88 min reading time As originally shared by John Eckberg Senate Finance Committee Hears Industry Testimony On Impact Of Medical Device Tax Laurence Spitz MBA Chris Carles John Eckberg They are still high-fiving in the hallways at those global giants, which built automated plants in no-tax zones like Costa Rica or Singapore. I saw the other day in a story in the Tico Times that medical device exports from Costa Rica are up 50%+ year over year. Near as I can tell, the only risk involved in testifying before the Senate is that the IRS may come with personal and corporate auditors in tow. Otherwise, truth is truth. Hugh F. McCann, Jr Jerry Robinson But it is only a (small) part of the total problem. Seriously folks,,,, you can do the math and count, right? Hugh F. McCann, Jr Mark McCarty Jerry Robinson ANYTHING you do with the tax/incentive process is going to be GAMED by TRUE EXPERTS… it’s like playing cards with a true card shark… AND you let them make the rules… and you PAY them for it… and if that is not enough.. CLOSE YOUR EYES and make your play… so think outside the box.. you have to – or you WILL NOT SURVIVE… Here are some suggestions… 1. – seriously… boot management that has no clue what you are actually building and why it matters… This kills companies and technology with devastating effectiveness… 1. – FOR devices imported – and software – ASSIGN a 0 value for tax basis. So… go offshore and make it/develop it/finagle the tax basis all you like.. when it CROSSES the border – it does so at a 0 value. Build it in the US? then you have real cost… Park your trademarks and IP offshore and use the technique to shield profits? then you can pay some tax… 1. – US Gov’t should support on shore companies.. don’t spend US support monies offshore. Nothing wrong with this… I can’t see this really happening… I know.. but it means – quite likely – 10’s to 100’s of millions of jobs HERE.. instead of padding false cost and shielded offshore “profits”… If you design and build in the US… aren’t you TIRED of the deck being stacked against you? Don’t you want your kids and family to have a chance to find a job? instead of hoping to find a low wage job supporting Importers? These are not complex questions.. SOME of the solutions above are already in practice here.. how about making it more universal??? Mark McCarty Hugh F. McCann, Jr Stella S. * He wants to give amnesty to 40 Million illegals (which include a serious portion of them being terrorists) and pay for them out of our taxes since they do not pay taxes and they already have food stamps and Section 8 housing. * Then he raises taxes on business and the rich (who by the way, own the businesses)…so if they have income of say $1MM, 33% goes to taxes, 33% goes to salaries and employee benefits and 33% to operations…when Obama wants to raise the tax to what amounts to 48% to 50%…is the business going to stop operating? No. However, everyone is going to be a part-timer and millions of people are going to be poor. * Supermarkets are businesses so when they raise the taxes, so will the price of food…did you notice the huge increase in price in lunch meats? Kids are going to go hungry and schools will not have enough food to feed them all, why? Because when you bring in all those illegals and support them with food stamps and section 8 housing, there is nothing left for US Citizens and legal residents. _____________HOW TO FIX THE ECONOMY AND GET OUT OF DEBT_______________ * SEND BACK ALL THE ILLEGALS — all the money in food stamps and Section 8 goes back in the economy. * SEND ALL FEDERAL PRISONERS TO THAT LARGE, DESERTED ISLAND OFF THE COAST OF ALASKA. They will have to fish for their food, build igloos for shelter and you do not even need guards because there are no trees for them to escape on and the water is too cold for them to swim. All that money goes back into the economy. * Last year, $1.6 Trillion was lost to counterfeit. This year, it is supposed to get to $1.8 Trillion. DHS was presented with a SECURE WAY TO STOP COUNTERFEIT FROM COMING IN on August 25, 2009, in DC. A woman named Therese Randazzo was sent by DHS to a meeting involving the inventor, a CBP High Level Officer and several other IT, ICE and other officers. They all said that unfortunately, under this administration, CBP and ICE came under DHS. She did not give the courtesy of an answer, yet for the next few years she traveled all over Europe, accomplishing nothing except enjoying hundreds of stays in luxury hotels, enjoying expensive meals, super expensive clothes, etc., all paid with our taxes. What was her job? Who knows, except it had to do with nepotism and lobbying. Get rid of counterfeit. This same technology was presented at the EU and they suggested applying for a $16MM grant for proof of concept. So, stop counterfeit from coming in and manufacturing and jobs come back, kids or people do not go hungry the economy improves significantly. * Stop foreign aid and if certain areas in the Middle East threaten us, then do the same as we did to Japan. Drop a few drone bombs to terrorists centers and “end of story”. It worked in Hiroshima, etc., and there were no more Pearl Harbors attacks. * Have all politicians from city, county, state and federal undergo a 25 year background check and pass a neurological lie detector test since they are so used to lying that they can easily pass the one based on blood pressure indicators. If it is found they have been embezzling or getting kickbacks from lobbying (which means bribery), then all their assets get confiscated to pay for what they got and all that money goes back into our economy. * Do a financial audit on everyone working at the White House, the Senate and Congress, their relatives and close associates. You will be amazed as to how much money goes back to the economy. * Reduce the taxes on business and reduce them even further on start-ups for the first 3-4 years of their operations. This will allow them to contribute more to the economy in the way of jobs, doing business with others, etc. SIMPLE, NO? Laura T. Smith, BSN, RN Stella S. Jerry Robinson It’s why you should drop the people and politics out.. and concentrate on solutions… Reducing taxes…. won’t solve all problems.. it’s why there are HUNDREDS of billions of $$ parked off shore… It won’t solve the GE problem.. where billions in profits were made – no taxes were paid… and they got a $2 billion refund check to boot… So.. define the Disruptive Innovation path – and follow up by figuring out how to do it. Stella S. Paul M. Stein My point is, as professions, we need to assess and digest the bigger picture before running screaming into the night. Stella S. Hugh F. McCann, Jr John Eckberg Executives at J&J are still high-fiving in the hallway over this tax because their domestic competition must pay the tax on 100 percent of their revenues. Those smaller companies are immediately devalued and pretty soon the board of directors will say, time to cash out. Time to sell to a company based in Ireland or the UK or Switzerland. It’s a dumb ass tax, as Sen. Hatch pointed out, at every level of analysis. What I don’t understand is this: I am not God’s gift to deep thinking and if I can figure this out, how come Senators from both sides of the aisle cannot? Or maybe they can … so what’s that imply? John Eckberg Hugh F. McCann, Jr Paul M. Stein John Eckberg That suggestion is a good example of how those who quietly support this medical device tax lob grenades at issues cited by those who support repeal. So let’s look at the trend of Costa Rica exports. As an aside, this tax was debated and then signed into law with the complicit acceptance of the mass media, lefties who almost always worship at the altar of the progressive wing of the Democrat party. From 2009 and 2013, medical device exports from Costa Rica grew by 65 percent, according to PROCOMER. Then from 2013 to 2014 device exports grew by about 20 percent more until finally, last year to this year, it grew by 50+ percent. It’s an industrial diaspora plain and simple. Same numbers pretty much hold true for Mexico, Singapore and Ireland. But unlike previous diasporas of industry from the U.S. to elsewhere (textiles and automobiles), this time the mass media just doesn’t care and, in fact, pretty much encourage it by simply not covering the issue. Particularly the beltway media that doesn’t know Indiana from Iowa. Speaking as somebody who spent 30 years working for a major metropolitan daily newspaper, that is, of course, the ultimate power of the press – the power to ignore. Hugh F. McCann, Jr Mark McCarty Jerry Robinson Let’s not get into the discussion of Democrat religious practice.. That’s for somewhere else… :> I think you are making a point that – as I have held – that the relative effects of tax and overhead (ie, non-employee) are like a chain.. A chain is only as strong as it’s weakest link, and the device tax hits at – perhaps – the weakest link.. The effect is not in money – it is the “straw that broke the camel’s back” – or at least has the effect of breaking the chain. So it pushes small companies OUT of business – and STOPS other small start ups from getting rolling… I have seen LOCAL medtech companies out to hire “senior engineers – 10+ years experience” for about $13 an hour… and you know what is going on there, right? The blame is not caused by the med device tax… it’s H1B maneuvering – and the push to offshore. So the med device tax will ALSO get a lot of “attention” – when something else is going on. Your conclusions seem pretty accurate to me.. Paul M. Stein I hate the industrial diaspora, the layoffs, the reorganizations, the mega-mergers with their inevitable fall outs, the cutbacks in R&D, etc. as much as any of you and other posting here. I’ve seen the rapid decline of a once thriving sector in the past decade, and it truly makes me sick. And, I know that the excise tax has contributed to this. The thing is, repeal is a political issue, and there are many lines of thought to consider regarding that goal. The tax does bring in necessary money to help run our government, so, unless people can come up with ways to either raise taxes elsewhere or cut expenditures, thereby making the excise tax income unnecessary, it will remain. That means hard thought and hard choices on all sides. And that means clear heads, focus, and compromise. So, if all of that cannot occur, then nothing will happen. The real hard fact is that if one does not come along with a set solution to the declared problem, then that person or group is ignored. John Eckberg The revenues just go into the black hole of the deficit financing by the treasury. That’s another angle the media has not reported. It doesn’t fund the ACA. Monies go to the treasury. Nobody blinks an eye at $80 billion in alternative energy credits or the doc fix – particularly nobody in the medical mass media – but a rounding error of $2 billion from our nation’s most innovative industry and it’s no way no way no way – where’s the offset. So, wave good-bye to yet another industry… Paul M. Stein So, what is there left to do? We need to form some common goals for the industry and how to get there. [HINT: Because of their failure, DON’T, DON’T look to the traditional “leaders”, the Medtronic’s, the St. Jude Medical’s, the Boston Scientific’s, the Stryker’s, the J&J’s etc. of the World for that. They had their time, and that was in the past. Their stalled product lines illustrate that they aren’t the ones to either lead or offer up any logical ideas forward.] FACT: The U.S. medical device industry is a shining star regarding the balance of trade with the rest of the World. It is also a fact that emerging market countries see U.S. medical devices as top quality and their own home-grown efforts as crap. We need to look to help startups and aggressive mid-sized companies to move the Industry upwards again. Tax relief is the logical way to do this: modifying the excise tax to cover profits only, massively increasing SBIR’s/STTR’s, and breaks for initial years of operations. Yes, all of these will be negative fiscally, but the payoffs down the line will be massive…MASSIVE, if history indicates anything. AND PATIENTS WILL BE BETTER FOR IT! Wasn’t that the real reason why most of us got into this business in the first place?! The trick is to, again, come up with hard thought, clear heads, focus, and taking everyone into consideration. Paul M. Stein Joe Hage John Eckberg and Paul Stein meet – for the first time anywhere – LIVE and IN PERSON – at the 10x Medical Device Conference! See them Monday, May 4 reception at the Hilton San Diego Mission Valley! Jerry Robinson This process went in – in the US – in industry after industry.. The empty buildings and flat slabs left over a the only ghosts of remberence there is in so many areas… Textiles.. shoes.. THESE ARE TECHNOLOGY AREAS.. just like MedTech is… So to think we immune to the same kind of insane management and government schemes, is just… well as Einstein said… “stupidity”… I think – to survive – as designers and engineers and industry professsionals – we must figure out how to disruptively innovate in an era of massive ignorance.. I don’t have soltuions for this ….. I am just a motivated engineer – and looking for answers… (so.. I listen to Prairie home Companion, too…). Our wealthy ARE dumping massive funds into politics now.. but It only seems to be for the purpose of fattening their own pockets.. Where are our Carnegies? our JP Morgans? Not there.. so we have to be creative on our own… John Eckberg Hugh F. McCann, Jr Paul M. Stein Oh, and Joe, I think that the meeting of the minds will be a relative non-event…sorry. I think that time has ruined what might have been a potentially exciting opportunity, say, back in early 2013. Over the past couple of years, John and I have learned a lot regarding the other’s opinions. I think that the major reason for our initial collision was that we came from two very different places in corporate America. Our experiences and jobs were so different. I, for one, felt that I saw all the issues and had all the answers based on what I personally have seen and been through. In those two years, I have received quite an education, and, being, hopefully, a good scientist, I have taken all that new evidence to form new “theories”, quite different from my original ones. Hence, from the debate forum you have worked hard to create, we have understood more of the facts from the other’s viewpoint. Yes, there still is a way to go between us, but I think that is more in terms of trying to bridge methodology. John is the public relations guy and I’m the find-a-solution guy. Whether we could ever totally come together is a TBD. Anthony Zelinko It’s beyond my comprehension how the framers of the ACA didn’t see the repercussions, lost jobs, moving companies off shore, killing med device innovation for small companies. Hugh F. McCann, Jr More worker participation, more velocity, more family formation, more cash flow to the treasury. Celso Odilon Zambon Dan Stipe Here is a study by Emergo Group, “Outlook for the medical device industry in 2015” http://www.emergogroup.com/resources/research/annual-medical-device-industry-survey You’ll have to scroll down a ways to get to the device tax information. John Eckberg Sometimes the truth about the media doesn’t help a cause, but it doesn’t mean that what I’ve opined is not true. And, as an aside, I’m here to spread truth because it’s tough to shake off 30 years as a journalists. I’m not here any longer to convince anybody one way or another because, frankly, people are going to think what they want to think and believe about this issue regardless of what I write on a LinkedIN chat string. As Commissioner Joe Hage would point out half of the members of this group don’t even live in the U.S. so they don’t care about the tax one way or another. Regardless, the only people who matter at this point in this debate are a handful of Senators and their staffers. The media has been overtly slanted in their coverage, if they cover the issue at all. Reporters never challenge the consistent red herrings of pro-tax think tankers. Sometimes they even quote backers and not name them because they are former Senate staffers. A Bloomberg columnist did that the other day, which is pretty outrageous journalism, more akin to whack-a-mole than reporting. They never challenge the basic and false premises of the tax, that more patients means more revenues for companies, a tax on one is a tax on all (ignoring that companies base factories in low tax regions to avoid U.S. taxes) and never question the need for the revenues in the first place, particularly since the ACA is now apparently coming in about $100 billion under budget. No, pro-tax folks get a pass. The industry gets grilled, if it gets coverage all all. As for the study you cite and previous studies from them, the Emergo Group spokesmen always put a cheery slant on their surveys. For instance, analysts belittle or dismiss findings like 14 percent of companies will lay off workers as a result of this tax as something that is insignificant. Well, when there are 8,000 companies in the U.S. in the space (some say 15,000) that means more than 1,100 firms furloughed employees because of this tax. Let that number sink in. Four lay-offs per company and that’s more than 4,000 households slammed right there but the number is probably far more than four per firm and the ripple impact in towns of factories closing will be even more significant. Why didn’t they follow up and ask how many lay-offs have occurred, for instance? That question simply isn’t asked. Wasn’t asked last year. Wasn’t asked the year before… And the survey on its face belittles the impact of the tax: 24 pages and only one question about an unusual tax that is likely to lead to tens of thousands of layoffs in the U.S., according to AdvaMed. Why only one question? It tells you something when a dog doesn’t bark. As an aside, I vote Democrat and hope California Gov. Jerry Brown runs for president with Michelle Obama as VP to guarantee that he wins. Dan Stipe John Eckberg Hugh F. McCann, Jr Jerry Robinson That’s a problem – don’t you think? Our Industry is being DRIVEN offshore – I think we both agree.. it’s a DISEASE at work… but you are ONLY fixated on one part of the problem… LET’s assume for a minute.. that this TAX is repealed… totally and absolutely… does that mean that “hurrah – we’re saved” is the new mantra?? NOT by a long shot….. It doesn’t address the “Double Irish accounting tricks.” the Parking of offshore profits and job exporting subsidies…. these are all MAJOR parts of what is destroying our industry… It doesn’t address a sometimes insane FDA/Insurance/Reimbursement/Purchasing process… These are all KILLER things… So.. just for a minute – if you were to say that the device tax IS a part of the problem.. is it 100% or may be 5%? or 7?.. how much of the problem is it? I have watched too many indusries destroyed over time – to even remotely focus on just one problem that did it… Post WWII – this insidious problem was set up and has burned American and other NA jobs in the tens to hundred’s of millions of people.. Seriously – the overall problem is a large part of why small towns are dying – jobs are gone… Like Hugh says… U6 is 20% – not good… You HAVE been around long enough not to drink the “cool aid” of those who really benefit by our economic collapse. Don’t you agree?? Jerry Robinson You put your finger on a BIG problem – that we don’t talk enough about… the effect of Counterfeits.. I am convinced that failure to understand how this process works is what sent the US car companies into bankruptcy… while smarter motorcycle companies survived and prospered…. Profit – in the car business.. used to be from repair parts.. not the new cars… Counterfeits and imports killed that business aspect… Hugh F. McCann, Jr Jerry Robinson they have no downside to do anything – different or not…. I believe that IF you are going to do a startup in this area – then you REALLY better understand the landscape – and don’t get stepped on by elephants…. or donkeys…. John Eckberg Jerry Robinson If you *COULD* fix this one thing… there are fatal government backed faults still in place… some – ok.. a very few – will wildly profit – and the vast majority will utterly fail – with the loss of hundreds of thousands of jobs – if not more… At the University level.. they are so REMOVED from this type of thinking.. that when the crash occurs – they will be so totally surprised. If Cook Group is out of business and gone… or the whole industry works are offshored… then people have no jobs, students have no motivation to study these arts… universities will have no *American* students… and therefore no need for professors in the subject… You see this happening over and over… yet the admin and faculty are so utterly clueless… This kind of process is a continuing problem… so… tackling ONE THING you might fix – I guess is a very good idea…. My dad started fighting this problem… in the 1930’s…. the problem hasn’t fundamentally changed… Paul M. Stein Anthony Zelinko Hugh F. McCann, Jr Paul M. Stein John Eckberg Karl Schulmeisters the 2.3% tax is being passed on to the consumers (because they have had 4 years of prep time to renegotiate their contracts. PEoD is a fact and it is empirically measured. The data just do not support the claims you and Jerry are making. Yes people have lost jobs. For a lot of reasons including the fact that the recovery got crippled for political reasons right as it was accelerating. Even if you set corporate taxes to zero, you would not see these jobs saved. Tax policy is a tiny portion of the cost of a job. John Eckberg Assume revenues of $10 million. This tax claims off the top $230,000. Then, the company, which has average profit margins of 6% of revenues for $600,000 needs to deduct that amount so now the company, owned by somebody who has struggled for seven years or maybe 10 years to find black ink has no choice but to see those profits turn into $370,000. Or profits stay the same and the cost of the tax comes out of R&D or sales commissions or layoffs or frozen salaries or a bit of all the above. Eventually if not sooner the owner throws in the towel, sells the company and then gets a better return with an annuity . That’s how it goes and has gone for two years now. Jerry Robinson John and I certainly have disagreements.. He sees the 2.3% tax as a serious ill to eliminate. I see it as one more camel on the a straw’s back (I do mix metaphors… spice of life… ). All together – they increase patient cost (and it certainly does….. like the $0.02 aspirin marked up to a patient at $15 to $19) That markup is bad… it raises the cost of medical care for everyone – and hurts the patient…. John and I are not wrong because with disagree with you.. John is an expert in this field and travels A LOT to speak with people about the 2.3% problem. His numbers are on target – and he sees and knows people directly impacted by the whole slow motion train-wreck of government subsidized industry crashing. I have been involve in company start-ups, engineering, and management for 38 years, now.. Funny you should mention Apple – as I started designing Apple Hardware products BEFORE they had sold their first 1000 Apple IIs. I have massive painful, exuberant experience in technology at Intel, TI, Micropolis, Newtek, and a host of other bleeding edge design projects. Oh.. I also spent the last 4 years completing my PhD focused on Wireless communications, the effects of disruptive innovation, and Medical Device growth. That includes competing in