MythGuy Facts Challenged During Medical Device Tax Repeal Debate

For years, Erik Paulsen campaigned as the #MathGuy who was gonna give “Washington a math lesson”.

Well, on Tuesday, the #MathGuy successfully got his permanent repeal of the Medical Device Excise Tax approved 283-132.

While he may want to be known as the “Math Guy”, he was challenged as being the “Myth Guy”.

The “Math Guy” and his compatriots cited some old studies to make his claim.

Mr. PAULSEN. The medical device industry is truly an American success story, directly employing more than 400,000 people.
The device tax caused the loss of over 29,000 jobs.
Now, with strong bipartisan support, we have been able to eliminate this onerous tax with suspensions. The last time we suspended this tax, companies responded by hiring more engineers and more technicians and putting more money into research and development projects for these new, lifesaving technologies.

Where did the “Math Guy” get these numbers ?
From #PaulsenDonors of course !
With the assistance of Norm Coleman’s American Action Forum and the industry lobbying group, Advanced Medical Technology Association (AdvaMed), they determined that the medical-technology industry shrank by about 28,844 jobs which were lost while the device tax was in effect (372,628 in 2015, compared with 401,472 in 2012).
Using the same Census categories, the most recent data for 2016 puts the number at 375,068.

OK … let’s giving him a rounding benefit on the 29,000 figure but he should have said just “under” not “over” … regardless, the number of employees is well below 400,000.
In fact, the industry lost over 46,000 jobs between 2008-2010, when there was no medical device Excise tax.
Yet, somehow all the blame goes on the “onerous” 2.3% medical device Excise tax … no consideration for market consolidations (yeah there have been a few mergers), automation and offshoring of jobs.
But, let us remember the “Math Guy” claimed by suspending the device tax, jobs returned … but the number is only 2,044 (375,068-372,628).
What the “Myth Guy” didn’t mention was how many jobs there were in 2014 (370,036) versus 2015 (372,628) … meaning the industry paid the medical device Excise tax and increased employment by 2,602.
But that does not paint the narrative that the “Myth Guy” wants.

Representative Paulsen got some help from Mia Love of Utah.

Mr. PAULSEN. Mr. Speaker, I yield an additional 1 minute to the gentlewoman from Utah.
Mrs. LOVE. Mr. Speaker, Utah’s Merit Medical was planning on spending $1.5 million for salary increases and 401(k) benefits for hourly workers, but they can’t, unless this tax is repealed.

Hardball tactic … no wage increases if the medical device Excise tax is not repealed !

So who is Merit Medical … and how are they doing ?

Merit Medical Reports Record Revenues for First Quarter of 2018

Q1 2018 worldwide revenue of $203.0 million ($197.9 million on a comparable, constant currency* basis), up 18.7% as reported (up 15.7% on a comparable, constant currency* basis) over Q1 2017

Merit employs approximately 5,000 people worldwide with facilities in South Jordan, Utah; Pearland, Texas; Richmond, Virginia; Malvern, Pennsylvania; Rockland, Massachusetts; San Jose, California; Maastricht and Venlo, The Netherlands; Paris, France; Galway, Ireland; Beijing, China; Tijuana, Mexico; Joinville, Brazil; Markham, Ontario, Canada; Melbourne, Australia; Tokyo, Japan; and Singapore.

OK … obviously a healthy company with worldwide operations.
Historically, the US accounts for 60% of Merit’s sales, so applying the 2.3% excise tax to the first quarter sales volume, they would have owed roughly $2.8 million. [FYI the Excise tax is not applied to exports, but any import is charged … a great way to encourage companies like Merit not to offshore production to Mexico, China or Ireland.]
$2.8 million is in just one quarter … that the company will not have to pay, but if they get the tax repealed, the employees would get $1.5 million. So where does the rest of that go?
FunFact : According to Merit’s 2018 filing, there were four executives who received bonuses totaling over a million dollars … and have four executives whose salary exceeds one million … heck, the CEO’s total compensation exceeded $4 million.
Of course, all that occurred when the medical device Excise tax was suspended.
Now, the only way the other employees will get a raise is if there is a tax cut.
Yep, a hardball tactic … some might even call it Trumpian.

What should not be missed in this whole discussion is that the suspension of the medical device Excise tax is depriving the US Treasury of over $2 Billion per year.
What ever happened to the #MathGuy who was gonna give “Washington a math lesson” ?

Representative Paulsen ignored the lost revenue problem, instead offering his version of the history of the medical device Excise tax.

We heard earlier from one of our colleagues who had said: Do you know what? The medical device industry was a part of putting together the Affordable Care Act, and they agreed to this.
Actually, that is a myth. It is not true. I have talked to numerous medical device manufacturers, small, medium, and large, as well as the associations, that said they had no part in agreeing to that. In fact, when this dollar amount came up as a part of the Affordable Care Act, they backed into it. There was some dollar amount assigned, and that is how he backed into a 2.3 percent excise tax.
And, again, just a reminder, an excise tax is a tax on your sales and revenue, not on your profits.

Earlier, Representative Paulsen said

Mr. Speaker, America is a net exporter in medical devices, one of the other reasons why it is an American success story. But back in 2013, the Affordable Care Act imposed a new 2.3 percent excise tax on all medical devices.

