EagleTribune.com, North Andover, MA

Business

January 20, 2013

Medical device tax survives fight to kill it

WASHINGTON — The medical device industry says its fight to kill a new tax on its products is not over, but public policy experts say chances of winning an outright repeal have all but disappeared.

Hundreds of companies in the medical technology sector became responsible for paying the tax on sales of certain devices Jan. 1 after efforts to delay it as part of the federal fiscal cliff deal failed. First deposits of the 2.3 percent levy are due on Jan. 29.

“The odds are close to zero” that the industry can get rid of the tax completely now that it is in place, predicted Don Kettl, dean of the University of Maryland School of Public Policy.

“Under normal circumstances, it’s harder to stop a tax once it’s enacted,” Kettl said. “You have to reverse the whole legislative process.”

Industry lobbyists claim that the tax will cost medical technology businesses $667 million to implement nationwide and lead to layoffs or reduced hiring. They dispute tax supporters’ rationale that the new health care law will insure more people and increase device makers’ business, offsetting much of the tax.

St. Jude Medical has estimated the cost of the device tax at $50 million to $60 million in 2013. The company has laid off 800 employees since August, and a spokeswoman said that “the medical device tax was one of many factors that contributed to the rationale for the realignment of our business.”

Med-tech giant Medtronic estimates that the new tax will cost $125 million to $175 million annually, said a spokeswoman for the firm in Fridley, Minn. Medtronic set aside an initial $50 million for the tax’s arrival.

“This does take budget away from other investments we could make with that funding,” spokeswoman Cindy Resman said. But “we have accounted for the impact in our planning.”

Annual sales of medical devices made by Massachusetts companies are about $13 billion and medical devices are the top exported commodity out of the state, Sommer said.

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