multiple Business Competitions – at the graduate level… The point is – we are experts in our fields. The TRUTH is that what we have said – I think is pretty much right – because that is what reality is.. it’s what the numbers say.. We don’t personally gain – if the results are match what we say, either….. Opinions – are fine.. that is what makes a better whole.. But don’t form that opinion and disagree with anything that might make you change, especially if it might be right. You MUST keep an open mind… – if you want to stay in this field… and you HAVE to recognize that there are profound influences going on – that are NOT rooted in rational “MBA class” type policy.. dig out all the impactors….. The point – is… Jerry Robinson I point out that SOME companies have 3-5 year lockins with large medical insurers and health organizations. Not all of them.. and new devices are not in the list, either… HOWEVER.. if you are in a company – on the BRINK of going out of business, hiring people, just tossing in the towel, or abandoning either the US or the business altogether – then even a STRONG wind can take you out.. the 2.3% effect is MUCH LARGER – it hits to the heart of the money your company makes.. it’s nothing more than a “smash and grab” by the feds.. Just in the same boat as other fed programs like the “Asset Forfeiture” theft happening.. and this is all a lot of money, too.. AN EXCELLENT case study is the Google Cell Plant near Ft. Worth. It started up – ran for a while – prospered – and then shut down.. WHY? COGs is not a factor here, at all… it’s just an arbitrary, abstract B-School concept – that may occasionally rationally describe a chaotic (that’s math) process that has islands of stability in streams of complexity. The destruction of American Industry has been happening a long time… how it works is something a good session of Google Scholar can start unraveling.. But it’s not something that fits in this small forum. A companion research could be WHO PROFITS in this scenario? that is a good, fertile place to study… Oh… People want jobs here.. If there is a – where you can start and minimum wage – and use it to move on up.. people will do it – GLADLY! so don’t dismiss what people want and are willing to do – if they see possible progress… Jerry Robinson Math is simple.. in the software development world – it works different than for hardware development.. when you do a product with BOTH ELEMENTS… then it gets more tricky.. For a DEVICE world – for new development.. R&D money comes straight from the bottom line.. out of previous profits.. It’s also where “ignorant” bean counters look to cut first… If they DO cut the budget there – or don’t do development – then it is just a matter of time till the company is OUT OF BUSINESS… one way or another… So the R&D money comes FROM the bottom line.. ie, profits.. IF there is less profit… then there is LESS R&D. It’s very simple math.. Getting around the simple math is complex.. Right? “Jobs killed for political reasons”… don’t think like this.. it is false and inaccurate.. The INDUSTRY does not cease to exist because Politicians pass a rule against it.. (except for slavery, debtor’s prisons and such…).. JOBS and industry gets killed because of rules, taxes, policy, and regulation. THESE are the things killing industry.. Example: WHO profited by general acceptance of the “Double Irish” accounting methods? But the IP off shorring of IP and rights? Who is profiting? then you can ask “what were the names of the people who BENEFITED by this? You can track people down.. I have… Karl Schulmeisters the fact that the device tax was known as an issue 4 years ago is a matter of Congressional Record and a google of the News will show that. What more citations do you need (do I really need to show you evidence of Apple’s Google’s Amazon’s nd Microsoft’s R&&D success?) Jerry there is a lot of hardware R&D in the USA as well. ALL of apple’s hardware R&D happens in the USA, most of Google’s Android hardware R&D does as well. The leading Drone R&D is in the USA, the leading Genomic sequencing hardware R&D is in the USA… and Double Irish with a Dutch sandwich hasn’t been legal for coming onto a decade. the smell test BTW COGS in Ft Worth absolutely is an issue. Labor costs for low Value Add work is the issue Burrell (Bo) Clawson Jerry, “lean manufacturing” has been discussed for a long time, but there is a corporate manager mentality that gets in the way of many managers from acting on new “leaner” technologies. I have seen it over and over in 40 years that managers don’t want to rock the boat for good products or enhancements. They often view changes as being “too small” to advance their careers or their retirement package. In other words, they want the magic bullet, that they can take credit for which happens instantly with minimal cash and gets them great kudos and a new position higher up the management ladder. Jack Welch had it right with 5 simple words anyone could understand: “Change before you have to.” I did a production ready, tooled product and proposed that patented advanced snap joint closure as a simpler, safer less costly design/manufacturing technique for commodity respiratory filter housings to two major medical companies. One of them makes a about 20 million filters per year of a given pulmonary function testing filter. The new technique would save $.11 per filter on materials alone and about $.20 per filter when capital equipment & overhead costs are plugged in and it would pay back capital equipment in 6 months. That means they could save $3-4 million in costs per year. Neither manager wanted to hear about such things. They want “BIG” deals. Well, do 5 of these small improvements and you have a damn good extra chunk of change in the bank. My guess is that Bruce A. Heugel of BBraun and others like him don’t realize what projects get turned down by his staff some times without anyone even analyzing the numbers. I realize BBraun does a lot of contract manufacturing where they don’t design a product, but BBraun often works very early in development of projects with design inputs to offer cost reductions. Jack Welch had insight that a lot of managers today don’t seem to have. I think managers need to seriously look at what Jack said and did. Then they need to see if they can’t start making more improvements. Jerry Robinson Apparently – the effects of these rules are working just fine for financial structure artist… There is a lot more about this PARTICULAR MECHANISM… freely available… from the Wikipedia post… ” the Irish government announced that companies which incorporate in Ireland must also be tax resident there. This counter-measure is proposed to take effect[needs update] in January 2015.[4]” January is not a decade ago… and the methods used to shield profits just tend to shift about a bit.. the technique is a $60B++ a year shield against US Taxes.. So… you might modify this comment… “the smell test”… don’t know what that is… I wash my sox…. get few complaints… and my puppies still like to play with the socks… would you like to explain? Yes… a lot of R& D is done here… the Integrated Circuit was invented down the street by Jack Kilby at Texas Instruments.. I spent 5 +/- years there – working on cell phone and tablet reference designs among other things.. I know a good bit about hardware design… TI and Radio Shack used to dominate the world of personal computers… That’s all gone.. Apple built here in Dallas.. gone.. There are LOTs of inventive and innovative things invented, designed, developed, or invented here in this area.. AT&T, Samsung, and Blackberry have major facilities here… So… there is a lot of work still here… NEVER – in all of the list of companies I have seen go bust locally or move offshore – have I seen the COGS word used… You really have not commented to the FACT I mentioned earlier… that you are getting an EXPERT commentary from John and myself… (yeah.. you too Bo…). We profoundly disagree with your assertion… Studies back it up – in detail… So.. how about… doing some objective research… with an open mind… Jerry Robinson “Using the “check the box” rule, Irish subsidiaries of US companies can avoid running foul of the “Double Irish” ban by simply by moving their holding company from non-EU tax havens like Bermuda and the Cayman Islands to EU tax haven Malta. They can then funnel royalties through this Maltese company and enjoy Malta’s very low rate of tax, even if only a minor “management and control” part of the business is performed in Malta.” Karl Schulmeisters Yes all those companies built in TX. BUT that was while what they built had enough value add to justify the salary levels of the workers there. today that value add (except perhaps for Apple which still manages to overcharge) is not that great. And there is no ‘expert’ commentary here. what we have is annecdotes about certain companies leaving. and yes there is the issue of taxes moving companies. But dropping US taxes will not have any of those jobs coming back Because the marginal tax impact (less than 35% for companies that export) is well below the value add calculations of per worker profitability (which tends to be 5x – 10x over cost) John Eckberg I keep waiting for you to be right about something and it’s frustrating; there’s no pass along because contracts last for three to five years in this space thanks to GPOs and IDNs and, finally, labor costs are pretty much a wash between Ireland and the U.S. by now Costa Rica and the U.S., too. No, it’s taxation that’s driving companies to avoid the U.S. base tax rate by heading to near-shore locales. Looks like you are right about one thing: those jobs that are gone probably are not coming back although future jobs can be created here at home if only our lawmakers follow through on what four of five Senators want: repeal of this tax. John Eckberg Karl Schulmeisters my point still stands. No evidence has been offered that actually directly shows job losses do to the Medical Device tax. And many corporations are using it as a convenient scape goat. Karl Schulmeisters John Eckberg Many of the factories in the U.S. did not actually until 2010, long after the economic crash. And people do not build factories to manufacture new products in the EU for first in man reasons but for country of origin reasons, that is, some nations, like China, will not allow devices to be sold there unless it’s also approved by the country where it originates. And since the FDA has a hurry up to go slow maybe someday as SOP, manufacturers build elsewhere because they need to sell into China, for instance, and a number of other nations. John Eckberg To purloin/flip your favorite phrase: it simply is true… Karl Schulmeisters John Eckberg While you might shrug off that level of taxation, companies recognized that the new Senate was hopelessly befuddled when it came to analysis of balance sheet concerns so many did not hesitate to shift production to foreign shores. Even if you were right about baking increases into a product price, with 40 percent or more of hospitals operating in the red, there are no longer any notable price hikes in this space – not with foreign competition routinely offering lower prices to Group Purchasing Organizations and Independent Delivery Networks because Costa Rica and Singapore have zero tax zones. I know a business owner in Skokie, a catheter company, and about 50 people work at his firm. He said this tax was like being forced to hire seven workers who contribute nothing to the payroll. Others found this tax forced them to go back to investors or banks to get a loan to pay this tax. Karl Schulmeisters I already explained where the “operating in the red” mostly comes from: namely politics. Those hospitals are invariably in the states that have refused the Medicaid expansions And your anecdotal claim is meaningless unless we get to see the guys books John Eckberg Jerry Robinson They are making money on the collapse of US Industry… not just the Med Device industry… Just look around – the EMPTY SPACES tell a story… You, I, and we ALL KNOW – that the 535 won’t do anything as a group – until this whole catastrophe hits them personally… They won’t do anything… until they lose 40%+ of their staff… or until the staff has the salaries lowered to $60K or less… That’s where the H1B line is… if LESS than that.. then its OK to fire legal US workers – and replace them with H1B folk… If’ that process is OK for industry, then it’s OK for Congress…. Ditto on the lawyers earnings as well.. Off shore the legal work – or replace with H1B staff… it will save a lot of $$ – and I think they will do a better job. Right?? Until THESE kinds of things happen… then EXPECT no “deus ex machina” from the 535 and crew. It just won’t happen. John Eckberg Here’s an example: in the past three months I have logged more than 3,000 miles driving around the Midwest to mid-sized markets and more than a little expense, dropping off media packets at TV stations and newspapers along the way: Cleveland, Chicago, Columbus, Cincinnati, Nashville, Memphis, St. Louis, Peoria, Toledo, Grand Rapids, Kalamazoo, Ann Arbor. In each of the major markets, probably six outlets both TV and newspaper on average. So that’s probably 50 media packets. Packets include information of locals involved in repeal on some level or another – up to 200 in some markets. You know how many folks have written or aired a story: one. Just one – God Bless Andrea Tortora in Peoria, who wrote about it for a business journal in Columbus. That’s what I mean by media indifference. As to why they don’t care, I’ll leave it to you to ponder. Dan Stipe Karl Schulmeisters Secondly as I have posted previously on this subject, although intended to not be “pass through” capable – the reality is that there are already companies that simply increased their net price by 5% and seen no change. Given that we know the Price Elasticity of Demand for most medical devices is well below unity (according to Mathematica Policy Research it is 0.2, so a 5% increase in price results in a loss of .21 units of volume) – the idea that the tax cannot be passed on to customers doesn’t pass the smell test. I have no doubt that the Braun VP was correct that his company’s revenues declined. I just find it hard to reconcile the numbers he is claiming, with the actual numbers involved in the tax. NOTE, the tax may well be bad for the economy and for device MFGs, but I see no legitimate evidence of this having been shown. So I do not think its a media apathy problem. I think its a lack of credible evidence problem. I am open to being corrected – but if we are going to operate in the medical field where precision of evidence is demanded – we need to be just as demanding of accurate information on the tax and business side as well. Jerry Robinson I have a sense of what John’s point has been…. 1. – increasing cost on something – gets marked up substantially and passed on to patients… so a 2.3% TAX slapped on top of an expensive thing – gets SERIOUSLY marked up and slapped on patients… It is a fact that a $0.02 Asprin will commonly be marked up to $15 or $19 to pass on to the patient.. HOW does that improve the health care system or reduce patient cost? Are patients going to have to FIGHT about every single piddling cost they are hit with? a 2.3% tax gets burried off page in the billing sheet – Patients pay – but don’t know it… 1. – Offshoring is being pushed by other factors.. accounting scams are just the tip of the iceberg… It’s easy for a company to blame the tax – whether or not other things are subsidizing the rush to move everything offshore… 1. – fraud… yeah… this is a big one.. A US company wants to pay an engineer $13 an hour for senior level work – can’t find one… hires an H1B – and then blames the 2.3% tax for “causing” the problem.. One company up the road in Plano – paid out well over $30M in fines for doing this.. and it did not even slow them down… 1. – Many companies had contracts – that did not allow price changes to reflect the tax. dumb to do this… but it hit them pretty hard. Not everyone had this happen – but to use your smell comment – the results stink… BIG COMPANIES liked how this worked out – to their advantage… 1. – the 2.3% tax hit a weak point in the cash flow chain.. like any chain, it is only as strong as the weakest link… not every dollar in the process is the same… These things all said.. I think the 2.3% tax is just one of the MINOR reasons that the business is being destroyed in the US. And it IS BEING DESTROYED… The 2.3% tax might be the EASIEST to fix.. but it won’t slow down CEOs when they can make another buck – short term – by going offshore… Paul M. Stein Regarding Congress and the Press, it seems that what was “hot” two or even one year ago can drift into something of little note. This happens all the time. These people have gotten “used to” the tax being in place, and so it has become a non-issue for them. Karl Schulmeisters Paul M. Stein This is certainly off-topic from John’s important Discussion point, but there are many, many other topics to also discuss regarding what is going on with our once proud Industry. Perhaps someone might wish to initiate one on corporate “strategy”. Karl Schulmeisters The point that Jerry makes about companies attributing to convenient scapegoats (like the 2.3% excise tax) all manner of ills is an important one. When we know that the Price Elasticity of Demand is so inelastic (0.2 is incredibly inelastic – its almost non-existent) then claims that this cannot or is not passed on to the patients’ bills and instead is borne by the companies themselves does not pass the smell test. Similarly market dynamics suggests that you are not going to see 10x markups. Why? Because if you do a 10x markup and you have more market-share than me – I will do a 5x markup and take some of your share. Your response will be to match my markup and very quickly we will stabilize on a pretty straightforward pass-through of the cost. This is basic micro-economics. The problem of companies with long term fixed price contracts is real for those companies and their shareholders. But that’s one of those MBA optimization decisions someone made in the past. And that’s why corporate boards have hire/fire authority over the CxO suite – to impose some responsibility for the consequences of such gambles. It is also unrealistic to expect that companies with solid businesses and cash flows to “risk it all” on a risky blockbuster. That’s what startups and Venture Capital is for. In fact in Europe Venture Capital is instead called “Risk Investment”…. which much more accurately reflects what it is. Startups are where you will see most of the next big blockbuster devices. This is how the system works – particularly with technology. Innovation happens in startups and then those startups are either successful enough to start a new category – or they get absorbed by a larger org that can integrate the product into their existing line. Hugh F. McCann, Jr John Eckberg John Eckberg Jerry Robinson You didn’t even mention the REASON that the Irish holding company can buy the US company – at a discount – is primarily due to tax/accounting subsidies under US law. There are so many reasons pushing this small company offshore – and it is REALLY SMALL – that you do not mention… Also.. whatever the $1M company makes – is free for counterfeit . knockoff – and they CAN”T defend themselves effectively – due to lack of knowledge or cost. Unemployment only lasts so long.. “Food Stamps” – are limited.. You would think… that with all the $$ spilled to universities and such.. that there might be some actual studies and research on this process.. An actual quantification of job loss and costs… Paul M. Stein Karl Schulmeisters Jerry Robinson We all would like solid research to back up the observations… University research is frequency sponsored by companies… When those companies are “going away” – then they don’t fund.. They should – but DON’T. You can look for examples of this process as the industries of jazz musicians (1920’s-1940’S) were decimated, textiles, shoes, and the list just goes ON AND ON… – were wiped out. You can see this process in the agriculture industry – broadcast industry… It’s pretty impressive to watch it happen… In this era of “big data” – it is likely that this information can be dug out of the total data – as John has done in example… are you looking for the “2.3%” effect – or what the whole of industry is encountering.. You can see a part of what you seek in the “empty building” syndrome.. Here in Richardson, Tx… the telecoms were effectively wiped out.. the office space was empty.. some things moved into the space… but the “well paying” jobs are gone – much of it off shored… and the rising popular local industry is now “insurance claims and support….” at $12-15 an hour, no benefits, and 30 hours a week or less.. So what evidence are you really looking for?