus on enacting policies that grow the economy, create jobs, and boost innovation is impressive. The American MedTech sector in particular has earned the envy of the rest of the world and has been described as one of our country’s greatest success stories. As a high-tech, high growth industry, American MedTech brings the latest and most effective treatments to patients in need.

But there’s a looming threat on the horizon: A deadly combo of taxes and potential tariffs that may deliver a one-two punch to American MedTech. High taxes on any sector of the economy will stifle growth and the possibility of tariffs piled on taxes will hurt this one sector of the economy that has both created new jobs and increased the health of Americans.  Any policy that leads to higher burdens on growth are bad news and may slow the historic efforts of President Trump to make the economy great again.

Tax policy has always been discriminatory towards the medical device industry since President Obama declared them a funding source for Obamacare. In a little more than a year from now, nearly all medical devices sold in the United States will be subject to a punitive excise tax, a remnant of Congress’ 2010 attempt to make Obamacare less affordable for those who use medical devices and to make the misnamed “Affordable Care Act” not appear to cost all that much on paper. This tax will make it harder for medical technology companies to plan for the future, forcing some to delay hiring and scale back research and development investments at a time when such investment is already dwindling.

While lawmakers have been wise to suspend the tax in past years, they let it go into effect between 2013 and 2015. In that short period of time, the medical device industry lost 29,000 jobs and was projected to decline $2 billion in R&D investment each year the tax was in effect. This should be more than enough proof to show that the tax needs to be repealed. Nevertheless, it remains on the books and is slated to take effect again on January 1, 2020.

New proposed tariffs on imports from China are likely to hammer the medical device industry too. While reducing our unfair trade deficit and confronting the Chinese over their blatant theft of American intellectual property are laudable goals, these tariffs will ultimately do more harm than good if they go into effect.  Hopefully, President Trump’s threats will be enough to force the Chinese government to negotiate some better deals that provide fairness to the American consumer and worker. 

The problem is that many medical devices manufactured for American consumers have components manufactured in China. Included among the thousands of products soon-to-be subject to import duties are some of the critical components used in the manufacture of medical imaging devices – MRI machines, CT scanners, and the like. Many of these products are made in America, but by global firms whose supply chains intersect with the Chinese market. 

If these tariffs are imposed and stay in place for a long period of time, this will harm an already overburdened American medical device industry. Imposing tariffs in this respect amounts to a tax on inter-company transfers. It would also do little to correct our trade imbalance with China considering the medical imaging industry is a net-exporter that produced a $1.1 billion surplus worldwide. Instead, the tariffs will undercut the competitiveness of American MedTech companies and incentivize foreign companies to invest in other markets.

Between the device tax and the tariffs, imaging technologies will be subject to a “double tax”: one on the components they import from abroad and another on the sale of their devices. And, like all taxes, the bulk of it will get passed on to consumers, rising healthcare costs and delaying patient access to the latest treatments and technologies.

The good news is there’s still time for this disaster to be averted. The House of Representatives voted in July to permanently repeal the medical device tax and the administration has expressed its support for repeal. It’s now up to the Senate to act.  On the tariffs, the U.S. Trade Representative still has time to exempt certain goods. It already did so for defibrillators, hearing aids, diagnostic tests, and dental fillings. As life-saving pieces of equipment, medical imaging devices should absolutely be added to that list.  

Policymakers have the power to make these changes and keep American MedTech – and the economy – great.