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Old 07-30-2012, 02:01 PM #1
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Obamacare device tax destroying jobs; innovation

Recently there have been a spate of examples of companies having to scale back plans which would have helped both the medical industry and the economy at large because of the 2.3% tax increase on medical devices that is part of Obamacare. One example is Cook Medical which no longer has plans to expand it's production which means no new manufacturing plants, no new employees, and no new medical devices:

Quote:
Cook Medical claims the tax on medical devices, set to take effect next year, will cost the company roughly $20 million a year, cutting into money that would otherwise go toward expanding into new facilities over the next five years.

"This is the equivalent of about a plant a year that we're not going to be able to build," a company spokesman told FoxNews.com.

He said the original plan was to build factories in "hard-pressed" Midwestern communities, each employing up to 300 people. But those factories cost roughly the same amount as the projected cost of the new tax.

"In reality, we're not looking at the U.S. to build factories anymore as long as this tax is in place. We can't, to be competitive," he said.Read more: http://www.foxnews.com/politics/2012...#ixzz2281Xifjd
This is a microcosm of what is going on in the economy as a whole - firms are realizing that this new tax does not allow them to produce their goods at affordable and competetive prices. Every business is forced to cope with it in a different way, none of which are beneficial to the economy.

Here is another example:

http://www.massdevice.com/news/medic...ll-urge-repeal

Quote:
"As a chairman, president & CEO for the last 9 years, I'm acutely familiar with the challenges involved with running a small business," Minogue said. "When we were founded we had 10 people and we had no revenue. Today we have 440 employees and our revenues last year were $126 million. The company in its 30-year journey has just become profitable last fiscal year."

Abiomed reported about $1.5 million in profit on the $126 million in sales the company realized during fiscal 2012. Had the medical device tax been in effect then, the company would have had to turn in every penny of its profits, plus another $1.4 million or so.
This business would have failed if Obamacare had been in place for the last 9 years.

Here is an example of a company choosing to pass the tax on to consumers (generally what companies do when taxes are raised on them - a corporate tax is basically a second, hidden tax on consumers):

Quote:
The Minneapolis-based company estimates it will pay a tax of $40 million to $60 million in the 2013 fiscal year, based on the draft regulations currently available, Ellis said today in a telephone interview. Medtronic is trying to determine how much of the tax it can pass on to hospitals and other customers who purchase the company’s devices, he said.

“We’ve looked at this as basically one of the costs we’re going to have to cover as we put together our plans for fiscal year 2013 and as we put together our initiatives on a long-term basis,” Ellis said in a conference call with investors. “We’re going to have to make the tradeoffs and there’s probably going to be things that we can’t do as a result of that,” he said. “It means we won’t have as much to invest going forward.”

http://www.bloomberg.com/news/2012-0...tml?cmpid=yhoo
Stryker, a prosthetics company in Michigan cuts 5% of it's global work force due to the tax:

Quote:
Medical device manufacturer Stryker Corporation last week announced plans to cut its global workforce by approximately 5 percent. Other restructuring activities are also anticipated to reduce the company’s annual pre-tax operating costs by over $100 million beginning in 2013.

The reductions and restructuring “are being initiated to provide efficiencies and realign resources in advance of the new Medical Device Excise Tax scheduled to begin in 2013, as well as to allow for continued investment in strategic areas and drive growth despite the ongoing challenging economic environment and market slowdown in elective procedures,” the company said in a press release.

http://www.healthcarefinancenews.com...cent-workforce
The list goes on and on...

The house voted to repeal this new tax and the repeal is now stuck in the senate (one of the "meaningless repeal votes" that Gonzo keeps talking about), and support for repeal is surprisingly bipartisan - attracting support even from such staunch liberals as Elizabeth "you didn't build that" Warren who realizes the negative economical impact that the tax will have in Mass.

I suppose this is all part of "finding out what's in it" now that Obama & Pelosi cheated to get the bill made in to a law. The bottomline is that there are so many ways in which Obamacare is acting as an enormous damper on the economy, the only solution is to repeal the law in full and be done with it for good. In order for that to happen Barack Obama needs to be handed a pink slip by the Amercan People. Don't stay home on November 6th if you want to see the economy improve and Obama's crippling regulations and taxes be repealed, this is the most important election of our lives.
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Last edited by Swerve22 : 07-30-2012 at 04:59 PM. Reason: typo
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Old 07-30-2012, 02:15 PM #2
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Except that such taxes are usually passed on to to the buyers. No company is going to sell at a loss.
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Old 07-30-2012, 02:23 PM #3
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http://www.cbpp.org/cms/?fa=view&id=3684

Quote:
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).
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Old 07-30-2012, 02:26 PM #4
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Taxes on medical stuff to pay for medical stuff to pay for medical stuff that is taxed.
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Old 07-30-2012, 02:27 PM #5
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Quote:
Originally Posted by drgonzo View Post
Except that such taxes are usually passed on to to the buyers. No company is going to sell at a loss.
Ya that is one of the flaws in his argument, but i would like to point out that especially for the smaller companies who dont produce in as much volume their profit margins are lower. The larger companies may have enough profit margin to eat the tax for long enough that they can either buy up these smaller companies dirt cheap or they fail because they go negative due to having to raise prices and losing customers.
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Old 07-30-2012, 02:31 PM #6
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In a global economy,when one country raises the cost of doing business to a place where it is no longer competitive in the world marketplace.