… Hugh F. McCann, Jr I HAVE ALL THE DATA……MY CUSTOMERS production facilities HAVE MOVED OFFSHORE. Karl Schulmeisters So the evidence I’m looking for is the actual numbers of a real company – numbers that can be seen for what is the actual Price Elasticity of Demand, what are the real EBIT, what are the real sales volume changes over the last 5-10 years (ie what’s the impact of the Recession). Not hypotheticals or partial annecdotals. But solid complete data. The same sort of solid and complete data that needs to be collected to prove or disprove something about a medical device itself John Eckberg From a North Carolina company founder: Here’s one from a St. Louis entrepreneur: Hugh F. McCann, Jr Hugh F. McCann, Jr John Eckberg “We are a very small medical device development company with an excellent history of bringing innovative products to market that improve health through therapeutic devices. With fewer and fewer funding options to bring our novel technologies to light, we can’t afford this additional downward pressure on the collective industry. As a result, plans for our latest project support the economies in Europe rather than in the U.S. due to our restricted options here at home.” John Eckberg John Eckberg “We have lower net margins than competitors solely due to the our choice to keep “By doing nothing but moving my production offshore we immediately see around a 65% savings per unit – which becomes all profit margin. We had made the decision to forego the additional profit in order to preserve and expand jobs domestically and do our part in getting the economy working again, small as that may be. With this new tax we are faced with 2.3% on gross sales of the products. So for a product we’re selling for $90 that is $2.07 additional cost for every unit. If our margin on that piece after production costs, shipping to client, commissions to sales force, etc…is running about 26% currently it would be about $23.40 on the sale. $2.07 is a 9% tax on our net margins. For one of our products it’s 38%. “If we move production of that same product overseas we save in the ballpark of $30 per unit in per unit costs. That is still a 100+% increase in profits post excise tax. As a small manufacturer we have to make tough decisions then. “Do we continue to use top of the line materials and components or try to cut corners in order to preserve margin (although some have definitely taken this path – we can’t stamp our name on that)? Do we discontinue lower margin lines and concentrate on higher margin products only and worry about losing market share to more comprehensive providers? Do we continue to manufacture domestically or do we move production overseas and increase profit in the face of the tax. There needs to be a distinction between those manufacturing domestically, paying decent wages, employment taxes, providing benefits for their workers, etc…and those who bypass our system by off-shoring production.” Hugh F. McCann, Jr Jerry Robinson Karl… the market is diverse enough – that John and I could come up with LOTs of examples.. but examples DO NOT prove the rule – that’s the diversity part… AS an entire market, I think what John has said is very accurate. The corporate Diaspora is not limited to a few companies.. it is industry wide… How many Pharma companies do you think are left to make “pills” and such? How many (ie, %) have gone offshore? The tax effect – has been extraordinary… Suppose we put down… let’s say 10 examples… does that convince you that what John is saying… what I and others are saying… is RIGHT? I doubt it.. Like I said.. my dad started dealing with this problem in the 1930’s – and it’s just gotten worse.. the SHAPE and NATURE has changed.. but it is still the same problem.. You should do your own research. Seriously… that may be the only way to change your viewpoint.. and I think your current viewpoint is off… so it’s to your advantage to DO that RESEARCH. If you are going to hold strong opinion, then make sure you’re right… !! I have no doubt that John can specify 10 companies as examples.. he sees that the examples would be representative of the problem – but you would likely doubt it.. so… do your own research. Find out. My only disagreement with John is that I think he only looks at a part of the problem.. . I think the deck is SERIOUSLY stacked against the US Manufacturer… I think the “Double Irish” accounting scams – and related – would drive out the US makers. the 2.3% tax just accelerates the problem.. I – for one – am tired of seeing empty manufacturing companies – and Karl Schulmeisters As for manufacturing – the issue is Value Add per hour worked. overseeing pill making machines is fairly low value add. High value add mfg is actually coming back on shore. And I suspect that the examples offered are not going to have those points disambiguated. which means that you are not meeting the same proof standards that you are used to meeting for efficacy and safety points. This is a long way to say – Its Complicated, and I don’t see that complexity being addressed in this discussion. Jerry Robinson What to do – is first know who supports US Manufacturing and development.. It’s not an assumption of the “usual suspects”, that’s for sure… The strongest proponents of “make it here” – are often folks who have come from other countries and cultures.. As John points out.. you DO NEED TO KNOW what an offshore mfr cost is.. and then to ALSO know the intangibles.. There are always “associated” cost… make it offshore? then shipping & communications & risk & counterfeiting are just a starting place.. You need to understand the cost differences.. and then figure out how to solve what you can here first… Are you making physical devices? software apps? combos? that matters – and is a complex issue… you may be WANT to build offshore – and ship from a base in Asia via Alibaba, for example. There are good reasons to do this.. So this is the first thing… UNDERSTAND how to build here.. UNDERSTAND how to build “there” and then understand how to get your device in the target customer’s hands.. PICK the best solution.. be world class…. Jerry Robinson separating by value is a misnomer.. There is always more money freed up by moving the high value stuff offshore.. at first glance.. so IP, Accounting, Ownership.. these things get moved.. You might look at the history of those industries “wiped out” – to see the effects of what we talk about.. shoes.. textiles.. generic manufacturing of all kinds.. when the plants are gone – then the skills are gone with them.. Too simple? then add Hard Disk Drives, Computers, etc, etc.. Where do you think Cell Phones are made? Samsung and AT&T are local here.. Texas Instruments (cell phone chips) – still has some presence… but the Cell phone manufacturing is gone – and this was a high value thing… The is issue is not Value Added per Hour.. Those pill making machines do matter where they are… Case in point: Flu Vaccines are made… where? offshore.. if you NEED MORE IN A HURRY… they are not here to do it… this is true for a lot of industries… John Eckberg Hugh F. McCann, Jr Paul M. Stein Those numbers make it very, very difficult to point fingers at specifics. But, tough times call for tough measures, and if we wish to change things, the tough work falls onto us to convince those we wish to influence regarding that one thing. Jerry Robinson If you are interested in just ONE ELEMENT (other than the 2.3% SCAM) – then: The “double Irish” accounting scams HAVE BEEN detailed with SPECIFIC COMPANIES in mind… when the US loses a factory with 5000+ people working in it – to be moved offshore and “Irish Accounted” – then that is significant. When you look at the TAX Accounting aspect – then you really start seeing a few PIECES of the SCAM at work… It is impressive in it’s simplicity – and simple in execution. Hugh F. McCann, Jr John Eckberg Karl Schulmeisters as for the offshoring of jobs – yes it is a Value Add issue. And cutting taxes even to zero will not bring those jobs back. Because Taxes on Net Income are a trivial portion of the COGS for those products. Salaries are typically the largest item. So that means that either the jobs retained are no longer “good jobs” since they no longer pay good wages but instead pay Vietnamese wages for cotton weaving or FoxConn wages for electronic assembly. Now if you want to subsidize companies to do business here, or strengthen unions and tariffs so that you have a craft environment like that of Germany and France – go ahead and argue that. But the notion that a drop in tax rates will return the jobs simply isn’t supported by any credible economic theory that I know of or any actual data John Eckberg No, those jobs are not coming back, but R&D and future investments and jobs can be here in the USA as long as the tax rate is not 45% or more of revenues. There’s no “pass your COGS” onto hospital purchasing groups these days. And you can’t dismiss testimonials like this one – well, maybe you can but reasonable people don’t – simply by trotting out a tired cliche like “it doesn’t pass the smell test.” Jerry Robinson I am not for subsidizing companies to do business here.. That means * not using taxpayer money to subsidize transport of containers from vessel via roads to trains or to tax abated warehouses. * not using tax money (indirectly) to fund rail roads and improvements (ala Mr. Rockefeller) for train container transport… * not using tax payer money for subsidizing warehouses – for big box stores… * circumventing IP rights by playing games with ownership and rights… * not subscribing to the “double Irish” type accounting scams… You get the picture? governement ALREADY subsidized the ever living crap out of larger business, as it is.. Yep… low wages aren’t good. But you have to start somewhere – to learn how to work and also to work your way up an economic ladder… NO JOBS is worse than low compensation jobs.. but minimum wages are MUCH BETTER than living on Food Stamps and government medical help…. as if a lot of people have a choice.. You are right about cutting tax to ZERO will not bring a lot of jobs, if any back here. If someone makes a fist and pokes my nose – then I could think of the profit tax as just one of many fingers making my nose bleed. You keep mentioning the “price elasticity of demand comment”… That MIGHT apply if price was the ONLY thing going on here… but it ABSOLUTELY is not… This argument was mad in the 1850’s too, – and commentary did not hold true then, either… Hugh F. McCann, Jr Jerry Robinson Jerry Robinson LEAN manufacturing.. means more efficient processes throughout.. that also wants a LEAN accounting structure, LEAN corporate decision making.. LEAN regulatory structures and LEAN development… “Cut out the Middleman” is a manufacturing rule.. GET RID of the leeches and parasites is a also a good strategy.. Hugh F. McCann, Jr The velocity of money and resulting potential job creation will contribute to worker participation rates. Karl Schulmeisters So no there is no 3-5 year lockin on these prices. And a company that is based in Switzerland still has to have a US subsidiary to sell through and that sub is paying the device tax on its US revenues. Nor is R&D taxed at 45%. Google, Microsoft, Amazon, and Apple all seem to be able to manage just fine under the current tax regime and they spend heavily on R&D. what I’m hearing is a lot of whinging but still no credible data. And while you might believe that you can get American workers to work for Vietnamese wages – when Nike tried it, they found they couldn’t get workers. These things have all been tried and they failed. Heck even the venerable Lincoln believed in using government money to build ports. Because in fact he realized that ports benefit everyone. The reality is that we are going through a 2nd Machine Age Revolution. And as with the Luddites – there is a lot of economic displacement as a result. That’s why you are seeing folks like Bill Gates, Warren Buffet, Nick Hanauer and others argue that we need to do what CA did so successfully recently: Use tax policy to reduce wealth inequality. You may not agree with that, but economics says that’s probably our best option. Numbers don’t lie Yes there is a pass through of COGS. Price Elasticity of Demand is Price Elasticity of Demand. And it is 0.2. Which means that if you add 2.3% increase to your end product, your sales volume drops by 0.5% Hospitals are a different matter. A large part of those operating in the red are in the states that opted out of the medicare expansion http://familiesusa.org/blog/when-states-reject-the-medicaid-expansion-they-hurt-hospitals-too No, those jobs are not coming back, but R&D and future investments and jobs can be here in the USA as long as the tax rate is not 45% or more of revenues. Karl Schulmeisters Jerry Robinson Karl.. when people point out things that are, indeed, facts – and can be solidly backed up… It is probably a good idea to (a) concede the point and (b) think about how it might change your position.. WE ALL are thinking, seriously skilled people here.. Let’s list what we (You and I) can agree from your comments… 1. – AGREED = “what companies say publically and what gets said in the board room are often different things.” AMEN to that, for sure… 1. – AGREED = DROPPING formal tax rates on US companies “WILL NOT HAVE AN EFFECT” on job coming back. That is my opinion, too.. I say this BECAUSE of all the other factors involved in building products here… THESE are also job killers… Want to discuss them? we can…. 1. – IF… IF.. you ask for examples – then don’t ignore them and repeat your previous – unsupported – comments.. bad debate tactics.. 1. – DISAGREE… = You stated that the accounting scams ended a decade ago. In fact, they did not. One set of Irish Accounting scams ended early in 2015 (links provided)… yet the scam moved down the road to Malta… SAME OLD… SAME OLD… you made no comment on this… 1. – DISAGREE… = You made the point that this 2.3% MINOR IN COST.. minor in effect… in some instances – YOU ARE RIGHT.. but for the MOST PART – you are probably wrong.. One big reason is that you are ASSUMING that MedDevice companies are all making this large profit.. when, in fact, most really aren’t.. MANY companies are SMALL.. THEY may NOT be making ANY PROFIT – perhaps breaking even or losing money… YES.. companies DO LOSE MONEY SOMETIMES>….. then they MIGHT GO OUT OF BUSINESS… and many do.. Don’t you know your Dr. Lorenz? Small early factors and affect outcomes in very big ways.. 1. – you are hung up on tax cost… that’s not the problem.. you have to successful BEFORE YOU GET TO THAT PROBLEM.. and it’s the IN BETWEEN STUFF that ALSO force companies offshore.. TO list a few.. Cost of Litigation/Legal in the US…. effects of depreciation… (example below).. load cost of medical/government retirement costs.. business resources not being efficiently organized… I am interested in small companies – and start-ups.. 2.3% is a PITA type cost.. when in development or early production – there ISN”T money that just pops out and pays this… It’s a real problem.. and can easily kill a product or create a serious problem.. Experts… you said… ” there is no ‘expert’ commentary here. what we have is annecdotes about certain companies leaving.” This is a “Drivel” statement… Harvard and other business schools use CASE STUDY to consider business problems.. it’s how they teach. it’s where you apply THEORY to reality and see how it works out.. John’s examples are representative – and if anything – are conservative.. THERE IS NO U.S. DEPARTMENT of COMMERCE GROUP that studies this.. not that I have ever seen.. SURELY – you are aware of how morally bankrupt US Trade Policy was through DECADES.. up until Regan Admin times.. Expert… Dr. Brown defines an EXPERT as someone who has 10,000 focused hours on a subject.. SO… Karl….. what is YOUR DEFINITION? Brown based his definition on a lifetime’s research. SO.. many of the folks posting here – are INDEED experts.. that;s why I get my PhD in this subject area… I think you do have somethings of merit to discuss and present.. If you don’t listen to other informed EXPERTS – or think about what is said.. then you are a TROLL.. I think your contribution is much better than that.. but you’ve seen how TROLLS work, right? don’t go there… Hugh F. McCann, Jr Hugh F. McCann, Jr Jerry Robinson CT used to be a manufacturing paradise… everyone benefited… A LOT of that is just gone now.. off shored and shutdown.. what’s left is being manipulated to paying an ever increasing amount – and that is very hard to do. People would rather spend energy and $4 to manipulate what’s left of manufacturing – rather than really address core problems.. Personal advantage usually seems to be the common reason. I would like to see the situation change – but we all have to dance around this issue… Hugh F. McCann, Jr Hugh F. McCann, Jr Karl Schulmeisters Yes there are companies that do not or cannot take advantage of the various tax reductions like the R&D and Export business tax reductions – and that is in fact a problem. But those also are not companies who move overseas because by definition they don’t have an overseas business. It is also “fact” that the device tax was on the books long enough for contracts to be negotiated to pass that cost through It is also “fact” (as cited references on) that the PEoD for medical devices is 0.2 – which shows that you can easily pass the cost on and not lose business. The rest is basically political position statements (such as CT is bankrupt as are most Blue states when the data shows that per capita GDP production, and Federal tax contributions etc are better in “blue” states than most red states – if you want a source I can point you to the conservative Tax Foundation). This is not a forum for political discussion on manufacturing policy in general The issue here is whether the MFG Device Tax is causing job losses. And given the PEoD and the long lead time, it simply does not make logical sense that the two are connected. And political assertions about it are not “fact” in any way Karl Schulmeisters and the conversation will go nowhere. Because in all these posts that has not been addressed – and I assume that if you could address it, you would have by now. The realty is that this Congress is so politically divided and the whole of the PPACA is such a political football that regardless of the testimony before Congress, the likelihood of anything changing before 2017 is very low. Low enough that as a businessman I would not count on it except as changing for the worse. Hugh F. McCann, Jr Hugh F. McCann, Jr Karl Schulmeisters the 2.3% medical device tax is part of an overall package that is highly political That means that if you want to win your case on facts, the facts need to be very solid and incontrovertible – rather than purely politically selected. The latter being pretty much what you get whenever you try to change a politically controversial issue in a highly divisive political environment (congress). The PPACA is a restructuring of the medical economy. That means there will necessarily be winners and losers in the pre-existing market. That’s not inherently bad nor is it inherently good – tt just is. And no matter what changes you make this will be true. So if you want to show that the 2.3% device tax is NET bad policy, you cannot build it from anecdote. It has to be broader data – like Price Elasticity of Demand data. And it has to also decorrelate things like the recent economic downturn. Unless you do that, you are just part of the shouting crowd making political arguments Burrell (Bo) Clawson If a 2.3% tax is OK on medical devices, just how long will it be before the US Congress proposes a 2.3% extra tax on all sales of physical objects? Hugh F. McCann, Jr Hugh F. McCann, Jr Burrell (Bo) Clawson If the government wants more money to spend, it must find ways to increase business activity, so a minimal level of taxation produces more taxes. You can’t do it the other way around or eventually government collapses the economy. It has been done in other countries and the US appears to be at the same deficit levels of countries who run into deep trouble. The WDC government with its new policies has now had the weakest recession recovery from what I’ve ever seen and now government heads in various positions appear to be literally inciting riots by sympathizing rioters and deliberately (ordered by who?) not bringing in the National Guard. It sure seems like the US government actions are playing a direct hand at pushing economic activity down and WDC power up over both businesses and people with a return to low 1970 era job participation rates. Continue on this course and the States will have no choice but to call a Constitutional Convention. States will have to take back power from WDC to save their economies (business) and people’s income. Hugh F. McCann, Jr Karl Schulmeisters a) that companies cannot pass the tax onto the buyer – with a Price Elasticity of Demand at 0.2 this is just a false assumption b) the issue of the USA “taxing its way into prosperity” is a political assertion that is contradicted in many situations (such as how CA recently dug out of a deficit AND became the #1 jobs creator) So its hardly a factual statement are really has no bearing on this particular discussion. you can rail all you want against the ACA – but it is the law of the land because * Obama is not going to be impeached in the next 18 mos * the Senate will never get a 2/3 veto majority override to eliminate the ACA * by the time 2017 rolls around the PPACA will be sufficiently entrenched that removing it will result in the same sort of signs we saw before “Keep Government out of my Medicare”… so if you want to start a thread about the evils of the ACA – please do. I being a pragmatic engineer and an entrepreneur with a business to build really don’t care. I see the ACA as here to stay and I want to focus on what is actualy factual and viable. Burrell (Bo) Clawson California is hardly out of a mess, given that their unfunded liabilities are so massive. What is basically undecided is whether the citizens blindly allow the government to control the citizens or the citizens secure control of the government. Then if 50% effective tax on GDP with all forms of government is not enough according to WDC, then would 60% be OK. And once wasteful programs expand and 60% is OK, then why not 70% since WDC knows how to run everything. Right? Hugh F. McCann, Jr Hugh F. McCann, Jr So, the 2.3 represents a link in the tax scheme chain…..a weak link. Karl Schulmeisters Burrell – it is true the ACA will change – but not likely before 2017 and if there is any change before 2017 its going to be tiny given the political divide over it. Its possible that the 2.3% device tax will be repealed but it is unlikely – because any repeal has to be “revenue neutral” and that means * Tax hikes elsewhere, which is unlikely to pass the majority of the Senate, much less the House. So if there isn’t likely to be major change before 2017 and the device tax is not likely to go away given the less than persuasive evidence that was presented – My takeaway is that we might as well just start doing business under the current scheme. As for the rest about CA – again – take it to a Political Economy discussion please Burrell (Bo) Clawson The only thing a company can typically do is come up with better solutions for the marketplace and make better cheaper products. All else is musical chairs. Karl Schulmeisters Hugh F. McCann, Jr Burrell (Bo) Clawson Stella S. Stella S. Hugh F. McCann, Jr Joseph Schwartz Hugh F. McCann, Jr Dan Stipe Joseph Schwartz Obama-care (I refuse to call it ACA because it is anything but that) proposes to increase demand by increasing the number of insured, while it adds a tax that provides an incentive to produce less of a product…conflicting forces. Both of those goals by supply and demand principals would lead to higher prices, which conflicts with the name of the act, affordable care, as usual, under government influence, becomes less affordable. Unless, of course, you are poor, in which case everything becomes free or nearly so. When you make something free, you increase the demand for it which leads to long waiting lines, rationing and higher costs (increased demand, restricted supply) So for those of us that can afford to pay, it becomes less affordable. At some point individuals go from being able to afford to not being able to afford. When too many people get to the can’t afford category the whole system collapses. An unrelated point concerning the difficulty in repealing a tax, is everyone aware that we, in the US are still paying the tax to fund the Spanish-American war? Another analogy is toll bridge fares, instituted to recover the cost of construction, but once that is recouped, there is always something else to spend it on. Karl Schulmeisters as for the PPACA (I choose the formal name since I have no desire to argue political viewpoints) – its * not going to change before 2017 because * –> Any change has to be revenue neutral * –> The Dems in the Senate are not going to allow a benefit cut get past cloture * –> The GOP in Congress are not going to allow a tax increase to get to the House floor * By 2017 it will be relatively entrenched law so changing it politically will be hard as you point out about the Spanish American War tax. So as a businessperson, I don’t care what the beliefs about the PPACA are – I know that going forwards the PPACA is the law of the land and I just need to deal with it as it is. Burrell (Bo) Clawson So much for the value and continuance of entrenchment. Karl Schulmeisters Hugh F. McCann, Jr Hugh F. McCann, Jr Joseph Schwartz Burrell (Bo) Clawson Medical device companies have to get FDA clearance and once they get clearance they need to get a Medicare payment code. Failure to execute those means no business. Get those approvals and then you start sales with low volume and certain losses, but you still pay extra medical device taxes. The title of this thread is “Senate Finance Committee Hears Industry Testimony On Impact Of Medical Device Tax” on Medical Device Companies. Government and business are thus intimately connected. John Eckberg referenced Bruce A. Heugel, senior VP and CFO, B. Braun of America, during a Senate Finance Committee noting that their profits dipped 29% due to the medical device tax. Politics and business are directly connected and there is no doubt. That is what this thread and the testimony in the Senate was discussing. Hugh F. McCann, Jr Dan Stipe Exactly — a myriad of other moving parts. Yet most in this thread are arguing the industry’s problems are all due to the tax. Jerry Robinson What would Medtronic state that the MAIN REASON and the CONTRIBUTING REASON for their “offshoring” is? Would they LIE? Obviously – they went offshore for some reason.. there should be BEFORE and AFTER business snapshots to answer the question… What is the “real” estimate of job loss from this decision? I realize that this move is for many reasons… First among equals is that the CEO will get more money…. but what – without the lies – are the other reasons? Burrell (Bo) Clawson The MedDev 2.3% is just another disincentive. In the retail world, if a gas station has to pay higher taxes (under consideration right now) or higher wholesale costs, then they raise prices. In the medical world, the government sets reimbursement prices for medical procedures that cover a large subset of care. That has some bearing on the fact that a significant percentage of hospitals are in the red; unprofitable and that number was about 50% in 2009. Don’t know what it is today, but hospitals have fixed reimbursement for a significant % of their costs, yet their costs keep going up, partly due to such things as purchasing costs. As I noted, the only way I see medical device makers moving forward profitably is to seriously innovate/invest in better, less costly products. It is tough and it won’t likely make any manager stand out to take on reengineering an inefficient product, but it has to be done and done continually. Hugh F. McCann, Jr Hugh F. McCann, Jr Burrell (Bo) Clawson That strategy in itself results in jobs being either created or exported, depending on how you look at it. The failure to reignite growth in US jobs after the last recession/depression is real and our labor participation rate is now as bad as the early 70s with almost half of adults out of the labor force. The fact is that taxation causes capital to move and jobs with it. Time to fix the problem. Karl Schulmeisters Hugh F. McCann, Jr Hugh F. McCann, Jr Hugh F. McCann, Jr Karl Schulmeisters Hugh F. McCann, Jr John Eckberg Speaking of reading, I read this today: ” NUMBER OF THE WEEK: 40 percent. The average combined federal and state tax rate paid by most U.S.