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Our most vocal medical device tax detractor, group member John Eckberg, Director of Media Relations for Cook Group (which stands to pay $100MM+ in extra taxes), wrote the following this morning. Does his logic hold?
[Subject] How many jobs will not be created in the U.S. because of the 2.3 percent top line medical device tax?
[Detail] Medtronic’s most recent 10-Q offers some insight on the impact of the 2.3 percent top line tax on U.S. medical device sales.: “We currently estimate that our annual excise tax fee would be within the range of $125 million to $175 million after tax.” So, how many jobs are not going to be created in the U.S. because of that tax? At $50,000 per, the low-end estimate equals 3,000 jobs.
a job was equated to $50K in the topic…
Ishrak (CEO) makes about $30 million annually, per this report
That equates to about 600 jobs according to the 50K/job number..
If I hired a CEO from China, I could save a lot of money and hire additional workers. Much more productive for the company.
600 jobs may not sound like a lot – but it’s a good portion of the 3000 number stated in the article…
a – He estimates that a job would equate to about $50K in tax. From that he assumes 3000 jobs. I think the job amount is at least going to be $150K – and closer to $250K per job (ideally….).. so the 3000 number is high… But it is a debatable number…
b – There is an assumption that this amount “does not get passed on”… that is simply incorrect. For some companies, they have argued that passing on the 2.3% can not happen… but what that really means is that the amount is passed on “later… not sooner…”. Additional costs get passed on.. that’s business…
c – an argument was made that the “2.3%” will have to come out of reducing expenses and cutting costs.. sounds reasonable -but then you might ask “why aren’t you doing that already?”
d – this is a good point – but not stated.. Increasing cost – by 2.3% at the device level – will drive up health care cost. one way or another…. so how does that help reduce OVERALL Healthcare cost… answer is …. it doesn’t…
e – who ultimately pays? Government pays a LOT.. so the real effect on that Government paid portion is just to churn money and waste it all along the chain…
Let’s say that 1/2 (just a WAG) of the 2.3% money cost is ultimately paid by the gov’t in some fashion… then the actual real NET improvement is just 1.15%. A lot more waste all along the chain.. that is just not the direction that will help reduce health care costs.. and INSTITUTIONALIZES another waste in the healthcare business…
I don’t think the 2.3% should – or even is – a “company and jobs killer” – as some say. But it FOR SURE does not work to reduce the cost of healthcare – or make it more affordable for people.
3. “ONLY nationalizing 2.3 percent of the sales, which translates into claiming 5% to 30% of some companies’ earnings”
so – the off shore companies are making much (2.3% more) on each device and that makes a huge difference ?
It’s more akin to what happened in Jamaica when leaders of that sovereign nation decided to nationalize so many industries. But rather than nationalizing the entire industry, in this case, the great ship of state is essentially ONLY nationalizing 2.3 percent of the sales, which translates into claiming 5% to 30% of some companies’ earnings. Rather than claiming the entire company, our government, essentially, is just claiming by way of taxes ALL of the earnings from just a few divisions. I’ve said it once and I’ll say it until the day I can’t say anything: this is more akin to piracy than public policy.
It’s true that this may only be a haircut for some major companies, which will not be named, because they have billions in earnings. So what’s another $100 million lost to taxes, one of the people on this board pondered, after all when a company has $10 billion in sales. What’s wrong with a new tax that does that? For one thing, this tax means an incredible advantage to companies not based in the U.S. because they are starting off with a much much lower corporate tax rate. We compete in a global marketplace and companies with plants in, say,Spencer, Indiana, compete with products manufactured by companies with a headquarters in Switzerland (what, 3 percent tax rate?) that manufacture in India or Malaysia and dump those products on GPOs in Colorado or Florida or North Carolina – GPOs that are understandably happy to pay the lower price.
If you want to create a scenario that drives publicly traded companies to relocate factories off-shore, this tax is the way to do it.
Pass on the price hike to hospitals? Hah, that’s laughable. About 40 percent of hospitals operated in the red last year. You can pass along price increases in any way shape or form in this space. Some big companies are likely giddy over this tax because it’s going to lower their M&A costs in a year or two.
Paying taxes is a necessary evil, to which most agree, as long as they don’t have to pay it…
Todd Staples, MBA
Taxes are of course necessary, but it is absolutely beyond question in my opinion that keeping taxes low encourages investment by the private sector and promotes business. Some will always advocate for higher taxes because they loathe what they see as corporate injustice and favor their warm protective government, but there are an equal number of those who see things reversed.
What we need is balance. Reasonable taxes, reasonable regulation, reasonable corporate stewardship. Anytime things begin to push too far in one direction you see heated debate and animosity – and things get nasty. I believe that what we are seeing with this new tax is simply that taxation in THIS industry is pushing toward the boundaries that exceed the tolerance of many and cause those affected to push back. It is every bit the right and responsibility of those in our industry to push back when the government oversteps, just like it is the FDA’s role and responsibility to keep our industry in check with their own regulations.
Stuart R. Taylor
I’m sorry, but turning a paramecium on its head is a clever saying, but unfortunately, it makes no sense here and is completely irrelevant and pointless in addressing the issue.
You come up with some clever sayings and verbiage, but you make no sense to me : )
If you are fair and accurate, I presume the “flag toss” goes to John Marland. All I did was turn his own intolerant and illogical comment back on HIM to the hypocrisy, as if anyone has a monopoly or jurisprudence on correct thinking of highly educated people. You insinuated that my “scolding” was directed to all (and not just him), in which case it shows you didn’t read or understand what I wrote.
If an economy has only so much capacity, do we give the edge to those who always need extra boosts and tax breaks? Do they really expect that their weakness is the strength of their argument?
What we are hearing is that its better to burn the house down than to be told by the government that we should clean it. I thought the critical thinking cheap shot would garner a flag toss, so you all think we deserved the scolding.
Patrick Mize, PhD
If the FDA is crap it is because our industryâs lobbying of congress formed the laws that dictate the agencyâs activities. Legislation for the most part starts because industry members perceive some slight and want some protective legislation or, more usually, starts because patients have been injured or killed. Has industry formed an independent non-governmental watchdog capable of policing its members? Does industry clean up its act and really follow some sort of GMPs? We should stop whiningâ¦
Stuart R. Taylor
It’s funny, but I thought the exact same thing about your comment when I read your comment: “For a forum that is supposed to be populated by highly educated people capable of critical thinking I have to say that’s a surprising thing to encounter here.”
Stuart R. Taylor
“They tell you where it goes?” and “USUALLY”? Don’t think so : )
Ok, I’ll forward the theory that if you tax the living daylights out of products already on the market, it will stimulate companies to develop more products because it’s the only way to make money, thereby creating many high paying research jobs.
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