Washington, D.C. – The Advanced Medical Technology Association (AdvaMed) brought chief financial officers and research and development executives to Capitol Hill today to push for full repeal of the medical device excise tax.
“CFOs and R&D directors at medtech companies have a unique perspective. They’re the ones tasked with answering the question surrounding how their companies can survive, let alone thrive and deliver for the patients they serve, if this tax on revenue is implemented on New Year’s Day 2020,” said Scott Whitaker, President and CEO of AdvaMed. “When the medical device tax was in place, R&D executives across the medtech industry were forced to cut jobs or shelve investments, which kept life-changing innovations from patients in need. Their message to Congress is simple: allowing this tax to go into effect again would lead to more job cuts and less innovation—full repeal will allow us to invest more in the technologies that save and improve lives.”
According to the U.S. Dept. of Commerce, when the medical device excise tax was in effect from 2013-2015, 29,000 jobs were lost and billions of dollars were diverted from R&D. The tax resulted in reduced R&D spending among nearly one-third of medtech companies in 2013, its first year of implementation. While the tax has been suspended since 2016, if allowed to go back into effect in 2020, it would result in an estimated reduction in R&D of $2 billion each year.
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Not only does the medical device tax negatively impact an American industry responsible for more than 2 million U.S. jobs, it violates several principles of what a good tax policy should look like.
There are numerous issues with the structure of the tax, however, the most troubling aspect is that the tax is assessed on sales, not profit. This means that the tax has an outsized impact on companies that have low margins, which tend to be newer, small business manufacturers, often the breeding grounds for the most innovative and cutting-edge new treatments and cures. The tax creates a huge barrier to entry for new companies and makes it almost impossible for them to thrive, as it risks wiping out any profit once the tax is paid. This is significant, given that 80 percent of medical device companies have 50 or fewer employees.