Would you consider contributing to our work? The provision has always been controversial, evidenced by two back-to-back delays, yet somehow it has managed to avoid full repeal. The medical device tax was included to finance the health insurance market changes within the ACA in 2010, and initially went into effect in 2013. The White House has historically opposed these efforts, but President Obama recently indicated he would entertain the idea see Question 5.
July 12, 2018. Give Us Feedback. We work hard to make our analysis as useful as possible. The tax, however, does include several exemptions.
If it is here to stay, supporters are right: However, the medical device tax is especially complex, requiring companies to calculate sales prices upon which to apply the tax. While the medical device tax is a flawed tax, the short-term suspensions create difficulties for firms to plan and manage the tax. For instance, the Internal Revenue Service has issued guidance on the sales of medical device kits, which contain both taxable and nontaxable items.
These trends are worrisome since early-stage investment companies can promote innovative and disruptive medical device technologies that introduce new therapeutic benefits or quantum improvements in patient care. It does not apply to eyeglasses, contact lenses, hearing aids, wheelchairs, or any other device that the public generally buys for individual use.
The medical device tax should be repealed and if other funding is needed, broad-based taxes should be used instead. Because the tax is assessed on sales, and not profit, firms with smaller profit margins are disproportionately impacted by the tax.
The House has approved the repeal of the device tax three separate times in the past two years, including as recently as September 2014. While full repeal is difficult due to federal revenue constraints, ideally, suspensions would exist for longer than two-year intervals. The medical device tax violates several principles of sound tax policy.
The tax applies broadly to a range of products, including pacemakers, artificial joints, surgical gloves, and dental instruments. The medical device tax is nonneutral as it impacts firms differently. By some accounts this tax is coming at a particularly challenging time for medical device innovation.
For instance, in early 2018, the moratorium was signed after the tax year had begun, creating issues for firms. The Tax Foundation works hard to provide insightful tax policy analysis. S to attract medical device investment, such as offering tax havens and other incentives for device developers in Ireland and the Netherlands add to the attractiveness for device companies to move out of the U.
The main argument supporting the medical device tax is that it only affected device companies that would be benefiting from increased demand for their products, due to health insurance expansion through the ACA.
Thank You! In theory, the medical device tax would increase costs for consumers as the costs of producing the goods would increase by the amount of the tax. Table 1 below illustrates the impacts of the tax on both a high-margin and low-margin hypothetical medical device company.