Tax repeal could give medical firms double windfall

Medtromic's 'Rising Man' symbol
The "Rising Man" symbol stands in front of the Fridley, Minn., based Medtronic.
Jim Mone/ AP

Republicans and many Democrats in Congress want to repeal the roughly $3 billion-a-year tax on medical devices that's part of the Affordable Care Act. Undoing the tax will mean a big boost in profits for the industry.

But there's another business windfall buried in the bills that Congress is considering. Not only would the future tax be repealed, but the taxes already collected would be refunded. Any company that had paid the tax would get its money back.

The Internal Revenue Service began collecting the medical device tax on the first day of 2013. Both of the newly introduced bills in the House and Senate would repeal the tax retroactively, going back to the last day of 2012.

That's not the usual practice, explained Howard Gleckman, a senior fellow at the nonpartisan Tax Policy Center in Washington.

"It's very common for Congress to provide special interest tax breaks for various industries. It does it all the time," Gleckman said. "What is so unusual is providing a retroactive tax break to a particular industry."

Erik Paulsen celebrates his re-election.
Erik Paulsen celebrates his re-election to Congress at the GOP election night party at the Loews Hotel in Minneapolis November 4, 2014.
Courtney Perry / For MPR News

Rep. Erik Paulsen, R-Minn., is leading the effort to repeal the device tax in the House, along with Rep. Ron Kind, D-Wis. At a recent press conference, Paulsen confirmed that he wants to see the industry get a tax refund.

"The language is retroactive because the tax ... has been a bad idea since Day One," Paulsen said. "So they would have the ability to go back for refunds."

Those refunds could total more than $6 billion. A large chunk of that money would go to big Minnesota-based companies like Medtronic and St. Jude Medical. In 2012, Medtronic estimated that it would pay between $125 million and $175 million a year because of the tax. Last year, the company's profits were more than $3 billion.

Shaye Mandle, CEO of the trade group LifeScience Alley, argued that a refund is appropriate because the tax has led medical device companies to lay off workers and halt expansion plans.

"It's an attempt, effectively, to repair the negative aspects of what the device tax has ultimately done to the industry," he said.

The industry's story is hard to verify.

A recent study by the Congressional Research Service estimated that at most, the entire industry may have lost 1,200 jobs due to the tax and likely lost fewer than 100. Figures from the Bureau of Labor Statistics show little change in the industry's employment over the past few years.

Still, the repeal legislation has the support of all 10 members of Minnesota's congressional delegation.

Rep. Keith Ellison, who often talks about the need to eliminate special-interest tax breaks for industries, was frank about his support.

Rep. Keith Ellison
Rep. Keith Ellison addresses supporters Tuesday, Nov. 4, 2014, during an election party at the DFL Headquarters at the Hilton Hotel in Minneapolis.
Aaron Lavinsky / Star Tribune via AP

"Look, I don't ever begrudge any member of Congress for looking after the jobs in their own district," Ellison said. "And that's what I'm doing here."

The medical device industry has spent an estimated $30 million a year since 2008 on lobbying and has nearly 400 lobbyists tackling the issue, according to the Center for Responsive Politics.

For now, the bigger question about repealing the tax is how to pay for it.

Lawmakers will need to come up with another source for the nearly $3 billion the tax is estimated to bring in or risk adding to the budget deficit.

So far, there's been no visible progress on that front.

Nor is it clear that President Obama would sign such a bill.

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