Tax consistency: Ideally, taxes will be applied consistently over time and across similar economic activities. When taxes are applied consistently, taxpayers know, with certainty, how their actions will impact their future tax liabilities. Everything else equal, taxes that are inherently more consistent, or applied with greater consistency, promote economic growth by improving the ability of people and businesses to make long-term economic plans.

Tax transparency: Tax transparency is essential for both legitimacy and for ensuring that the other desired tax principles are not eroded over time. For example, regardless of one’s definition of tax equity, it is self-evident that it's easier to determine how a tax impacts different groups and who is, ultimately, bearing the burden of the tax when the tax is transparent. Hidden taxes are also subject to constant changes, high burdens, and unwarranted loopholes carved out for well-connected individuals and industries. Thus, hidden taxes will often be applied inconsistently and violate the principle of tax neutrality.

Avoid double taxation: Double taxing income, assets, or consumer purchases violates three of the commonly agreed-upon tax principles. Systems that double tax the same activity are complex, difficult to comprehend, and biases an economy away from the activity that is being taxed multiple times. Thus, just like a hidden tax, applying multiple taxes to the same economic activity is a means for violating the core tax principles of economic neutrality, simplicity, and consistency.

The medical device tax’s principle violations
There are several ways that the medical device tax violates these widely accepted tax principles, which has also been noted by the Joint Economic Committee (JEC).

The tax is designed to impact only a subset of medical devices; therefore, by conception, the tax imposes distortions into the medical device market, and creates incentives for manufacturers to seek loopholes and exemptions to benefit their products at the expense of competitors. Further, the tax will not impact manufacturers of the same device equally. Some manufacturers may be able to absorb the costs, or make up for lost revenues on one device by increasing prices on other devices. Other manufacturers may be unable to absorb these costs causing them to lose money. Complying with the medical device tax is also complex and costly.

These costs tend to be more onerous for smaller firms, which are typically unable to afford the high compliance costs from regulations and will typically be unable to either absorb the higher costs or compensate for the higher costs on one device by raising prices on another. Harming smaller startup companies is troubling because the genesis of a great deal of innovation in the medical device industry is from small startup businesses. By harming these smaller companies, the medical device tax is a threat to future innovation.

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