Companies leave those countries and open up operations in places where there is a benefit to running a company.
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Old 07-30-2012, 02:34 PM #7
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Quote:
Originally Posted by paintballer9876 View Post
Ya that is one of the flaws in his argument, but i would like to point out that especially for the smaller companies who dont produce in as much volume their profit margins are lower. The larger companies may have enough profit margin to eat the tax for long enough that they can either buy up these smaller companies dirt cheap or they fail because they go negative due to having to raise prices and losing customers.
Demand elasticity for products will also play a pretty big role in whether or not a tax will be transferred to the consumers.
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Old 07-30-2012, 02:49 PM #8
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Demand elasticity for products will also play a pretty big role in whether or not a tax will be transferred to the consumers.
Indeed, which is where the fact that PPACA is expected to increase demand for medical care and, thus, demand for medical devices, comes in.
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Old 07-30-2012, 02:55 PM #9
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Quote:
Originally Posted by drgonzo View Post
Except that such taxes are usually passed on to to the buyers. No company is going to sell at a loss.
Was addressed:

Quote:
Originally Posted by Swerve22 View Post
Here is an example of a company choosing to pass the tax on to consumers (generally what companies do when taxes are raised on them - a corporate tax is basically a second, hidden tax on consumers):
If this makes it harder for the company to compete, they have to look at other cost saving options or forgo expansion. I've included examples of both in the OP.
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Old 07-30-2012, 03:01 PM #10
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No, the tax applies to imported and outsourced products as well, so there is no change in competitiveness. If this company is using it as cover for outsourcing, then shame on them. And shame on you for being a dupe.
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Old 07-30-2012, 03:04 PM #11
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"they will have to look at cost saving options or forgo expansion"

Nice way to use outsourcing as a red herring.

Also, way to not read the examples I pointed to in the OP for the second time.
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Old 07-30-2012, 03:07 PM #12
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According to them. But in reality there's no reason that is true and you are being a useful tool in their PR campaigns while they slash workforce and outsource. Tsk tsk. You are part of the problem.
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Old 07-30-2012, 03:09 PM #13
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Quote:
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According to them. But in reality there's no reason that is true and you are being a useful tool in their PR campaigns while they slash workforce and outsource. Tsk tsk. You are part of the problem.
Be a little more objective, Dr.
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Old 07-30-2012, 03:10 PM #14
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Be a little more objective, Dr.
I am being completely objective. A demonstrably false claim, trumpeted for political points is in fact hackery and toolish behavior, and there's a ton of evidence that such behavior is a huge part of our current political problems.
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Old 07-30-2012, 03:24 PM #15
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If you do the math for ABIOMED:

assuming no increase in product pricing and the same in sales for next year, $126,380,000.00 in sales with a 2.3% tax on sales ($2,906,740.00) would absolutely kill their profits. The company (current figures) only has a margin of (I want to say) 1.18%.
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Last edited by barrel roll : 07-30-2012 at 03:25 PM. Reason: keep leaving out facts... ugh Mondays.
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Old 07-30-2012, 03:28 PM #16
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Fine. I'll be the objective one.

Does Romneycare have the same device tax?
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Old 07-30-2012, 03:53 PM #17
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Quote:
Originally Posted by barrel roll View Post
If you do the math for ABIOMED:

assuming no increase in product pricing and the same in sales for next year, $126,380,000.00 in sales with a 2.3% tax on sales ($2,906,740.00) would absolutely kill their profits. The company (current figures) only has a margin of (I want to say) 1.18%.
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Except that such taxes are usually passed on to to the buyers. No company is going to sell at a loss.
By the way that margin is suspect. Medical equipment is one of the highest profit-margin industries in the US, and if a company is really running that lean, adding 2.3% to their costs should still make them an exceptionally value-oriented company.

Looking at the financial info available, it looks like that margin is not a sustained margin. This company has some pretty wild losing quarters, ranging from the teens to 80% in the depth of the recession, so a break-even or barely-profitable quarter isn't going to make or break the company. And with financial results like that, this company is a candidate for takeover or failure regardless of the tax.
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Old 07-30-2012, 07:11 PM #18
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So a tax that is passed on to the consumer makes healthcare more affordable?



Okay.
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Old 07-30-2012, 07:17 PM #19
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So a tax that is passed on to the consumer makes healthcare more affordable?


Okay.
Yes, the consumer in this case is medical facilities, and these are fairly durable goods, so the small percentage increase will result in negligible change for any one patient. Obviously the fact that demand will go up does indicate that healthcare is made more affordable for healthcare consumers.
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Old 07-30-2012, 07:40 PM #20
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Indeed, which is where the fact that PPACA is expected to increase demand for medical care and, thus, demand for medical devices, comes in.
except elasticity =/ demand.

Medical goods should have a relatively inelastic demand though since we need them and there aren't really substitutes. That means most of the cost is passed on the the consumers. Though, it also could mean a lot of outsourcing/foreign investment in med supplies that wouldn't be good for us.
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Old 07-30-2012, 08:38 PM #21
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The inelasticity coupled with expected increased demand = companies making money regardless of the taxation = this is all bull**** cover that the OP is buying hook, line and sinker.
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