Why is the medical device tax seen as a shutdown solution?

Rep. Erik Paulsen
Republican U.S. Rep. Erik Paulsen has pushed hard for a repeal of the medical device tax, and found some Democratic allies along the way.
MPR Photo/Brett Neely

There's not much progress towards a resolution to the partial federal government shutdown as it enters its third day. But one possible area where Democrats and Republicans could find some common ground appears to be on the medical device tax that helps pay for the Affordable Care Act.

No one seems to like it much and repealing it could be a boon for a Minnesota businesses.

To help pay for the now three-year-old 2010 healthcare law, Democrats negotiated new taxes and fees with insurance companies, pharmaceutical companies and the medical device industry. That means Minnesota companies such as Medtronic and St. Jude Medical are paying a 2.3 percent tax on the sales of devices such as pacemakers and stents, with the revenue subsidizing the cost of health insurance for the uninsured.

Live updates: The latest on the shutdown from Washington, DC

The idea was that those firms would make more money with all of the newly-insured patients who needed things like hip replacements or insulin pumps. But the industry never really liked that bargain, arguing that the tax will lead to layoffs at home and jobs going offshore. It has fought hard against the tax, spending more than $100 million on lobbying since 2010, according to the Center for Responsive Politics.

Republicans have adopted the cause as their own and a repeal of the tax even made it into one of the short-lived House GOP bills to fund the government but halt ''Obamacare," though the measure was blocked by the Democratic-led Senate. On Tuesday, just a few hours after the shutdown began, Dick Durbin, of Illinois, the second ranking Senate Democrat, made it clear in an interview with CNN that the device tax was on the table.

"We can work out something I believe on the medical device tax that was one of the proposals from the Republicans," he said.

There's not much that the 10 member Minnesota congressional delegation agrees on -- but they do seem to agree that the tax is a bad idea.

Along with DFL Sen. Amy Klobuchar, 3rd District Republican Rep. Erik Paulsen has pushed Congress to repeal the device tax. He's talking to Democrats now to find the $3 billion a year that's needed to offset the cost of getting rid of the tax as part of a way to end the shutdown.

"The challenge for us and the solution for us is to find the middle ground to end the impasse," he said. "The medical device tax, I think, is the one vote that had the most bipartisan support as an example."

The logical link between ending a budget shutdown and repealing a tax that affects a prosperous industry isn't clear to Paul Van de Water, a senior fellow at the liberal Center for Budget and Policy Priorities. Instead, he says it's part of a Republican strategy based on hostage-taking, in this case the operation of the federal government.

"It doesn't seem to make any difference whether the item is related to the budget or not," he said. As for the tax and its supposed ill-effects on the medical device industry, "there's no evidence at all that any of these dire predictions have come to pass," he said.

An April analysis by Wells Fargo Securities estimates that the flood of newly-insured Americans is likely to increase earnings per share at medical device companies by 2.2 percent in 2014, though other analysts aren't as optimistic. And the Obama Administration believes the industry will do well as a result of the Affordable Care Act and has threatened to veto past repeal attempts.

But plenty of liberal Democrats across the country represent states and districts where the medical device industry has a big presence and they're open to undoing the tax, leaving Obama without much political cover. Even 5th District Rep. Keith Ellison, one of the most liberal Democrats in Congress, says he supports repealing the tax.

"I'll put it like this: We're not going to delay, defund and destroy Obamacare. That's out. It will not happen. But we're open to a discussion about other ways to move forward."

Ellison says one reason the tax is on the table is that Republicans are beginning to realize that the government shutdown is hurting their party.

"What the Republicans are doing, shutting down government, is ugly and bad. But they need some kind of face saving move to get out of it," Ellison said.

1st District DFL Rep. Tim Walz says Republicans need to show conservatives back home that they at least got a chunk of Obamacare undone, even if the central law part of the law remains intact.

"I think maybe there's some folks saying, 'Well, if I can hang onto this, that gets me a compromise and I can go back home and say I got it," he said.

It's not clear if undoing the device tax alone will be enough to end the shutdown. But it seems like an idea that's gaining traction in Congress -- right at the time those millions of new patients in need of medical devices are starting to sign up for insurance.

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