With Election Looming, Lawmakers Continue to Hammer Device Tax

U.S. Representative Erik Paulsen, a long time opponent of the 2.3 percent medical device excise tax, recently pushed the Internal Revenue Service (IRS) to present its final rules on the tax during a hearing at the U.S. House of Representatives.

During the first week of September, the IRS promised to present its revision to Form 637, the application for registration dealing with excise taxes. At the House Ways and Means Subcommittee on Oversight hearing on implementing President Barack Obama’s healthcare reform law, Paulsen pointed out that the form includes taxes on gas guzzlers, tobacco and alcohol, illustrating that the “public policy rationale in the past for excise taxes has historically been to deter certain activities.” Paulsen went on to say, “The last thing we want to do is deter creation or innovation.”

IRS Deputy Commissioner Steven Miller explained that his duty was just to administer the law, not explain the reasons behind it.

The 2.3 percent tax is set to go into effect on Jan. 1. Paulsen wanted to know whether the tax agency had given any thought to the significantly elevated burden the IRS will face when the tax kicks in.

“Now that we’re moving forward to January 1, these companies are laying off employees already. I want to make sure that we’re taking into account the paperwork,” Paulsen said.

“We’re working hard. We have proposed regulations out on the medical device tax and we’re working with the industry to make sure not to burden them and make sure they know the rules for compliance,” Miller replied.

“We continue to hear of American companies already beginning to lay off employees in anticipation of this dangerous new tax,” Paulsen said in prepared remarks. “We need to be doing everything we can to repeal this tax not only because the administration seems to be ill prepared for its implementation, but more importantly, because it will cost this nation valuable jobs in a valuable industry.”

AdvaMed (Advanced Medical Technology Association) President/CEO Stephen J. Ubl released a statement on the hearing:

“The medical device tax is one of the few IRS-administered provisions that goes into effect in 2013,” Ubl said. “Even apart from the destructive $30 billion economic burden of the tax, the mechanics of implementing it will be extremely challenging both for companies and for the IRS. It is vastly more complicated than a typical excise tax, and compliance by companies in our industry will be both costly and burdensome. We appreciate the IRS’s efforts to address our concerns regarding the implementation of this onerous tax, but simply put, the complexity and difficulty in developing these regulations underscores that an excise tax is a blunt and damaging instrument being applied to highly innovative and dynamic industry.”

U.S. Representative Ann Marie Buerkle (R-N.Y.) was also recently prompted to have her say due to Welch Allyn, a medical device manufacturer located in her upstate New York district, announced extensive layoffs over the next year to compensate for the costs of the tax. She sent a letter to President Obama calling for action:

“As a result of the medical device tax 275 people at Welch Allyn will be losing their job; 120 of which are from my district. During these challenging economic times the government should be implementing policies that help the economy grow jobs and keep American workers employed. The medical device tax is an egregious, misguided policy that damages the upstate New York economy and negatively affects our local community.

“This job-killing tax must be repealed. In June of this year the House passed H.R. 436, on a bipartisan basis, to repeal the medical device tax. However, the Senate has failed to take up the bill for consideration. I urge the Senate, and the President, to do the right thing on behalf of small businesses and join the House in repealing this onerous tax.”