-based firms, according to a Wall Street Journal op-ed by James Freeman today, entitled “The Tax Takeover Craze.” Freeman claims this is “roughly double the average in Europe and Asia,” and is the driving force behind the continuing trend of companies moving their headquarters overseas.” So tack on another 9 percent tax, which is what a top line tax becomes for a medical device company, and you have a 50 percent tax rate for this industry, which must compete against price of products made in Costa Rica by companies based in Singapore and Ireland. John Eckberg Then, of course, in brief – Accuray: 143 announced; Osteomed, 40 announced; Theragenics, 139 announced as Galt Medical’s Texas plant closure means 139 layoffs; St. Jude – 800 announced; Smith & Nephew 870 announced, eliminating 800 jobs restructing already felt in Memphis; Welch Allyn, 275 announced; Hologic, 170 announced “expecting $25 M impact of device tax; Nuvasive , 200 jobs; Johnson & Johnson 4 plants moving oversears as healthcare giant has big plans for Puerto Rico; Volcano 800 jobs lost overseas. So those are the ones I captured back when I thought lay-offs mattered and would motivate lawmakers to repeal this tax. Now, I realize, lack of R&D and lack of new treatments/cures in the pipeline for loved ones of lawmakers is what’s really going to turn the tide. And, to Karl, your honest skepticism, if that’s what it is, is much appreciated because it serves as a nice foil for the truth. Hugh F. McCann, Jr Joseph Schwartz as for the rest of the political discussion of general corporate tax policy – please take it to another thread. It is off topic here.” First, I’ll respond to the 2nd quote, you keep insisting the 2.3% tax is not the problem, that CEO’s are spinning the data, so when others on this thread being up the other taxes companies have to pay, you insist they go elsewhere to discuss that part of the problem. You can’t have it both ways. Either accept the “political” discussion or stop insisting the problem is more than the 2.3% tax! Better yet, the first quote: if the discussion is “Moot”. Then you go elsewhere. Stop commenting on this discussion. Did somebody die and make you the monitor? John Eckberg Hugh F. McCann, Jr Burrell (Bo) Clawson “CEOs” which Karl refers to are like the BBraun, BD, Baxter type guys, some of whom I’ve met. >>Startups are an entirely different matter, because they typically have none of the resources and capabilities of mid size or public companies. I can tell everyone something absolute from personal experience after starting over half a dozen respiratory product startups with shareholder/s over 4 decades, Taking an extra 2.3% off my startups when they were still “in the red” would have made life much, much, more difficult. In all cases we had little excess cash from the typical 2 shareholders. It’s called bootstrapping. It was more than once that we got down to less than $0k in the bank. That would have been worse had we had a “partner”, called the IRS, who took 2.5% off of the value of what we shipped. In effect startups often act as a bank, because the distributors we dealt with typically paid us in 60-90 days. That made our cash position even worse, yet we would still owe money on products shipped, but not paid for. Getting funds from a bank was impossible for such small startups and getting investors of one type or another would likely have wound up losing control of a company … if we could find an investor. Go to an investor today and your spreadsheet better note the 2.3% tax on shipments from day one. Hugh F. McCann, Jr John Eckberg Burrell (Bo) Clawson Hugh F. McCann, Jr Burrell (Bo) Clawson Joseph Schwartz My anecdote is the founding of Biomet, my employer, who, incidentally, left the company now acquiring us, due to their resistance to innovative ideas, so four partners got together, and working from a garage (it’s true-we even have a company tee shirt saying so) these guys worked with the help of their wives, hiring help when needed…one engineer now working for the company was hired as a draftsman when in high school. He was going to take a job at a grocery store because Biomet could only offer him a 6 month position. The problem was not that they would not need him longer, but only had $ to pay him for 6 months. There was a 2 year period when the founding partners drew no salary, because there was not $ to draw from. If the 2.3% tax existed then, I seriously doubt that there would be a Biomet today, and they brought a great deal of innovation to the market…including pioneering the use of Titanium for joint implants. Innovation is likely part of the answer, but then, the tax is a disincentive to innovation! Burrell (Bo) Clawson “All persons running for Federal congressional positions must have started and actively participated daily in a startup/small business venture for at least 4 years.” (I agree this would be refined to prevent con jobs, run by their brother or whoever … as people who run for such offices are sharp cookies.) Once the winners of those elections go to Congress, they will never again think of the Federal Government and particularly the IRS in the same way again. Burrell (Bo) Clawson When you run a small business, the people you work with are virtually like family, you count on them, worry about them and advise them and try to keep them on the right track and advancing their skills. People think entrepreneurs are heartless, but I’ve not seen that. It is painful when you have to lay people off and it is often done far later than it should have been as we are inherent optimists. Joseph Schwartz Burrell (Bo) Clawson Right now in the US we have the lowest labor participation rate since the 70s and no one in WDC wants to talk about it. All they want to do is tout the misleading “unemployment rate,” which has to qualify as the largest spin story in the nation (5% unemployment or so vs 50% of the public available for work not working.) Karl Schulmeisters >>First, I’ll respond to the 2nd quote, you keep insisting the 2.3% tax is not the problem, that CEO’s are spinning the data, so when others on this thread being up the other taxes companies have to pay, you insist they go elsewhere to discuss that part of the problem. You can’t have it both ways. Either accept the “political” discussion or stop insisting the problem is more than the 2.3% tax!<< I'm not having it both ways. the "political" aspect of the discussion is the ideologically based claims that do not have a sound basis in data AND VALID LOGIC. It is the FAILURE to incorporate the mendacity motive of both the setting and those offering the testimony that is what makes the analysis political. As does the stuff about the "founders" (about which the very conservative Robert Bork once said "[I]t is naive to suppose that the [Supreme] Court's present difficulties could be cured by appointing Justices determined to give the Constitution its true meaning," to work at "finding the law" instead of reforming society. The possibility implied by these comforting phrases does not exist.... History can be of considerable help, but it tells us much too little about the specific intentions of the men who framed, adopted and ratified the great clauses. The record is incomplete, the men involved often had vague or even conflicting intentions, and no one foresaw, or could have foreseen, the disputes that changing social conditions and outlooks would bring before the Court.") There simply is insufficient evidence to draw the kinds of conclusions being asserted about them. Karl Schulmeisters For example while it is true that the USA has the lowest workforce participation rate in 70 years it is ALSO true AND RELVANT that * The American population is currently the oldest it has ever been * We are coming out of the greatest GDP crash in recorded human history. Failing to include those factors in the analysis of workforce participation rates is hard to justify. and that’s just one example why this comes across as a political polemic rather than a discussion of whether a particular economic policy is net net harmful or beneficial. Burrell (Bo) Clawson It is obvious that getting rid of Glass Steagall and Congressional involvement in mortgages & derivatives were behind much of the “greatest GDP crash.” It is argued that the US Government should have never allowed Fannie Mae and Freddie Mac to get involved in the mortgage mess which made for institutions “too big to fail” meaning that the taxpayers picked up the bad costs. Proper risk analysis and loss limited concepts which are apart of business decisions are the sort of things which should be mandatory in Congress but unfortunately, we get lifer legislators that want to prime their electorate before their next election. If we had proper governance on the above matters we would have had a normal small downturn and small losses and their would have been no need to tax medical devices 2.3% “off the top.” Karl Schulmeisters Burrell (Bo) Clawson Just one fact related to price elasticity. Buying groups (ala Premier and Novation) have long multi-year fixed price contracts and many device suppliers get their hospital business through these. In the end, the real world competition and the bundled contract deals limit how fast a company can raise its prices. John Eckberg So I wonder how those mythical COGS increases are going to work out down in old El Paso – and at the other 40 percent of the hospitals in the U.S. that operated in the red last year. I’ll answer that question: forget about it. Burrell (Bo) Clawson That is what happened to about 5 small hospitals of Pacific Health in So. Cal., where I know the Chairman who worked to sell them all off. They were too small to survive on the Medicare & Medicaid reimbursements when a “glitch” occurred. These are anecdotes, indeed, but everyone knows how bad the numbers are at nearly half the hospitals in the country and those hospitals have to fight every cost increase. Karl Schulmeisters Jerry Robinson You can point and label people as “bad businessmen”…. quite like being out in a rainstorm and getting hit by lightening… or blown away by tornado… You can complain about the bad idea of BEING in a storm.. but it brings NO SOLACE to the widows and orphans left behind… Jerry Robinson So far you ignored several points that I brought up… a – you were WRONG on the double Irish accounting tricks having “gone away a decade ago”… b – you said “I disagree with your characterization that anyone is “lying”.” Ha… where HAVE you been? know anything about Healthsouth? The Aids Drugs scams in South Florida? etc…. ? there are a lot of examples of what companies have done – where it is to their advantage to lie in a LARGE WAY… No… not everyone or every company does.. but tolerance of this behavior makes it harder on every other company.. By ALL MEANS… do your own test and get a DEFINITIVE answer from Medtronics… go read the 10Ks… c – When you DISPUTED that real answers for people hurt by this tax exist….. then JOHN provided some examples….. and you labeled then “anecdotes” – therefore they did not matter…. WELL… This is what POLITICIANS DO.. Argue BOTH SIDES of a question – even though they conflict – and then claim MORAL HIGH GROUND… I agree with you… let’s not be a POLITICIAN HERE…. ENGINEERS (and quite a few others) believe in setting a DEFINITION and then MEASURING QUALITY by adherence to that definition…. So… MAN UP, define the numbers, and then stick by them… d- You are NOT RIGHT – because you said something.. OTHERS are NOT WRONG because they disagree… stop wiggling and realize that there are expert opinions – that are right – being said here.. I DON’T agree with everything – that doesn’t make me wrong.. it just means that there are MANY THREADS at work here… A LOT of companies aren’t making much money….. or are trying a new product… or competing against offshore companies that KNOCK OFF their products… etc, etc. They don’t pay much income tax. Start-ups and new ventures are notorious here.. the 2.3% tax is absolutely a job killer and a product killer in that space… The least offensive STRAW can break the CAMEL’s BACK – to use one saying… Doesn’t mean that the OTHER STRAWS were not a problem…. Jerry Robinson Suppose… someone’s CLOSED FIST hits my NOSE at a pretty good velocity… OUCH!… Now.. I could complain about the particular FINGER that hit my nose…. but it could have been another finger or a thumb just as well.. When that FIST is from a LOVED ONE or a FAMILY MEMBER… that is particularly galling.. But when you are FLAT ON YOUR BACK – and recovering from being KNOCKED OUT… you might be right to start complaing about that particular finger – moving into my NOSE SPACE and a wicked, fast velocity… John rightly attacks the 2.3% problem… It’s a problem is you MAKE piles of cash to tax (which your competitors don’t pay) AND it’s a bigger problem if you are NOT making much cash – or are losing money… It’s the cash flow killer… (so.. get creative and figure out ways around this nasty problem – right??) I COMPLAIN about ALL OF THE FINGERS hitting my nose – because I WANT TO DO THINGS IN A STARTUP AND I MUST UNDERSTAND THE LANDSCAPE.. you can not afford to be stupid or lack business creativity in this market, at this time.. I think you need to read some REAL case examples.. and see that NOT ALL COMPANIES PLAY ON THE SAME LEVEL PLAYING FIELD.. they DON’T… you BETTER understand how to play against a stacked deck.. because it IS STACKED AGAINST you and your company… Time to get educated… the examples are there… and you aren’t paying me (an expert in my area) or Bo, John, and Hugh (experts in their areas) to take time to teach you.. learn for yourself.. want examples? Just say so.. I can post a quick 5 or so – without even much thought… Karl Schulmeisters I’m not wiggling. I’m asking for a) an answer to the fact that with a 3-4 year lead time to negotiate long term contracts and a PEoD of 0.2, how is it that any company did not arrange to pass the tax cost onto the customer? b) how if the cost is passed onto the customer there is any impact on cashflow? Lastly in a startup cashflow matters for only three reasons: * setting the valuation of the company based on a multiple of revenue since that sets the price of the next financing or acquisition round * covering Salaries and COGS. So for #2 – perversely having a forced increase of 5% across the board (ok 4.5% to cover the cost of the pass through of the tax) – you increase the valuation of the company by 15% And that is a good thing for startups. Now as to the answer to the question of whether Texas chose to accept the Medicaid expansion – I knew the answer. Its called a leading question. as has been documented over and over again So please Jerry. offer some independently verifiable data and valid logic so that we can have a discussion as to what the verifiable effect of the device tax actually is. You insisting that the tax is a job killer is a variant of Begging the Question logical fallacy http://www.nizkor.org/features/fallacies/begging-the-question.html ( Nizkor is a good site if you want a handbook on logical fallacies). So please lets have a civil and VALID discussion. Hugh F. McCann, Jr Hugh F. McCann, Jr Hugh F. McCann, Jr Karl Schulmeisters Done the pledge the house – and the 401k. assuming I haven’t is jumping to conclusions for which you don’t have evidence. Nizkor would characterize that as a Strawman fallacy http://www.nizkor.org/features/fallacies/straw-man.html And yes the whole point of Trade Associations is to argue for their members to improve their business case. getting an additional 5% to the bottom line is clearly a benefit to the members of the MassMedic trade association. And the punch in the face metaphor would be characterized by Nizkor as the logical fallacy of either Misleading vividness http://www.nizkor.org/features/fallacies/misleading-vividness.html or Appeal to Fear http://www.nizkor.org/features/fallacies/appeal-to-fear.html Either way its a reasoning fallacy Hugh F. McCann, Jr Hugh F. McCann, Jr Karl Schulmeisters I find it curious that you choose to go back to the logical fallacy of the “punch metaphor” instead of addressing the issues I have raised Jerry Robinson Just to illustrate that there are multiple things ( of which the 2.3% problem is significant) hitting the startup or small business owner in the face. This 2.3% does not help a business.. Why is this curious? YOU mentioned Politics.. Lets NOT GO THERE, as you suggest…. OH… BTW… you still need to comment on the issues I raised… It won’t kill you to say “Hey… I was wrong on some issues….”… Hugh F. McCann, Jr Jerry Robinson Some companies – get paid on a 90 day basis… For many companies, it’s worse – a much longer time-frame. IF YOU GROW.. then proceeds are ALSO what you grow with… If you want to PAY EMPLOYEES – then that money comes out of a bank. You write a check or make a direct deposit to an employee… Cash must be in the bank. If you are making a 2.3% payment – long before you GET PAID, then that takes money out of a bank. If you have piles of cash or don’t grow… then you are right on the cashflow issue… the cashflow is not substantially impacted. MOST BUSINESSES have times that are MUCH MORE DIFFICULT… some months are very hard. other months may not be hard.. So in the “tough” months – you are hurting… Many other business are operating on a LEANER cash model.. sometimes, too lean.. Surely you are familiar with issues of start-ups, small business, and real world operations… right? I wouldn’t hire Nizkor. He couldn’t get an academic job in this town, either. So why would you quote him? not relevant… Hugh F. McCann, Jr Karl Schulmeisters * of 2.3% or roughly 0.45% that in turn divided by 25% (90 day period) so you are looking at an additional cost of 0.11%. ie instead of earning $1,000.00 on your transaction – you give the bank 20% and the additional cost of borrowing on what you owe the feds costs you 0.1%. so instead of earning the full $1,000 you earn $798.90 vs $800 without the tax. Sorry that’s not going to bankrupt anyone. And Hugh – its not worth responding to personal attacks. Please return to a civil discussion Hugh F. McCann, Jr Joseph Schwartz Hugh F. McCann, Jr Karl Schulmeisters Arguably that is the net ROI of the stock market which is 2.25% – so that’s an extra cost of 0.05%.. if your company is going to go bust because of a net increase in your COGS of 0.05% – then you really aren’t doing very well. Frankly it would be nice Joseph if you did not take this into the realm of ad hominem the way Hugh has. and instead stayed on the issues. Accounts receivables lending is standard practice. All I showed was that the extra cashflow impact of it has no bearing on whether or not you can make payroll. It is absurd to suggest that I brought up the issue of having to wait 90 days to get paid. All I did was point out how small companies deal with that cashflow issue. If in fact you did not know that, I would recommend you learn about it before you try and start a company. Dan Stipe So, 2.3% medical device tax — bad for our industry in general? Yes. Awful job-killer? That remains to be seen. Karl Schulmeisters A particularly telling point is that no-one has been able to address this directly and most recently folks have resorted to arguing by analogy …. without first establishing that the analogies (punches and holes in the ground) have any mapping to the issue at hand. – or by going off on tangents about accounts receivable. I personally think that if we are going to fund the ACA, there are better and more efficient ways to do it. but the reality is that its not going to change before 2017. And having states piecemeal catering to interest groups to attract business at the cost to other states seems to me a lousy way to run a railroad Joseph Schwartz Karl Schulmeisters Jerry Robinson Fortunately… I have had a lifetime of watching the 3 Stooges, Marx Brothers, and many versions of Ginsu Knife commercials to figure out what you just said… a – The issue is not the EU… the 2.3% applies to the US.. EU – doesn’t matter in this case… b – Jobs lost… we DO need a good, objective analysis on this. It is something that matters…COSTING patients more (eg: $0.02 aspirins are marked up typically by hospitals to $15-19 in their billing) – does not help people – AT ALL.. HOW MANY jobs are lost along the way with this markup. By the TIME THE PATIENT SEES THIS…. HOW MUCH MORE IS THE MARKUP IN $$$$? c – there are MANY medical device companies… some big, some small, some are startup or have “startup like projects”. ONCE SIZE CLEARLY DOES NOT FIT ALL.. POE may not matter to some companies – to OTHERS – it is a critical cost addition and cost impact… IF YOU write a check for $100 – but only have $99.99 in your bank account, then your BANK will likely BOUNCE YOUR CHECK… At least mine will… IF YOUR BANK DOES NOT BOUNCE YOUR CHECK – then that might be because banks may operate differently.. JUST LIKE MEDICAL DEVICE COMPANIES MAY HAVE DIFFERENT CIRCUMSTANCES… d – some people in the industry HAVE said they can not mark up the 2.3% tax to their customers for contract reasons. They are not lying, and don’t need to make up this fact. This is, therefore a RELEVANT issue. I POINT OUT that there are many other factors they must overcome… IE – the FIST in the NOSE analogy.. John has pointed out that the 2.3% tax problem is the one that “should be and could be” fixed first. I am concerned with startups – and the effect on new company projects… A significant company – may do a project – and they MUST factor the 2.3% effect ON THAT PROJECT. It’s a problem This is not a EU discussion – Oh.. you HAVE been wrong on at least one issue – the “Double Irish Accounting Trick (now NEW – from Malta… ). You don’t acknowledge this.. so it is possible that you are off base on some other contentions.. right? Jerry Robinson Well….. by 2050 – there will be 9 billion people in the world. Nigeria will be more populous than the US. The supply of trained medical staff, doctors, and nurses will not keep up with the demand – and location effects will hinder care efficiency… Our “Medical Device” tech development – now – WILL MATTER A LOT THEN.. MedTech and Apps are a FORCE MULTIPLIER for medical care… more efficient, less costly, more widely distributed… This is not an idle observation, either… so.. I post… Bo posts… Hugh posts… John posts… In the long run – the little things we do today can and will have big impacts later.. (Thank you Dr. Lorenz!) John Eckberg Karl Schulmeisters And John you are wrong on the price increase. A hospital in the red in particular cannot afford not to be able to perform particular procedures. Simply saying something that the data shows is not true (both corporations admitting to passing the tax on as well as the broadly developed Price Elasticity of Demand – though I’m curious what Jerry thinks POE refers to ) is hardly a well reasoned argument. It is made less reasoned by accusing others of being “uninformed”. Again for something to be validly reasoned you need to include all of the relevant facts. the ones you have left out are * 1) The tax law of the land requires that any new law (and a law eliminating the Device tax is a new law) be revenue neutral. * 2) The House does not operate alone – it also has to get through the Senate and the WH * 3) The WH has the veto pen #1 means that if you want to repeal this law you either have to * b) cut services elsewhere * 4) The House won’t do (a) and the Dems in the Senate won’t allow (b) to get to even a debate on the Senate well. Note also on #1 – As of February the House had voted 56 times to repeal various components of the ACA. and not once has it gotten to even a vote on the Senate floor. This won’t change. and I have pointed this out before. So again, rather than engaging in name calling – perhaps it would help to address all the issues raised similarly calling it “a dumb tax on every level of analysis” really is just hollow rhetoric since we have yet to see actually ANY solid and valid analysis that shows it to be such on even one level. Jerry Robinson 1. days ago you said: >>and Double Irish with a Dutch sandwich hasn’t been legal for coming onto a decade.