Mr. Speaker, 2.3 percent may not sound like much, but it wasn’t a tax on profits; it was a tax on sales, on revenue. Usually the government puts an excise tax on things we want to discourage, like tobacco, alcohol, or gas-guzzling automobiles.

FunFact … Representative Paulsen recently received the Brewers Association Legislative Champion Award for reducing the Excise tax on alcohol … (so does that mean he doesn’t think it is necessary to discourage the use of alcohol ?)

The suggestion that the industry was not a party to the discussion of the use of an Excise tax on medical devices to pay for the Affordable Care Act, prompted a response from Richard Neal.

Mr. NEAL. Mr. Speaker, I want to address the reference that my friend from Minnesota offered a moment ago when he referred to the device tax as mythology.
I negotiated that agreement with the industry. They asked for the following: that it be applied to foreign competition. We said yes. This was done in Speaker Pelosi’s office with the industry.
They suggested at the time that the 5 percent tax be cut to 2.3 percent. We went along with that. Even though the United States Senate had sent over a revenue package of $40 billion, we cut it by $20 billion.
So that wasn’t mythology. It was the way the institution once worked, how we negotiate, go back and forth, discuss, and then come to rational conclusions that might help and acknowledge the 20 million more Americans who have coverage now under the Affordable Care Act–20 million Americans.

So who is right ?
Was it a “myth” that the industry was not involved ?

Long-time readers of the MN Political Roundtable can recall that in 2009 at the urging of the AdvaMed, Tim Walz and other Members of the House wrote to reduce the Senate’s $4 billion-per-year Excise tax proposal (AdvaMed target was $1.5 billion a year).
Further, AdvaMed was supportive of the Klobuchar-Franken proposal to exempt companies with less than $100 million in annual sales; it would have companies reporting between $100 million and $150 million pay a reduced excise tax rate that would be half of the larger companies’ rate.

In the end, the House and Senate compromised on the 2.3% rate which was to yield $2 billion in pay for the program.
And the reaction sounded like one of acceptance … Wanda Moebius, vice president of policy communications for AdvaMed said. “While no tax is ideal, as passed in the House reconciliation legislation the device tax is now estimated at $20 billion, begins in 2013, is deductible from corporate taxes and is structured as a predictable excise tax.”
The $20 billion dollars is over ten years … or essentially about $2 billion a year.
The 2.3% Excise tax is deductible meaning that the impact was most likely 1.5%.
Mike Frazzette, president of Smith & Nephew Endoscopy in Andover, Mass offered his own assessment “The reality is that we run a global business, and while the United States is our largest market, more than 60 percent of our business is outside of the U.S.” Mr. Frassette continued “The tax will certainly have a big impact, but it doesn’t stop the wheels of progress.”

How can Erik Paulsen ignore these industry statements ?
It is a Trumpian case of #FakeNews to call them “myths” ?

The “myth” is that Erik Paulsen thinks that all companies will use this money (that has been factored into the selling price since 2010) to hire more employees.
Further, the “myth” is that Erik Paulsen thinks that the repeal would lower healthcare costs (once again, companies have factored the Excise tax into their selling price since 2010.)

Representative Paulsen has opted for the easy route … give a tax cut and don’t worry about how to fund the government … but that is what the #PaulsenDonors expect.

IF Congressman Paulsen was truly concerned about the deficit and small business, then he would have advanced a solution like the Klobuchar-Franken sliding scale.
Heck, he would have listened to Betty McCollum

Congresswoman Betty McCollum (DFL-Minn.) released the following statement after she voted against the Protect Medical Innovation Act of 2017 (H.R. 184):

The medical device industry serves a vital role in Minnesota by supporting thousands of jobs and providing lifesaving technology.

Nonetheless, repealing the medical device tax without a fiscal offset only intensifies the Republican sabotage of the Affordable Care Act (ACA). I represent 700,000 constituents and the majority have made it clear the ongoing attacks on the ACA and our healthcare system are intolerable. Therefore, I cannot support a tax cut on medical devices while the White House and Republicans in Congress continue to cut healthcare for millions of Americans, including stripping protections for individuals with preexisting conditions.

The fiscal shortsightedness of this legislation is deeply troubling. Like most corporations, medical device companies received billions in tax cuts that were completely unpaid for in the recent Republican tax overhaul. Repealing the medical device tax would give another tax break in excess of $20 billion to these same medical device companies with devastating fiscal implications.

Unfortunately, it has become clear that Republicans plan to cover the costs of these deficit-exploding tax measures by forcing drastic cuts to Medicare, Medicaid, and Social Security. It is simply unacceptable that these already cash-strapped programs will be forced to foot the bill for corporate tax cuts. Considering that the Republican tax bill eliminated healthcare coverage for 13 million people, we should be investing in earned benefit programs now that the need for them is greater than ever. Passing yet another unpaid tax break simply makes these pending cuts to Medicare, Medicaid, and Social Security all the more likely.

A bipartisan, responsible bill should be drafted that allows the medical device sector to continue to innovate and invest without this target tax, but any solution needs to be paid for and it should have broad support from Republicans and Democrats.

Minnesota’s Third District needs to reject the “Myth Guy” in November ’cause the “Math Guy” is blowing up the national debt and putting more pressure on the solvency of Medicare.

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