<< This is, of course, false. Links were posted, too. This refers to accounting actions and technique. You were asked - multiple times - to comment on this.. perhaps to admit that "on this item" - you were incorrect. So.. stay on the subject - and respond to this single, direct point. Jerry Robinson >>Jerry – I really wish you would stay on subject. Its very difficult to follow all of the tangents including how the 2.3% tax in the USA for the next 3 years has anything to do with Nigeria in 2050 (given that our financial forecasts struggle to go more than 3 years out).<< The point is that world populations are projected to hit 9 billion by 2050. Medical health support will not increase as a percentage compared to the population. Medical Device builders will make products that serve as a FORCE MULTIPLIER for medical professionals. This "should be" why people here should continue to care . Weakened companies - or companies put out of effective business - by this tax - will not be here to support medical professionals in 2050. THE 2.3% TAX WORKS AGAINST people and companies that develop medical devices. Increasing the cost to CONSUMERS - (ie, patients) does not improve the quality of medical care. This is bad. REMEMBER - leave the politics out of your response... How is increasing medical device cost - by a substantial amount - going to help patients? Please avoid long words inspired by strong spirit in your response! Jerry Robinson Karl Schulmeisters Now as to Nigeria – all technology is a “force multiplier” – that still has nothing to do with the mechanics of the Device tax. you then go on to make two assertions (so much for sticking to one point per post) that you have yet to support with a full set of facts and valid logic: * 1) The 2.3% works against people and companies that develop medical practices: * 2) Increasing cost to consumers does not improve the quality of Medical care #1 – as I have pointed out before and you did not address, an increase of 4.5% of EBIT revenue to a startup (the pricing amount increase necessary to offset the 2.3% excise tax) increases their valuation by 13% (valuation is based on 3x+ of your EBIT revenue) . That makes it easier to pay off the VCs successfully and thus increases the likelihood of startups getting in the game. Remember how the VC game is played: they put in say $1,000,000 and expect to be able to take out $10,000,000 in 3-5 years. The cost of developing the device is not increased by the excise tax, so your development cycle is just as effective as before. But then when you go to make sales -the whole market has moved up in 4.5% on the pricing. Thus you generate 4.5% more EBIT revenue. I’m befuddled as to how making more revenue “works against” companies innovating on medical devices. #2 is also demonstrably false. The quickest example is the “Medicare Doc Fix”. Had Congress not voted to increase reimbursement to care providers, fewer consumers (patients) would have received services and thus the quality of their care would have gone down. Thus you have an example where increasing the cost to consumers improved the quality of medical care. Now – #2 may not apply to Medical Device markets. Or it may. But given the “Doc Fix” example, you need to actually show which it is. And since we have seen the Device Tax being paid for more than a year and not seen any data on a decrease in the quality of medical care – I don’t see how you can just make this blanket assertion. (I do hope the term “assertion” is not too long a word for your perspective”) Jerry Robinson * tax was a US topic. Thanks for admitting that on this topic, your “Irish Accounting – Double Dutch trick” comment – was in error. the “bump” in the rug has moved from Ireland to Malta. If “My company” does not do these things – then “my company” is at a competitive disadvantage against another company that DOES DO these things. Wouldn’t you agree? If some other company reduces it US tax burden by 95%, though these tricks, then “my company” finds it much harder to compete – do development – hire people or anything else. That is my point here. NO.. I did not speak to the 2.3% tax – per se – with my comment. I am not GOING to show that. but I can comment, – following – posts. Jerry Robinson a – >>Increasing cost to consumers does not improve the quality of Medical care<< I can talk about the US. Medical Costs have increased in the US much faster than people's income. A additional medical cost dollar spent - means that the dollar can not be spent elsewhere... like on food, housing, transportation, or other things. For a LOT of people in this country, money is in short supply. The USDA (FY2015 - May 2015) says that 46,145,439 people receive Supplemental Nutrition Assistance (ie, government food aid). The rise in health care cost - means that the additional money has to come from some other area of person's life. Dental care is frequently the place that suffers first. The US is about 4.65 of the world population. MOST People in the world are living on much less per day. Their device costs is not going up for the 2.3% number - but getting them care in the first place is a challenge. US companies work at this - they do, you would have to agree.... but when the R&D and development budgets are taking a "hit", then it makes it harder to address this need. John, I, and others have addressed the impact to cashflow and operations. So there are two points of impact. FIRST - INCREASED consumer medical cost does not help people - it costs them more. SECOND - there is a long term development effect and an overall worldwide impact due to R&D - Cashflow impacts. These are NOT good things for the consumer. Jerry Robinson b – on your #2… let’s leave politics out of it. your idea – and a good one, right? I can observe that adding “congress” anything – just getting them in the loop – will drive up costs – because ANYTHING congress does will encounter costs. they get money to pay their bills, too – right? that’s more cost… Jerry Robinson HOW IS THE 2.3% tax related to the :”Double Irish” accounting schemes & other associated tax avoidance schemes? They are related… Here is the analogy.. Go to a hospital – any hospital. They WELL UNDERSTAND that when a patient has one illness, it will stress their immune system and disease fighting ability.. it makes it EASIER for another disease to kill the patient. THIS HAPPENS A LOT… Corporations have health, too.. IMPACT one part of the business, i.e. hit it in the profit center, and you will severely stress the corporation. This applies to Universities, Research groups, and really any organization. THEN… a more stressed Corporation is subject to damage from OTHER, partially related impacts. you see this ALL THE TIME… The “VISUAL ANALOGY” – is that a Corporation has a number of Threads… They can be organized as independent – discrete threads… OR they can be twisted together to form a type of “rope”.. Ropes have a history thousands of years long. Ropes can share stress among the strands. They are STRONGER than an individual thread – and more resiliant to stress… Not familiar with this? Then it’s time to bone up on “Antifragiility” – (bless you Nassim Taleb) and learn more. Jerry Robinson In any organization, there are relationships between threads. Weaken one part – and others also become weakened. This is how things really work… If you aren’t familiar with this,,,, well… you should be – to understand the interplay… Corporation design an business management ala 1930’s – 1950’s does not fully apply today… there are more factors to consider. Jerry Robinson VCs and such only fund a small, small percentage of companies in the US. Still, there is some activity….. For 2014, there were 789 deals… out of a current space of 16,424 US Medical Devices companies. VC economics – applies to only a few (percentage wise) companies. FOR THE PEOPLE – I know in North Texas – looking to start up a medical devices company, all of them want VC money. Few expect to get it. The economics space you live in does not apply. VERY few start-ups could get receivables factoring – at any price. Few can expect big money to start.. This is the CREATIVE SPACE where DISRUPTIVE INNOVATIONS are most likely to happen. ASSERTING THAT BIG MONEY FINANCE applies to these people and companies – is JUST WRONG… These finance numbers may work FINE for the space you are in… It’s a fact that there are MANY ways of being successful and to finance here.. BUT.. If I want to startup a company – and have the “perfect medical devices product” – your financing theories simply do not apply. It’s a different space.. For people looking to do Cell Phone Medical Apps and Devices.. it is a completely different world – in finance and development. For ALL of those folks.. 2.3% matters – because of HOW IT IMPACTS development, cashflow, and growth. >>Venture capital (VC) funding for the Life Sciences sector – Biotechnology and Medical Devices – increased 49 percent in dollars but declined 18 percent in deals during the fourth quarter of 2014, compared to fourth quarter of 2013, according to the MoneyTree™ Report from PricewaterhouseCoopers (PwC) LLP and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. The report, entitled “Biotech funding surges,” shows that VCs invested $2.8 billion in 202 Life Sciences deals during the quarter, versus $1.9 billion going into 245 deals in the fourth quarter of 2013 and $1.7 billion in 197 deals during the previous quarter in 2014. Overall, investments for full year 2014 in the Life Sciences sector rose to the highest level since 2007 with $8.6 billion invested into 789 deals, a 29 percent increase in dollars but a 3 percent drop in deals compared to 2013. Biotechnology investment dollars rose 29 percent compared to 2013 to $6.0 billion, while the number of deals decreased 4 percent to 470 deals, making it the second largest investment sector for the year in terms of dollars invested, behind the Media and Entertainment sector. The Medical Devices industry finished 2014 up 27 percent in dollars to $2.7 billion, and the number of deals remained relatively flat in 2014, compared to 2013.<< Jerry Robinson Just for jollies… IF your devices have the 2.3% tax applied to them – in sales to the HOSPITALs… then HOW MUCH can you expect the HOSPIATAL to mark up that amount and apply to the patient? * is a company impact. WHAT IS THE TOTAL % patient impact?? Karl Schulmeisters * the ACA net net, device tax included has been bending the Healthcare cost curve downwards (I can give cites if you need it) * ROW is not affected by the 2.3% since that is revenue outside the US (whence the Double Dutch originally came from) * You’ve not addressed the fact that a universal rise in EBIT revenue creates incentives for Med Dev innovation your cashflow analysis has been mathematically incorrect and I’ve shown it as such. So you cannot validly say you have addressed it. >>I can observe that adding “congress” anything – just getting them in the loop – will drive up costs << again, other than for the purpose of assessing what the politics of actually carrying out changes are - please leave the political haranguing to another thread. You statement is provably false and just looks uninformed and ideologically driven Living in a world of complex relationships is why Correlation Analysis was invented. The relationships between the pathways in your CPU are so complex the human mind cannot comprehend all of them wholistically. And yet we can use Correlation Analysis to identify electron bow-wave interference problems vs parasitic capacitance problems and apply the appropriate solution. so citing "complexity" is a copout. It basically says you cannot prove your point with facts and math so you want the leeway to use logical fallacies of one or another sort. as for your assertions about how startups finance * The point that most startups are financed by home equity is one that I made a long time ago. The effect of the Great Recession on home equity is why you have fewer startups and hence fewer public VC deals. QED not related to the Device Tax * PUBLIC VC funding is not the same as ALL VC funding. in fact mostly you will see Angels and Incubators doing the initial heavy lift in return for equity. VCs actually only show up at Series A - which is the third round of funding so you expect roughly 9% of the initial startups to have made it that far. * just saying that 2.3% matters demonstrates typing ability and not much more. I spend a lot of time with Cell Phone Med App / Device innovators. 2.3% tax on revenues is nothing to them. Because a) they can and do pass it through b) since it only applies when they get revenues, they are in the steep part of the cashflow growth curve c) it has zero effect on development d) it has POSITIVE effect on growth since it increases the EBIT Revenue by 5% - and EBIT Revenue is all a startup cares about. This latter is curious because it is something neither you nor John have addressed in any of your analysis - which suggests to me you either do not understand how startup finances and financing works, or you are leaving off relevant facts to slant the argument. Have you been personally and directly involved in startup financing? because from your CV it looks like you have been on the engineering and consulting side. Which is where you will hear complaints but you won't see the books. I've been involved in startups as an engineer and I learned my lesson about understanding the books in my second one. I was an engineer there and left the books to others as I had in the first. And the company melted out from under my feet. Every startup since then I've made sure I understand the books BEFORE I get in and during. That's 6 startups since then directly, and consulting to about 40 others in various fields including medical device design, mHealth etc. Jerry Robinson I agree that “Obama Care” has had an effect in (a) reducing the rate of cost increase and (b) in many cases started forcing overall cost downward. I think the numbers, as the become more available, will show this – just as you seem to think, also. I DO insist that the 2.3% device tax DOES affect the ROW performance of companies… If MOST of the medical device companies have a strong presence in the US, then a negative 2.3% impact in the US – by extension – affects operation in the ROW. If I am a manager in company, that encourages me to push product sales in the ROW – which we can both agree – is a good thing overall. Among the people and company innovators I have know over the course of many years, I WOULD NOT tie EBIT to the word “innovation” at all.. If anything, it works to make them think of more ways to get around this 2.3% ball of worms. The “congress” comment was NOT about politics. Do not get distracted. IF there is an INCREASE in company or government operating cost, then someone has to pay it. If the government is picking up this nasty cost (even when bringing in revenue), then that is money that could have gone to REAL R&D. You can spend money on one thing – or another. RIght? You could argue that this 2.3% tax would bring in tens of billions of revenue over the course of years in effect – and you might be right. But that money comes from PATIENTS – in one form or another – and that ADDED COST IS BAD. Making health care more affordable – is the goal. Not just a political slogan. AS COST PRESSURES INCREASE – it serves to INCREASE THE PRESSURE FOR DISRUPTIVE SOLUTIONS. (C. Christensen) I have no clue whatsoever what you were trying to say with “Correlation Analysis”… I will need to drink more, first… Complexity describes the pathways that change can occur in.. You comment is unrelated. On Startup funding… my point was that VCs do not provide the majority of funding for these. Most startups never get to Series A. I think – just my opinion – that cell phone type solutions are going to EXPLODE in popularity – and won’t go the VC route… at all… I’m glad you spend time with startups. I assume that you charge them, right? For the time you spend – and the time that the strartups spends – in DEALING with the 2.3% tax cost effects – and compliance… It’s a PITA. If no 2.3% – then no COST for compliance and consulting advice. Saying an increase on tax, a substantial expense of time and energy to account and comply, and the added hassle of another set of government intrusion – is a “good thing” – is just plain goofy. EBIT is most certainly NOT ALL A STARTUP Cares about… SOME MAY.. MOST DON’T – it’s not the main prority.. Just for grins – do your own Survey Monkey study of the 16K US Med Device companies and the 700-900 startups per year.. just see where in the list of concerns – that EBIT really matters.. I am glad you looked at my CV… I have been on the Engineering and Consulting side – a lot.. I have also been on the management and accounting sides too.. I have been DIRECTLY INVOLVED with startup finance – specifically for small company and low resource type companies. I am glad you know books.. these days, we use computers… setting up Quickbooks and such are lots of fun compared to the “old days”… I absolutely agree with your startup – books priorities!!! That approach will keep a lot of companies alive and enable them to grow. TOO MANY TIMES – companies don’t do this.. I look at the approach a LOT of Kickstarter efforts make.. and the business side just makes me CRINGE… Jerry Robinson You MUST be aware of all of the diverse issues that can KILL your business.. because at the end of the day – your company may do a good job – have original IP – and be ethical in your dealings – yet not everyone follows those rules… Surely you know this? Patent Trolls, crooked competitors, crooks of all stripes, offshore funded competitors, counterfeiters.. the list is fairly long.. You have to know how to play in the international marketplace – but it will be the biggest and most important marketplace soon.. Karl Schulmeisters No startup can afford to fight a court battle with Patent Trolls nor even Patent violators. If they are faced with such, they need to either give in, or be bought out by a large “white knight” with deep pockets. The most recent prominent example of this is the NEST Thermostat. The main reason they sold out to Google was because Honeywell was bringing a very serious patent infringement suit. And by selling to Google, they essentially acquired a sheaf of patent lawyers to fight Honeywell. And no, you do not necessarily need to know how to play in the international marketplace. There are a host of Medical Devices I see in Europe that will never make it to US shores but which will be successful startups nevertheless. Sure they would be more profitable if they were able to sell into the USA, and that is part of our product pitch to them, but for many that’s a post Series B goal. Nor can a startup care about crooked competitors or the funding sources of competitors. Because there is nothing they can do about it. I have someone I know very well and closely who is CEO of a startup who’s patent Google took, changed not much more than a dozen words in the patent and resubmitted it, apparently gambling on the fact that a startup cannot afford to fight Google in Patent Court (the reason being that over 50% of the traffic flowing through Google infrastructure uses code that is an infringement on the patent that this startup invented and has been licensing for some 5 years) . The startup can effectively do nothing except hope to sell out to Amazon or MSFT or Intellectual Ventures (a patent troll) ie someone who has the pockets someone who has the deep pockets to fight Google. So while they paid attention to the “crooked competitors” but because they are a startup, there isn’t much they can do about it. So all those things that you mention are distractions to a startup from the startup’s core mission: Grow sales volume to a self-sustaining level that pays off the “risk capital” invested in the company (be it bank loans, F&F investment, Angels, incubators, VCs or the lottery). And that payoff is based almost exclusively on EBIT and EBIT growth (MRR and Churn are numbers that document EBIT Growth) . Since you are on the Engineering and Consulting side, you don’t seem to have been involved in the growth and investment and financing side (setup up the books is not the finance side). EBIT is the focus. everything else flows from that. And your continued failure to address that the 2.3% Tax COMBINED with a PEoD of 0.2 actually increases the EBIT and MRR/Churn numbers for a startup and thus increases their likelihood of success (and thus benefit to patients because patients get new innovative treatments faster). simply insisting that the 2.3% device tax is bad is not an argument. If you want to understand multivariable correlation analysis – here’s a decent place to start Jerry Robinson If you start a US Med Device company today, you MUST be thinking of how to be an international company in many ways. Would you ACTUALLY argue against this? Since it seems to be what your own business is about?? Karl – your “pigeonholing” of my experience and skill set is wrong. It’s also a classic debate tactic that if you CAN NOT defeat the opposition argument – then attack the debater or their credentials. So.. in this case.. not only are you incorrect on my skill and experience set – YOU “Babelize” (ref. Douglas Adams) commentary on your arguments….. For example.. Before you MAKE a profit – to pay non core expenses and such – you have to BREAK EVEN.. There is NO PROFIT till you DO BREAK EVEN… Every Med Device company has this burden of accounting time, cash, cash flow, and legal risk – associated with complying with this tax rule. ALL OF OF THAT COST AND RISK – works AGAINST a more efficient and less costly patient medical care situation. What is so hard to understand here? it’s just plain, simple math. Math does, after all, have a GOOD BIT OF USE IN ACCOUNTING… and you DON”T NEED abbreviated technical terms to understand it. Oh… BTW… dealing with legal issues – Patents and IP for eg. – does not have to cost a fortune. That is a choice issue on the part of those involved in patent disputes. There are a lot of Patent disputes that do not involve Google.. and for your info.. Nest was sold for WHOPPING PILES OF CASH.. that may also have had something to do with the company cash out process.. In all of these posts… I have only seen that you admitted that you “may have been wrong” on “some matters” only once. It’s always someone else that “is wrong” – and it’s always them… You also seem to be skilled in debate tactics. But the forum should not be about “debate tactics” or “political bullying”. There are about 16K plus medical device companies – and some number of startups in the US. ALL of us here – exist in a climate where our Gov’t does not support us in the same fashion as exists in many countries. WE have to deal with a variety of issues and concerns. While your discussions probably DO describe some companies – it CERTAINLY does not describe all. I don’t need to comment further here on this topic. The skills of experts with decades of experience and solid knowledge simply should not be attacked and belittled. I went back and read the posts.. Try this yourself. It’s one thing to disagree – it’s another to mount a bullying opposition. &********************* I maintain… First – the 2.3% tax does hit many companies hard – first in cash flow: second, some companies are stuck EATING the tax and it’s effect, Thrid it drives up patient medical cost in the long run (bad for patients); adds a additional cost to accounting, regulatory compliance, legal tax risk, and a box of worry for no good reason. It’s bad. Second – there are many OTHER serious issues hitting US business – it’s just like a Fist that hits your nose – has many fingers on it. The Double Irish Accounting scames, IP Offshoring scams, foreign government subsidization and support of thier countries exports – scam; the equipment and tax credit scams for large business… MANY ISSUES.. These are just a few of the problems – and serve to weaken companies – just like multiple diseases can weaken a patient and cause them to die. Third – if you operate a Med Devices company in the US – you BETTER be aware of how your competitors operate – and the possible “crooked” and fraud issues at work. These can put you out of business – before you know what’s happening… Karl Schulmeisters feel free to keep rehashing that and not addressing the factually supported points and issues I have raised. I’m not going to rehash them, I think I’ve done an adequate job of citing them and using valid logic to assemble them Jerry Robinson Don’t think I will repost, either. Joseph Schwartz It doesn’t add up, something must be missing from the correlation analysis soup. Mathematics can prove any point based on what one includes or excludes from the analysis. If I had the time, I would include POE in Multivariate analysis and see it if proves to be a significant factor. Perhaps someone else could do me the favor? Is condescension more civil that the use of the expression “duh”? Karl Schulmeisters * – 3.9 ==> 2.8%…. hmmm right smack dab in the middle of the predicted range. Mathematics works just fine It isn’t condescension to ask for actual verifiable facts and valid logic John Eckberg And when you detail scenarios of EBIT, which I guess you mean is Earnings Before Interest and Taxes, which, of course no longer exists for this sector since taxes now are imposed on revenues so there is no longer any sort of “before” in this paradigm, well, your credibility is shot and nothing else you contend has much if any merit at all. This tax has killed jobs, driven global companies to relocate manufacturing from the US to low tax or no tax zones all over the world and patients are going to pay the price because innovation has suffered. This tax has also killed supplier jobs, led to unprecedented consolidation and represents a 30 percent tax surcharge for the average firm It can’t be passed along because GPOs and IDNs refuse increases. Started being collected in 2009? I would have thought you would have at least looked that one up. Karl Schulmeisters So please don’t misrepresent what I said. If you don’t understand what I wrote please ask As to GPOs and IDNs refusing increases. I have no doubt some did but that is the point of using the Price Elasticity of Demand to look at that likelihood. And with a PEoD of 0.2 the number who refused and were not replaced by additional sales to their competittors can be calculated. that calculation is that for a price increase necessary to cover the excise tax and the tax on the incrase (5%) the amount of sales you will lose is 5% x 0.2 ===> 1%. EBIT is EBIT. doesn’t matter if the tax is an excise tax or anything else. For fast growing companies – particularly startups – EBIT is what matters for valuing their ROI. Because they sell for between 3x and 10x their EBIT depending on their growth rate. (normal industry growth rates get you 3x). So a 5% increase in pricing actually increases EBIT. So it means that a startup or fast growing company BENEFITS from this tax rather than is harmed by it. As for the rest of your assertions. Its clear you believe this. It is also clear that you have not provided independently verifiable data to support those beliefs. Jerry Robinson You seem pretty focused on this math… I disagree, but that aside for the momement.. HOW MUCH will consumers see their MEDICAL DEVICE bill increase? Won’t be 2.3%…. not in a world where hospitals mark up $0.02 aspirins to $15-$19…. So if you want to LOOK at the effect – then HOW MUCH more will consumers pay on the average… How much will their bill go up? You asserted that this tax is not significant – so what will be the effect? For a device – say $100 – then how much more will a hospital patient expect to pay? Karl Schulmeisters as for costs to consumers – I’ve already presented the research above that net costs of healthcare are decreasing. now on the specific question of the cost of a device? If the hospital used to pay $100 and there is no additional state or local excise tax – they would pay $102.35 after the price increase to offset the device tax. The 5 cents is the tax on the offset increase. According to your hypothetical. Jerry Robinson You are in favor of real numbers.. facts… verifiable.. So am I. You KNOW.. that Hospitals don;t just pass through costs. They mark it up.. OK… HOW MUCH – is the average markup going to be for your device tax? Med Device companies will ALSO mark up the price they have to charge – to cover their expense.. and the hypothetical 20% YOU SAID they would have to borrow to cover the tax… This tax is a REAL company cost increase as well as TAX Company accountants, lawyers, and tax personnel will spend time.. so the Hospital cost – WILL be more than $102.35. Just to PICK A NUMBER – without a lot of analysis… let’s say that the COST to a hospital is about $105. Yeah.. . you could argue the number up or down.. but fair enough… SO>…. what will be the PATIENT EFFECTIVE COST INCREASE??? WE do live in a world, at least in the US, where Aspirins (or equivalent) may cost $0.02 but be marked up to the patient at $15-$19 each. I don’t like the numbers, but hey… this does happen – and the markups are not consistent. So get specific with some verifiable numbers and cases… What is the honest cost increase expectation? Don’t respond with a dodge… . John Eckberg Karl Schulmeisters I’m not sure where you got that definition. Its very much not the definition that the VCs I spent about 3 hours listening to and talking to today (all hardware VCs that carry some medical device investments) use. To these VCs EBIT is simply your revenue BEFORE you pay your taxes and Interest. So it doesn’t matter if you pay them daily, weekly, monthly, quarterly or yearly. Why do they use this calculation? because it is a measure of market success before you start doing your taxes and other issues. And a company that has been around long enough for capital depreciation to be an issue on the bottom line is no longer a startup. So the VCs don’t care. So you may well have some VCs or Angels that are willing to invest in a startup run by someone who does not understand EBIT. But I can tell you that your idea of EBIT is basically not informed by the facts. And you can repeat this as often as you like but the VCs in NY or SFO are not going to agree with your … shall we say… “unique” view of what EBIT is and its relevance to investments in startups. Karl Schulmeisters Jerry Robinson Jerry Robinson What would be cash impact to the CONSUMER of this 2.3% tax? does it get marked up – like an Asprin? is it something else? for sure – it is not FREE…. Karl Schulmeisters “we want to see you build ONE device. Because if you can show us that you can deliver one device into customer hands, we will fund you to make the next 500 or 5 million devices” So 2.35% increased EBIT (because if you pass the cost through to your customers it first gets counted towards EBIT) means a 7%-23% increase in valuation (3x – 10x EBIT is what a typical valuation is). So that’s actually going to INCREASE the interest of VCs. As for paying for COGS log before you get paid – that’s basically how all small MFG goes. So whether the payment goes to the vendor of surgical steel billets, to the CNC miller, to the vendor of polyethene beads or to the IRS – its just a COGS. If you are going to talk about revenue based models you are no longer talking about device innovation but about already launched successful companies. Those companies have very solid cash flow practices, so passing on the 2.3% tax to their clients is no different than passing on a 2.3% increase in the price of polyethelene beads. The Price Elasticity of Demand says that net net there is no measurable negative impact on bottom line revenue. Again your example of being paid Net 90 (Net 120 is so rare that its not worth talking about but the same rules apply) is standard MFG practice. And that’s where the Accts Receivable Lendng comes into play. And whether you are using ARL to pay your steel vendor and your CNC miller – or you are paying your steel vendor, your CNC miller, and the IRS – frankly is a bookkeeping issue. Because even on Net 90 with a 20% APR from the bank on ARL, your actual Interest paid is 5%. 5% of 2.3% is 0.11%. if 0.11% added cost is going to make your product unprofitable, it means that you have some serious other pricing and cashflow problems that removing the 0.11% cost is not going to solve. Problems that will in fact keep VCs (like the ones I spoke with yesterday ) from investing. So yes, it is simple math. And straightforward business practices. And exactly what the VCs expect. as to the increase in cost to the consumer – I’ve already answered that. But I’ll answer it again: * the cost of the medical device itself is invariable small part of the net cost of the treatment * but even if we assume ad argumento that it is a major cost component of the procedure the net math looks like 0.965 x ( Orig_MedDevCost x 1.0235 ) ==> 0.988 Orig_MedDevCost IE roughly a net 1.2% cost savings to the Consumer. So even in the cost too the consumer your math doesn’t work Jerry Robinson So… let’s suppose you sell products for 6 months.. at the end of that time – with getting paid at 90 days – that means 120 days in common practice – then you have to support the tax effect for about 4 months… so… say 2.3% of sales + the cost of accounting/interest/liability/risk, etc.. that could reasonably be – and exceed 5%. So.. you have a 20% load +/- on your company to support the 4 month tax cash flow effect.. As was pointed out… in the US, there are over 16K medical device companies and only 700 or so start-ups doing medical devices.. That means that the START-UP effect is only <5% of the total corporate group space.. How many 2014 VC funded startups in France? Accountants - who love to divide things into ever finer pieces - frequently look at EACH product or piece of the business separately.. sometimes the accounting part of a the company - will act as an internal VC type funder - which does tend to support your approach more.. When anyone looks a a product line - and sees this 20% cash load.. OF COURSE they get concerned... IN PRACTICE.. the CASH LOAD of this 2.3% tax (carefully look at all the numbers) can EQUAL the material cost of the product - or greatly exceed it. That should of concern to ANY person concerned about profitability or product sales growth.. If "I" am a VC, then I might look at a SOFTWARE/APP company - and compare it to a HARDWARE oriented DEVICE company - and it is MUCH EASIER TO JUSTIFY the Software company funding - or even a project level funding... At least in the US. If I were NASTY about things.. I would try to come as CLOSE to "Giving away" the medical device - and make up for it in monthly services or supplies sales.. You know.... just like Cell Phones have done.. (and been wildly successful at).. This changes my business model for new development - right?? This 2.3% tax makes for an increased difficulty in doing products and doing new medical device development.... I see this pretty clearly.. the math is also pretty simple... So I would expect to "walk around" these kind of issues with a much better set of planning than what you are stating... Clearly... I should obtain your customer list and offer my services - since I have a more flexible and non "hide bound' - ie "non-traditional" approach to growing the business. RIGHT?? :> Your COGS observations may apply to traditional suppliers.. but in an international, extremely agile manufacturing marketplace – it simply has been super-seeded beginning in the 1970s – and is not now the domain of the most rapidly disruptive product innovations today… Anyway… back to my point… What would be cash impact to the CONSUMER of this 2.3% tax? does it get marked up – like an Asprin? is it something else? for sure – it is not FREE…. John Eckberg John Eckberg Jerry Robinson let’s not confuse the issue with Politics.. no need to, after all… Congress giving up Taxes is not the way things “usually work… Karl Schulmeisters The whole thing is deadlocked until the Senate or WH changes party control. the earliest that happens us 2017 John Eckberg Yesterday the House introduced HB 160. It has a metric boatload of bi-partisan support to repeal this dumb tax. The measure will sail through the House, repeal backers recognize, and the only question is whether it will do so with a veto-proof majority. Then lickity split to the Senate and finally, with the help of divine Providence onward to the President for his signature because the money simply isn’t needed with the ACA coming in maybe $200 billion under budget. When that happens, you and I will go our separate ways. But until then EBIT is no more for this sector so in the interest of truth, please stop pretending that EBIT as a concept has meaning for US medical device makers, who now pay on average a tax rate that surpasses 45 percent of earnings and must compete agains companies that are based in Switzerland, manufacturer in Costa Rica and sell to US GPOs products that carry a tax rate of about 11 percent maybe. And that’s the truth. This sector needs a new acronym thanks to this tax: Earnings After Excise Tax But Before Interest Corporate Tax, Depreciation and Amortization or EAETBBICTDA for short. And give my regards to your pal Zeke Emanuel, please Karl Schulmeisters Perhaps this clarifying question might help you; the B in EBIT does stand for “Before” but in what domain does the “Before” refer to? The fact that you are arguing for using a different standard means you KNOW you are wrong in your application of “before”… and the reality is that EBIT(shorthand for EBITDA) is what VCs and Angel investors use… and thus the Excise tax INCREASES the success rate of startups. Now as to HB160.its actually HR 160 http://thomas.loc.gov/cgi-bin/bdquery/D?d114:1:./temp/~bdidQa::|/home/LegislativeData.php| and its not even made it to the floor of the House much less the Senate BUT. it doesn’t matter what the House does. not in the slightest. because * to repeal the device tax the revenue MUST BE either replaced from another source of revenue OR an equivalent reduction in services must be made And The senate Dems are not going to allow reductions in Government services except military spending. and senate GOP isn’t going to allow reductions in military spending. Meanwhile the House will not allow another source of revenue. So HR 160 is going nowhere. Dr.Mohamed Ibrahim I am the owner of DevicesCo.com & MedicalDevicesCo.com . Devices Co = > Stands For Devices Company or Corporation. Medical Devices Co = > Stands For Medical Devices Company or Corporation. DevicesCo.com & MedicalDevicesCo.com are Short domains and easy to remember. If you are interested in DevicesCo.com or MedicalDevicesCo.com please let me know. Regards, Jerry Robinson If your VCs do NOT understand that impact on CASH FLOW, then they are not “real” VCs. Yes… there are VCs who don’t understand math… May you always have them as customers… So Karl.. just remember… “B comes after A”… just like in this tax: “Before income – is different than After income”… It’s like in REAL LIFE… you would PAY for your ice cream one day… and 3 – 4 or even 6 months later actually get it to eat. This, as any kid would know, is BAD. Karl Schulmeisters Karl Schulmeisters Jerry Robinson Let’s expand the story… just a bit.. VCs look for – hopefully – successful startups… perhaps disruptively successful startups.. that’s kind what the math for VCs favor… The CORE REFERENCE for disruptive innovation – is from Clayton Christensen’s book – “the Innovator’s Dilemma”… in that book, the case set of study comes from Disk Drive Industry experiences… WIkipedia lists about 223 (+/-) “defunct” HDD makers – since 1956. There are about 3 companies left doing HDDs today.. so….. 3 winners out of 226 companies total… This can be how brutal disruptive innovation space can be… really – it’s even more brutal than the numbers indicate… If you do a study (as I have) of HDD makers – since they are CORE to the story of how Disruptive Innovations work – then you start to ask questions… “WHY did each company die? What killed them off?” Each company, as you would surmise had LOTS of accountants that thought about things like EBIT.. and such… BUT.. why did these 223 companies die or exit the industry? If your VC or ANGEL does NOT consider things like Cash Flow – or have a MATURE understanding of how cash flow – and therefore any potential growth works… Then they WOULD NOT SURVIVE in the HDD Innovation space.. Lots of VC’s did not survive, either.. You keep discussing the “value” of a startup or company… fair enough.. BUT IF IT DOES NOT SURVIVE – like 98.6% of the HDD makers did not… then the “VALUE” is Zero… in fact, it may cost money to close the place down – and sometimes the VC operators go to JAIL.. as did the clever VC managers running Miniscribe did.. So.. I actually DO ascribe some importance to your analysis.. It’s a starting place for trying to start and build a company.. you have to be able to ANSWER questions on this analysis – to figure out a cash out or growth strategy. But it is only JUST a part of the solution.. Med Device design and production are on the very CUSP of transitioning in a disruptively innovative way… Taleb writes QUITE a bit about this… So does Philip Tetlock and Christensen. It’s where our fractal reality hits the pleasant consideration of linear accounting methods. I think that – very quietly – many med device tech and application tech solutions are crossing into that chaotic, turbulent space of disruptive innovations.. Tipping Point – says Gladwell. One project I worked on fall-summer – was as CTO of a med device company startup. The idea was to replace a $8500 med device -with a cell phone add on – and utilize cloud / phone analysis to improve accuracy – and save lives. The projections were that about 50 million+ of these type devices could be sold – when cost was below $50 for the med device solution… VCs get scared off from this type of aggressive disruptive solution in the med device market place.. you can see why… Risk is high – and growth has to be incredibly well planned.. So I am sure you can offer your services and analysis to such folks in the nice “near linear space” of sustaining solutions… MAKE SENSE? It really depends on the VC or Angel – as to how aggressive they want to be – and what their ultimate objectives are… I felt that LIVES SAVED and BIRTH DEFECTS AVOIDED was a substantial element of valuation.. it is, but it’s also a separate piece than what you describe…. As far as what I know or don’t know… well.. we have never met and certainly never talked outside this forum.. we probably won’t, either. so your “thinking” could be in error. (accuracy of experts issue.. see Tetlock and Berlin….). Karl Schulmeisters why? because disruptive technologies typically take longer to achieve market potential than someone going in and making an improvement on an existing technology that was seen as disruptive some years back. From the perspective of “survival” VCs and Angels are only looking at a 3 year horizon. They really don’t care if the company actually survives 4 years or 5 years out.. They are playing a statistical game: * of companies fail to break even. 70% of companies fail to create any meaningful value. So VCs start out with the assumption they will lose 90% of their investments. of the remaining 50% of the remaining 10% will make market returns (boring) 20% will make their predicted 10:1 growth rate and 20% will exceed 10:1 but not 100:1 and 10% will exceed 100:1 growth. Of the 5% (original investment) that make or slightly beat market – the VC will force a sale and will take as much of the sale proceeds towards their 10:1 ROI as possible. So that means that if you gave the VC 20% of your company and you manage to grow your company 300% in 3 years (not too shabby actually) the VC will force the sale (or the next round of VC funding) – of which they will then take 2/3 of the proceeds since they get to take their slice out of the value first (that’s how they write the contracts). So they really don’t care about long term sustainability when they make their initial investment. They care ONLY about growth in the 3-4 year time frame. The challenge that med devices face is precisely that they are on the cusp of disruptive transition. It is the very fact that there is disruption about to happen that makes VCs unwilling to invest. There are some that are aggressive – but mostly what they are investing in is the “team” and neither the technology nor the market analysis. And if something is disruptive and succeeds – a 2.3% excise tax would be such a meaningless low percent of the pie that it would appear as a noise function (if you put in $2 million and get back $500 million or you get back $488.5 million, you really don’t care that much. You’ve made 24400% profit vs 25000% profit. and if a company is going to go under on cashflow because of a 2.3% excise tax, then it is nowhere near able to sell for even 10x your orginal investment so you write it off as a loss. Jerry Robinson IF someone disagrees with your position or math – then WHY are they “automatically” mistaken? Becasue I DO DISAGREE with your math and depiction of VCs.. IF you ARE familiar with both sustaining and disruptive innovations in the market, THEN you MUST be familiar with the fundamental nature of the “Accuracy of Experts”… so.. go to Amazon and pick up Taleb’s, Tetlock’s, and Christensen’s works. There is a STRONG DIVERSITY of VCs and their motivations. Not solely the NARROW ONE that you describe. ALMOST CERTAINLY – a few VCs will fit your description – and the “do” want that 24,400% or 25,000% ROI that you mention. PEOPLE also enter the Powerball lottery and have illusions of “get rich quick” casino playing. For example.. Miniscirbe was a Colorado Hard Disk Makers… they were VC funded.. not being happy, the VCs ejected management from Miniscribe and installed one of their own boys as CEO. This “clever young VC” decided it was OK to ship bricks, falsely identified as Disk Drives, to distributors at the end of the year – so as to inflate profitability and sales…. It worked once, so it was tried a few more times.. The VC Hero was caught, and selected senior management went to prison. IF ALL VCs were alike, then does that make them all Felons in Waiting? Don’t you think that is absurd…???? I have found that there is a tremendous diversity in “self identified” VCs.. among them HAVE been a mix of con artist, outright crooks, scammers, and narrow “get rich” quick artist… These folks have no business confusing the poor folks that are looking for financial help. I hope you find your VC to “bill”. Real VCs are a lot more mature. Not all of them look for that 1 out of a 1000 fabulous winner.. They are a lot smarter. Jerry Robinson FOR THE MOST PART … Traditional VCs and their approach – will not apply to the “new flood” of devices and apps.. already, things are quickly heating up. There isn’t really a place for “would be VCs” who view Med Device investing as something more reliable and safer than buying Powerball Tickets. I hope you can RAISE YOUR RATEs… seriously… and charge such folks WHOPPING PILES of cash to figure out where to invest… it’s a good strategy… The SERIOUS people – like Gates and Khosla are way beyond that level of juvenile thought. Jerry Robinson Figure out something to help children have a better life… could be a medical device…. then SCALE the function for kids in the majority of the world. That’s another form of economic success – and the VCs sometimes think this way.. Khosla does.. and has acted accordingly… VCs looking for the “powerball” win may find a place at the table …. but it is not the “most important” or “most valued” at all… Start thinking long term… Karl Schulmeisters Jerry Robinson I disagree with your position – and have no personal comments here. I DO say that VC funded med device startups are not the majority of such startups – for either devices or apps.. That’s the numbers… I also say that the Med Device tax – 2.3% does impact companies – and that has been shown over and over… you quoted VC type rational to disagree – for such you may be perfectly right.. but a LOT of companies are feeling these effects and many have nothing to do with VCs. So – on the whole – that math is invalid for the complete group of med device companies. In business.. we talk about the value proposition.. cash is really only a part of that story – and not the whole.. Jerry Robinson “What would be cash impact to the CONSUMER of this 2.3% tax? does it get marked up – like an Asprin? is it something else? for sure – it is not FREE…. ” No one wanted to answer this question – lots of comments were made about this 2.3% effect – and impact being “minor” or “major”. No one wanted to deal with the “consumer” or “patient” side of this issue… So.. . I turned to Google – and looked up stories to get realistic answers….. I think this is significant. First – there is the surreal markups that Chargemaster impact… the $0.02 aspirin marked up to $15 or $19 comes into that category.. so it is VERY REALISTIC to wonder how much effect that extra 5% of med device charge gets to the patient? The Atlanta Journal-Constitution in 2009 saw hospital markups of 157-709% (AJC.COM). Items on a hosptial bill are typically billed out for as many different items as possible. Research show that by billing items discretely – that you can bill out more money. One Doctor used to conduct training boat Cruises to show how to break up billing – and increase revenue by as much as 400%. So the patient impact for this extra 5% of cost – is about 12.85 – $35.45 per $100 of original medical device cost. Is this a killer problem? may be not.. but the medical device may cost a lot more.. One meter I worked on was $8500. Using this markup number… that is a patient impact of $1092.25 – 3013.25. Considering that the cost has continued rising since 2009, it is likely more today. The extra cost – does have an impact… for those making minimum wage – this is a LOT of extra hours to work.. it matters… Karl Schulmeisters Jerry Robinson That aside – cost is the number… Additional cost to to a medical device – at a hospital – will get passed on to the consumer. Prices do get marked up. This is absolutely fair to say… there has been research on HOW MUCH THAT cost is…. and average numbers. These number differ wildly at different hospitals… The Gov’t has a list of things – and what charges might be…. there are other lists, as well… asking an insurance company – what the markups are – is very direct to do – but you might not get information. I picked a device – just as an example of how this markup would work. Of COURSE is does not represent all devices.. or all hospitals, at all.. but it is a reasonable case in point. Actually.. with Big Data what it is…… I think you COULD do some extremely accurate analysis of these numbers… and that the direction that the market is heading… Disclosure – and competition. I agree that the ACA bends cost downward… I don’t need to analyze it… IF you DID do the full data analysis -then that is the basis for a GOOD STARTUP to sell shopping services to patients… good idea, you think?? Karl Schulmeisters and it is NET cost that is at issue. After all if your device costs go up 2.3% but your net bill goes down 23%… the 2.3% doesn’t matter. Yes prices get marked up. but a 2.3% wholesale increase typically is a 2.3% retail increase, its just that the cost basis at the retail level is higher. and again, picking singleton examples when you are talking about broad policy is not vlalid reasoning. As for the startup idea – I’m not convinced. Most folks don’t understand and are not interested in understanding statistical analyses. I could be wrong. Its just not a startup idea I’m interested in pursuing Jerry Robinson I gave you a source for the study.. there are a LOT more sources – for different studies with similar numbers… cost increases are NOT just passed through… where do you get that idea? also… I quoted source – for numbers… I don’t see your source… can you provide? how does that affect an individual device’s markup? The healthcare inflation rate may be reduced.. but that does not equate for overall cost reduction.. inflation rate and costs are not the same.. where do you get your assertions?? Karl Schulmeisters Karl Schulmeisters Karl Schulmeisters But that’s not related to the device tax being a bad or good idea Karl Schulmeisters http://www.healthcarebusinesstech.com/medical-device-excise-tax-2/ John Eckberg John Eckberg Karl Schulmeisters >> Med devices have held steady as a cost of healthcare<< IOW there has been a YoY increase and that increase dramatically exceeds the current rate of healthcare inflation (by about 2.5%) in fact it exceeds it by more than the device excise tax. It is true that startups are a fraction of the companies out there - but both Jerry and you have been focusing on startups as to how "innovation is harmed" by this tax. I've shown that not only is it not harmed, but given how VCs do valuation - the tax actually helps. As to the other companies, they have processes in place to manage how to deal with COGS increases. and they have roughly 2.5% with which to play with. - seems to me there is no harm here either. again, the device tax may very well be a really bad idea. But nothing you nor Jerry have put forth indicates it is a "job killer" Nor have either of you put forth any realistic pathway in the current political configuration by which this tax gets repealed. The structure of the House vs. the Senate is such that on an issue like this, the two bodies are pushing in opposite directions, and it is in the Dem's interest to lend a shoulder to whichever side is losing a bit to keep it stalemated. Jerry Robinson I like your NO POLITICS request… let’s all do this… Jerry Robinson You report: “>>The estimates of the Jerry Robinson This is just my assertion.. If you are going to argue that increasing patient cost to patients – in one form or another – is GOOD, then just say so. Jerry Robinson When you challenged him to give examples – HE DID SO.. and then you promptly dismiss those well defined examples and THEN claim that he offers no proof. John did not claim that his examples represent and entire industry – and every single Medical Device company. HE DID claim that here were simple examples where jobs were lost. What is so hard to understand here? Jerry Robinson In terms of actual jobs, that tiny number of Powerball thinking VCs are looking a companies with only a small number of jobs. That’s just the math. So this VC type math really only covers a small number of people – even if the math is right. Startups are DIVERSE – so any one single math description is going to be incorrect – just for diversity reasons… Jerry Robinson >>the study you cite is hospital markups…..which is not relevant to the question of the device tax in and of itself<< sure it is... Hospitals pay more for medical devices. Hospitals are already stressed for materials and other cost.. If a hospital is in the "RED" or "BARELY BREAKING EVEN", then additional cost hurts their financial position. Either pass the cost onto the patient - or pay from the cost from other areas of hospital services and resources. This is bad for patients. If hospitals pass the cost on - then it cost patients more money. This works against quality healthcare. That's relevant. John Eckberg Even though products from Costa Rica are taxed via the medical device tax when sold in the U.S., by eliminating the higher base tax rate, those products will be priced far lower than products from, say, Spencer, IN, hence hospitals, GPOs and IDNs go for lowest price. None of those purchasing groups care where a product is made or if an American was employed to make the product. Jerry has forgotten more about this stuff than I know. Wonder if those folks laid off in Galt, Texas, think this tax was a good thing? Joseph Schwartz * of companies slowed or halted job creation: That is a net cost in jobs. * would increase R & D if the tax was repealed. That is a net cost in R &D. How much? The average response was 14% increase. 1. AdvaMed study done “To provide information on the actual real world impact of the tax in the first year of implementation” A survey sent to all AdvaMed members. http://advamed.org/res.download/417 Key findings: Lost R & D; 30.6% of respondents had to reduce R & D funding * or cancelled capital investments * or cancelled plans to open new facilities * investment in START-UP COMPANIES * it more difficult to raise capital (START UP COMPANIES * or deferred increases in employee compensation Future Impacts: 50% of respondents said they would consider reducing employment (That is a loss of jobs) This is the same as the testimony given before congress, so I guess Karl will reject it outright because it does not agree with his POE numbers. Jerry Robinson Sustaining innovation is superior to maintain progress with maximum cost and job savings… Karl Schulmeisters Its an industry group that is anti device tax and the fact that 72% of companies slowed or halted new job creation in the aftermath of the greatest GDP implosion in human history is hardly surprising and is not being addressed. #2 is similarly flawed – it offers no methodology or even the questions used in the polling but the fact that they are basing it on “respondents” and also in the same time frame tells us basically not much. Do some of those respondents believe there is a tie? I have no doubt. Not in the slightest. In fact as I have demonstrated, the device tax would logically INCREASE investment in device companies. That it has not suggests there are other factors at work that are not being factored into the analysis. As I have said before – politically motivated testimony and analysis is not data. Jerry Robinson w/r to your comment… if 109 people were hit in the face by someone’s fist, then would it be “not credible” – because they are “biased”… Where is your certification to make such a judgement? I OUTLINED how this tax drives up cost for devices.. and you agreed… I GOT SPECIFIC – based on research by the AJC for how much costs are marked up by hospitals – and the cost effect the tax could reasonably be expected to impact patients… Real numbers, and real research… why would you disagree? You did quote a REPORT – It WAS a report – from I assume lobbyist – “The Medical Device excise Tax” Economic Analysis”…. I know nothing of these folks.. but htey wrote a 33 page report and you REFERENCED IT.. Biased? I have no idea… NONETHELESS… based on YOUR reference – the LAST THING they say – and conclude (page 29 labelled – 33 of the PDF) is: “In the end, based on CRS analysis, the job loss related to the tax is far less than the range That’s an average expectation of 400 jobs lost – right? (0 + 0 + 1200) / 3 = 400. So… on TWO FRONTS.. – increased patient cost – AND – an average of 400 jobs lost – by this group’s analysis – this 2.3% tax has bad effects. I suspect that the job lost numbers actually much, much higher than this.. since the “Congress Research Service” is a government affiliated and funded research service – and could be partisan. I REALLY don’t know.. but you DID reject congressional related research earlier. John Eckberg John Eckberg Or it’s 30,000 jobs that might have paid $60,000, about what a new medtech med-engineering grad would make these days. Jobs that pay $60,000 generate another three jobs in local communities in services or supplies. So that’s 120,000 potential jobs not created because of this tax. CRS’s Gravelle claimed only maybe 1,200 jobs were lost because of this tax. She lives in LaLa-Land. Nothing she writes about the harm from this tax is believable. Nothing she writes about the impact of the tax is credible. Oh, on the other hand, I guess there’s two elements that have a wisp of credibility. She said the tax would have a negligible impact on the ACA (barely a rounding effort when compared to the $1 trillion cost of the program) and she said justification for the tax was tenuous. So, I guess she got that right. Jerry Robinson Karl Schulmeisters yes, many hospitals are in the Red.. thanks to political decisions to opt out of parts of Obamacare in ways that hurts hospitals http://www.forbes.com/sites/brucejapsen/2014/07/20/hospitals-see-troubles-in-red-states-that-snubbed-obamacares-medicaid-deal/ (notice I’m citing the pro business Forbes here). yes $1,8 billion comes from somewhere – namely healthcare insurance coverage . Which has risen at 2.5% SLOWER rates than in the past 11 years. So NET NET there is a cost savings And John if you are going to attribute things to what I’ve said – please have the courtesy of being accurate. The Medical Device Tax has been a KNOWN THING since September of 2009. When it went into effect is irrelevant from a business planning perspective. From a business planning perspective what matters is when business managers knew they would have to adapt to it. And that in fact IS almost 6 years ago. And no the $1.8 billion does not correlate directly to job cuts the way you make it up as. Now as to the CRS – you seep to forget who pays the CRS and who sets the terms of their research. It is Congress. And the current Congress has a majority control by a party that seeks to eliminate and repeal the ACA (they have had over 50 votes of complete or partial repeal in the last 6 years). So citing the CRS is in fact not citing unbiased data. While the CRS itself strives to be non-partisan, they are funded to respond to questions specified within the parameters of the members of Congress. Thus the question of is a very different question than say * Assuming that the testimony of medical device companies is correct – what are the job losses associated with the Medical Device Tax. And I challenge anyone to show me that the CRS was asked the first question rather than a question closer to the latter. John Eckberg As you have pointed out, firms in this space rely on new product pipelines. New product pipelines usually involve new hires. When taxes on average increase by 9 percent for companies in this space, my guess is that most companies forgo hiring new people first – before laying off existing employees. That’s private companies. Pretty sure public companies don’t care about any of this. And since there’s no way to pass this tax through to customers, it translates into fewer folks on the payroll. So, it sure does correlate directly to jobs not created. John Eckberg Joe Hage I’ll bet none of those still active on this string will be swayed by the discussion. So, why do you continue, I wonder? Hugh F. McCann, Jr John Eckberg Karl Schulmeisters The Anti-tax reasoning has failed to show any sort of disambiguated factual basis, and anyone who points this out gets attacked personally. So John.. name something you can prove is a “canard”? because so far I have yet to see you offer a shred of independently verifiable evidence. Karl Schulmeisters Jerry Robinson Karl Schulmeisters Jerry Robinson You said “no politics” – so leave that out… Why is it that if experts with decades of experience and FIRST HAND knowledge disagree with you, then they are “automatically wrong”? That’s not civil discussion. Ya know… you are not a certified authority on this subject… that I can see.. Why would you want us to agree that you ARE that authority? You may speak with expertise on some particular VC related start-ups – by the way – what what the name of one of these start-ups? But the people who have posted – ALSO have DECADES of experience – and speak of a different group of companies. Karl Schulmeisters John Eckberg Other things you contend are laughable. A new tax on gross sales that must be paid every two weeks but perhaps months before the revenues from those sales actually arrive is a good thing for start-ups? Helps them? I’d say you’ve got to be kidding but I know you are serious as an acute myocardial infarction, which is what many of your posts give me. You insist that repeal backers offer no sourcing, which isn’t true, so let me offer a few here: Here’s what one start-up exec from Phoenix wrote just as this tax was being imposed. It’s known in the news business as a source: “An excise tax based on gross revenue is punitive and spits in the face of capitalism. It will serve only to stifle innovation, destroy jobs, and diminish personal income tax and sales tax revenues at the State and Federal level.” Here’s what an entrepreneur/source from Livermore, CA wrote: “I am a small, $2 million medical device manufacturer, who employs 12 people, 4 of whom are paid interns. All have gone on to excellent jobs based on experience with us. I am down to 2 now, because the income for 2 of them was taken by the medical device tax.” This physician is from Newark, CA: “I just acquired a new job after a few months of having been laid off by a company who will be severely impacted by this onerous and punitive 2.3% medical device tax. Politicians who passed this stupid tax just don’t understand economics, health care, or the medical device industry, or in general what drives and promotes cutting-edge innovation, research, and advances in medicine.” A CEO from Palo Alto: “We are a very small medical device development company with an excellent history of bringing innovative products to market that improve health through therapeutic devices. With fewer and fewer funding options to bring our novel technologies to light, we can’t afford this additional downward pressure on the collective industry. As a result, plans for our latest project support the economies in Europe rather than in the U.S. due to our restricted options here at home.” This guy is from San Jose: “We are a start up medical device company, and began selling product in May 2008. We will finish with approximately $30 million in revenues by end of year 2012, and will be profitable within a year. We have gone from 0 – 163 employees. The device tax would have cost us an additional $2 million to fund the company to this point because it is a top line tax. That $2 million represents precious, vital capital for a formative company in hiring employees and building the business to last. Such taxes will drive investment out of medical devices, thus stifling innovation.” And this is the saddest one of all from Saratoga, CA: “Start-up device with product that is 2x more effective than other technologies for disease that kills 30,000 annually in US. Can’t get funding. Will shut down next month.” John Eckberg Note chart on page 25 showing growth and the last paragraph on page 27 detailing major firms relocating “near shore” to Baja, Mexico; then the chart with the crazy growth in Ireland from 2009 onward on page 29 with economic incentives detailed on page 32. Check out, too, the footnote 21: * jobs created just in Mexico. It’s 17,000 if you include Ireland. See the table of U.S. companies on page 34; a Costa Rica bar chart on page 36. Costa Rican employment in this space has grown from 7,499 to 12,329 between 2007 and 2011, the last year I can find. The same trajectory pretty much in Mexico and Ireland and the UK. And those figures are a few years old so it is doubtlessly worse by now. News reports show an extraordinary growth in medical device exports from Costa Rica. Costa Rican medical device exports were up year-over-year by more than 50% from 2014-2015, the Tico Times reported recently, from $97.3 million worth of medical devices in January 2014, to $149.9 million in January 2015. It will be another major jump when 2016 gets reported as new plants will be coming online and devices will start being sold back into the U.S. – about the same time those Ashboro NC workers will be cashing unemployment benefits. Exports increased by 58% between 2008 and 2013. If you used the years 2009 and 2013, Costa Rican device exports are up 65%! That ought to wake up somebody. But it hasn’t. http://www.ticotimes.net/2015/02/23/medical-devices-top-costa-ricas-export-sales-in-early-2015 Hope this satisfies your need for sourcing. I don’t know what vested interests means but suspect it refers to JFK and Tip O’Neill filling their vests with cash on a campaign trip to Arkansas or some place. Yes, I do have a conflict of interest, I suppose, although this tax clearly benefits large diversified companies, but even though there may be a conflict of interest, that doesn’t mean I’m wrong. Dan Stipe Joseph Schwartz Jerry Robinson I don’t get into crazy stuff like some teenagers do… like making clothing articles and hats out of Duct Tape… or making works of Duct Tape art to put into museums. I would NOT like to be continuously told “I’m wrong” because I do appreciate the variety of Duct Tape use – by someone else who wants to define a single color and narrow use and definition of Duct Tape. I do believe that if you told WalMart that they had to pay a new 5% effective tax on Duct Tape – due WHEN they bought tape from the supplier – and NOT when it was sold… that that would be a “BAD THING”… less Duct Tape Choice would result… and perhaps less would be sold. My teenagers, who are fashioned challenged, might have less Duct Tape – with fewer colors – for their Fashion Accessories & Hats…. Fortunately, my youngest will graduate High School in 3 days and pass that major transition point in her life. Perhaps her fashion sense will mature… (I hope…) and I will not have to hide my vast, collectors edition of Duct Tape anymore. One can but hope…. $$$$$$$$$$$$$ on the Device Tax issue… I do hope that solid, objective Academic Research will be done on the effect.. but like so many things – it would be well after the fact. Jobs will be gone – medical device companies will be impacted.. and the historical record will be blurred. How much research do you think was done after the textile industry was wiped out? Causes and effects? If you think that industry wipe-out was SOLELY due to cost of manufacturing, then you would be WILDLY mistaken… that part is documented.. To say that the 2.3% tax is small and has little effect – runs COMPLETELY counter to what Dr. Lorenz demonstrated and studied of “how the natural world works”. LITTLE THINGS can have MAJOR EFFECTS in dynamic systems… like the medical devices business. Is this exploding? As an engineer – I can do that.. but as a bit of an academic and a senior corporate manager – I do that less now… And you can’t fool me on heads exploding, either… I say Mars Attacks & I know that it’s Bad Country and Western Music that does that… not Med Device Tax Rants… :. Jerry Robinson I disagree with your position – not you. The position seems to have no mobility or to be able to recognize elements of logic and example – when presented. That’s my opinion. Expert… A “real” expert means something different than what people traditionally think it means.. Most people think that an “expert” is always right – or nearly right. When actual research is brought to bear on the subject – something else comes up… First – Dr. Brown (at UT Dallas) asserts that an expert is someone with 10,000 focused hours in a subject. To have any QUALITY meaning at all, you MUST have a supportable definition of what an expert is. Second – Dr. Tetlock studied the role of an expert intently. He has a web presence with 80,000+ expert predictions – and tracks their accuracy. From this research comes the idea of the “accuracy of experts” study – and how accuracy may be improved. Tetlock – based on Berlin’s research – showed that a general set of skills with focused points of expertise – can be more accurate than a single “siloed” narrow set of expert skills… This really shows up at APPLE and many of the world’s best design schools.. T-shaped or “Pi-shaped” skill sets, as they are called.. Newspaper reporting (like John) are of these type of skills.. This knowledge can be applied everywhere.. For example: you might get a medical diagnosis from a doctor.. but what does the knowledgeable nurse say? If the diagnosis is adverse, then GET ANOTHER OPINION. . In the world of computing and software – I saw this OVER AND OVER AGAIN.. out of this world, Christensen wrote the core, definitive work on Disruptive and Sustaining Innovation. Third: If you are an expert – then you MUST recognize that the world is extremely dynamic – and this frequently leads to fractal behavior: in a nutshell, what used to work – may not work anymore.. (ie, GM, Ford vs Harley-Davidson) in marketing and sales… or for another example – how movie theaters actually make revenue. I appreciate that Karl has major expertise and skills in a part of the Medical Devices world. But it’s a big, dynamic world – and there are other elements of reality at play. No personal disrespect intended – I just see things differently – and am focused on a”yet-small” piece of the market.. Jerry Robinson Jerry Robinson Karl Schulmeisters Alan Brewer Joseph Schwartz Karl Schulmeisters Karl Schulmeisters * The math and economics dont bear out the claims made: Karl Schulmeisters Joseph Schwartz Karl Schulmeisters Karl Schulmeisters Karl Schulmeisters Karl Schulmeisters Karl Schulmeisters Karl Schulmeisters This is why I’m including you Mr Robinson in the incivility of the discourse. As to the Lorenz effect…. The interpretation you give is not one that Lorenz himself gave. The point of the so called “butterfly” effect is essentially a real world extension of Goedelian Incompleteness. Namely that when applying fixed rule, or limited sampling point systems to real world events, small changes in initial conditions CAN result in large scale backend results. but predicting exactly which direction the effect goes is highly invalid according to Lorenz. So applying this to the 2.3% device tax means that lacking deeper investigation, its quite possible the outcomes are beneficial rather than negative. Ive given you a logical explanation why for startups the outcomes could be positive and outweigh any negatives. Something that you’ve never directly addressed other than through ad hominem or appeal to ridicule (as John once again devolves into) Jerry Robinson I feel honored to be “level upped” in your estimation, Mr. Schulmeisters. Thanks! Ya know… I bought Dr. Lorenz’s book and read his papers.. multiple times… I don’t recall a discussion of Yodeling or of Godel. May have missed it. I don’t agree with your observation of Lorenz at all. I do agreee STRONGLY with the observation that “small changes in initial conditions CAN result in large scale result change”. I have spent a good piece of my day for 4+ years digging into this area.. so do “kind of” have some ideas on the subject. Given the diversity of medical device companies, some changes MAY indeed be beneficial. Then again, for many companies – it has not proven to be the case.. Your logical explanations – just do not handle the diversity of the observed medical device company universe. with 16K+ companies and only 700+ funded funded start-ups – there is JUST TOO MUCH DIVERSITY to lump everything into one simple, descriptive box. VCs do not set the majority of motivations for business start-ups.. really.. they don’t – not that I have ever seen in any region I have worked in.. One really key thing – missing in our discussions – has been the profound, HUGE difference in a software/application – versus physical hardware type application startup. From a cash flow standpoint, the differences are truly VAST. Karl Schulmeisters As for Lorenz and Goedell – I think you misunderstood me. Never said Lorenz cited Goedell. Rather that underlying the works of both those giants is an underlying commonality in the area of what is an is not derivable and provable in any system being applied to the real world. Joseph Schwartz Now, concerning the recession, the medical device industry has traditionally been little effected by economic downturns. Dental devices, yes, but orthopedic, not so much; the pain does not go away just because the economy is poor. If one needs a joint replacement, they generally wait until they can no longer bare the pain, then they have the surgery. I have been with Biomet for 19 years, and though sales grown slows slightly, profitability has been maintained throughout those years. So what was different this time? The severity of the downturn? Funny, no lay offs in this company occurred until the tax took effect. So, did the economy have an effect? Of course, but it was the tax that affected the bottom line enough to force lay offs. Anecdotal evidence, yes, but real life evidence no less. Finally, the lack of evidence that the tax is dumb and has caused job loss, one can base those claims on the evidence of prior taxes. Are tobacco companies doing better due to the high tax rate? Check your precious PEoD on that one. The result was companies going out of business and consolidation. Wait, isn’t that what we are seeing in the medical device industry? Hugh F. McCann, Jr Jerry Robinson I recognize an impediment – when I see one – in the 2.3% tax.. I ALWAYS wondered about the horrible payment system timing – of WHEN the tax gets paid.. it REALLY affects hardware companies bad… and in the long run damages companies, reduces overall revenues because of the timing, and will cost jobs. I KNOW that is is just ONE factor in opposition to starting a growing medical devices company.. there are many MORE impediments – also government created in cases – that oppose startups. I am NOT getting in a citations match here about this. I have things to do. I have companies to move along. I have products to build and test. REAL VCs are known by their thoughts, actions and the results of their companies. If in doubt, look at Khosla. VCs are not all alike – and too many “self styled” VCs mistake this process as just another type of Powerball – where they make all the rules. AVOID SUCH PEOPLE. THEY NEVER HELP – only HURT with the brain dead micromanaging. There is a place for Zombies – and it is not in the VC community. I am going to stop posting in this thread.. Said enough.. and Duct Tape follies don’t need to play a part here, either. John Eckberg Somebody pointed out that companies will benefit from this 2.3 percent tax. Now I can’t quote Kierkegaarde, Kant or Heidegger – can’t quote you no Dickens, Shelly or Keats…but I can quote Homer: Doh…. Of course it helps major companies: The 2 percent with more than 500 employees. It’s a major barrier to entry for start-ups, a difficult hurdle for existing small firms that now see a significant portion of their earnings confiscated by the government, with no return bump in sales because what, just 3 million have signed up for coverage – about the size of Greater Indianapolis and Greater Dayton combined. The tax doesn’t pay for the ACA by any stretch. Revenues are simply plowed into treasury. And it devalues companies that soon become takeover targets for global giants based in Ireland, Switzerland and the UK. Also, companies that have Big Pharma arms are going to get slam dunk new sales for heart prescriptions and what not. Lotsa money there. What’s more, big companies are diversified so they pay this tax on a fraction of their revenues as opposed to homegrown U.S. firms that sell in the U.S. market. Take GE (and these numbers are loosey-goosey because I have no time to deep dive into their Proxy and 14DFE and 10K but the numbers are close to reality for this purpose) Half their revs come from financial services. Of the half that’s left, half probably comes from wind turbines, white goods, areodynamics, idunno; so of the half that remains, it’s medical device sales or diagnostic sales. But half of those revenues are not going to be taxed because its international sales. That leaves 12.5 of revenues subject to this tax. What’s not to like? A tax on 12 percent of revs and 100 percent of your small competitors? Bring it on, most big publicly traded companies have decided. Meanwhile, otherwise thriving U.S. companies have a new dumb tax that claims 30 percent of earnings. Since earnings are often a reflection of value, this tax, basically, devalues companies, which then become takeover targets. And, finally, as for incivility – my guess is you’ve never spent a minute in a debate or discussion in Akron, Ohio. You’d find out what incivility really means if you had. Karl Schulmeisters Hopefully those are good starting points John Eckberg Here’s an entrepreneur who has a head-hunting firm in Waukesha, Wisc.: “I have been a medical sales recruiter for over 25 years and I am seeing first hand what the 2.3% excise tax is doing to eliminate jobs and opportunities in the medical device market place. This tax is a job killer and positions are being eliminated at a rapid rate with medical device manufacturers. When market leading companies such as Medtronic, St. Jude, Stryker and others are eliminating hundreds and even 1000 jobs as with Stryker, you know this tax is killing the medical device economy. This tax is anti jobs and pro tax and it is sad to see how many people are being affected by it across the country. Repeal it now please!” Or this physician from Puyallup, Washington, has some points to make: “I have a surgical device that I am now in the process of marketing to the major surgical device manufacturers in the US. I had the fortune…or should I say, eventual misfortune, of having dinner with the VP of sales and member of the board of directors of one of our country’s major medical device manufacturers. The purpose of the dinner was for him to evaluate my new medical device.The upshot of the meeting, he loved the idea, and thought it was a significant improvement not only over what their company had available, but better than any of the other competitive devices as well. Sounds promising. “He then proceeded to tell me that, unfortunately, due to the looming new medical device tax, “The president has stated that the ACA will increaset he number of patients available and thereby increase their sales to make up for that. Unfortunately, as a surgeon, I can tell you with utmost certainty that this reasoning is flawed. Not once in my career did I not use, or downgrade the quality of the medical technology or devices that I use due to a lack of insurance. And, finally, for now, an entrepreneur from Utah, a CTO, actually: “My company stands to benefit as we have a U.S. owned factory in China. Never the less I’d rather thrive on the business that I already can earn than see the job cuts in the USA that are inevitable with the device tax. Before it was just manufacturing jobs and now we are seeing engineering, purchasing, R&D and other professional jobs being off-shored as the device companies are left little other options in Maybe somebody can cut-and-paste these comments and send them to your favorite Senator who is still opposed to the repeal. My personal favorite is Ohio’s Sherrod Brown…why he hasn’t joined with most other progressive Senators in opposing this tax is a mystery riding a chimera. Karl Schulmeisters What you offer is anecdote by folks who perceive they have a vested interest. its not meaningful. sure you can cut and paste them. and it is not particularly consistent with being in a science based business John Eckberg John Eckberg So, too, this headline from February: The Decline Of Venture Capital Investment In Early-Stage Life Sciences Poses A Challenge To Continued Innovation. And this one from Investors.com from 2013, I believe: Venture Capital In Medical Innovation Declines…The first two sentences are quite disturbing: ” Venture capital investment in American life-sciences innovation is suffering an alarming decline. The number of new biotechnology and medical device companies receiving start-up financing has now fallen to the lowest levels in 18 years, according to PriceWaterhouseCoopers…” That same year one of the Wall Street Journal’s covey of otherwise boorish and unfair journalists woke up long enough to pen this story, no doubt reluctantly: “Funding dries up for medical start-ups.” In the interest of fairness, a Laura Lorenzetti, who is a Fortune Magazine something-or-another, found two start-up specialists to talk about the wonderful state of start-ups … booming because digital Karl Schulmeisters People who have a vested interest in something tend to see things from a perspective that they believe serves their interests. We have lots of evidence of this and its precisely why we use scientific method and double blind testing. Its not that people are dishonest. Its that we are imperfect. And no one has disputed that there has been a decrease in VC investment in medical startups. But nothing in your citation of the WSJ story or Fortune disambiguates that reduction from the expected lagging indicator of the greatest GDP crash in human history. Its important also to remember that VCs also need a stream of startups to invest in. And we have seen that in this crash – because the crash affected home equity nationwide in catastrophic ways, the ability for entrepreneurs to use their home-equity to start a business was crippled, and thus we saw a huge drop in “new business creation” which is the normal response to increasing unemployment. http://www.citylab.com/work/2014/07/the-troubling-decline-of-american-business-dynamism/375353/ So a reduction in entrepreneurial startups because of the mechanisms of the crash, in turn leads to a reduction in investment opportunities for VCs 3-4 years later. Fewer opportunities means lower investment. Yes and? Kathy Saint just to underscore that correlation is not causation. Consider that since 1978, new business creation has fallen by 50% http://www.citylab.com/work/2014/05/rate-new-business-formation-has-fallen-almost-half-1978/9026/ And at the same time top marginal income taxes have fallen by 50% and corporate tax rates by 37%. So are you saying that tax cuts cause a reduction in business creation? After all that’s essentially the same sort of correlative reasoning you are offering about the reduction in VC investment Karl Schulmeisters So Kathy – why did they opt to take the hit and not pass it on to the clients? John Eckberg Karl Schulmeisters John Eckberg Karl Schulmeisters John Eckberg Hugh F. McCann, Jr John Eckberg Here’s an anecdote for you, Prufrock, er, Paul, no I mean Karl. His name is Jeremy and he used to work at GE’s Acclarent. Army Veteran, Bronze Star recipient, changed careers to medical device and was laid Karl Schulmeisters John Eckberg Jerry Robinson come to Texas… it ain’t perfect.. far from it.. weather is annoying… but people do try…. If you are med devices – then you have to look worldwide and think in new terms of distribution… and delivery to consumers… Aflac is a good example of applied thinking…. It is a good day.. my daughter graduates High School TODAY… it’s been an adventure… all over Texas, the very best happens when HS graduation day happens.. Karl Schulmeisters but again… this has what evidence that it is tied to the 2.3% tax rather than cost of labor or the consequences of The Great Recession? GDP per capita in the DR is $5,195 USD/yr vs $45,863 DR is part of CAFTA. which GWB had Fast Track Authority on and put into effect as an Executive Order. So it seems to me that a combination of the fallout of the greatest GDP crash in human history and wage rates roughly 11% of those in the USA are the reason for the move. I don’t see that you’ve shown it has anything to do with the device tax. Your in a tough spot it sounds like and I can understand your frustration, but blaming it on something visible but of low impact is hardly a solution. I can point to a variety of policy actions that could have been done that likely would have prevented your situation – but the Device Tax isn’t one of them. Economics is economics – there is a reason its called The Dismal Science I truly am sorry for the situation you find yourself in. But this is a windmill that you are tilting at Jerry Robinson Truly… why are you so vicious to people here…? This is what we, and I include you here, have been sensitive and resisted for decades.. some people get off on vicious trolling. It fixes nothing and seems calculate to hurt other people’s feelings and such.. We aren’t discussing CAFTA here.. YOU stated that we should avoid politics… YET YOU KEEP BRINING IT UP.. so… you get to discuss politics – and others don’t? How is that helpful…??? How is it that you get to DECIDE what is acceptable or not in other peoples presentation reports of jobs lost? people hurt and suffering? Where is your FORMAL CREDENTIAL IN THIS? I certainly have not appointed you “dungeon master” or “referee”… Did anyone else say this? I don’t think so… Just so you can get in touch with your “human side again”: >>I truly am sorry for the situation you find yourself in. But this is a windmill that you are tilting at<< is callous, unfeeling, and I think offensive remark. MY OPINION - you don't GET to somehow MODERATE that opinion - and decide OTHERWISE.. Joe is moderator. He gets to decide - and trys to do a good job. NEVER have I seen that he "steps on people's" opinions or sense of self worth. IF he "pulls the chain" - it's been due to the sense of fair play involved..... The SUBJECT was the impact of the 2.3% tax. NOT CAFTA, NOT the GDP crash.. NOT what a bunch of UNNAMED, perhaps NON-EXISTENT VCs might think. EVERYTHING that people have brought up as observation, experience, and even FIDUCIARY RESPONSIBILITY - you have chose to blow off. Fair enough - that's your opinion. I actually THINK you might make valuable contributions - if you would stick to the topic and get off the pompous high-horse. Hopefully, I can level up again on the "uncivility" index... but.. when people in Texas notice that you really and truly have stepped in a "stinker" - then you MIGHT want to know this.. saves cleaning up the tracks later... Karl Schulmeisters No we were not discussing CAFTA, nor were we discussing offshoring to the Dominican Republic. But John has provided ZERO evidence that the company is offshoring because of the Device Tax. Even if that is what they told the employees, the real reason is that with salaries 1/9th that of the USA and CAFTA enabling the devices to be imported into the USA at reduced or no tariffs. Blaming it on the Device Tax, is in fact tilting at a windmill. there is nothing vicious in saying so. Its just economics – and economics is called the dismal science because it often gives answers that are unpleasant Sure John gets to have an opinion. But opinions that are contrary to the facts have a very unkind dictionary definition. One that I did not invoke. I’ve blown off nothing Jerry. I’ve pointed out that the anecdotal claims made are not evidence. And I’ve provided independently verifiable context that either refutes, or puts into question those viewpoints. As for incivility – you haven’t left the ad hominem from a post yet. Nothing John has posted links his situation to the Device Tax. And since he brought up his situation, linking it to the likely causes – namely CAFTA and the huge wage disparity between the DR and the USA is perfectly reasonable Hugh F. McCann, Jr Jerry Robinson Hugh is pretty clear here – above – and is directly in a postion to comment.. “does it affect jobs” – then the answer is “likely” yes. also.. no hominems were harmed in my responses.. As far as the vicious part goes.. I think that a number of people mentioned in this thread have been the object of a vicious response.. at least that is the way I see it. This is not a High School debate forum – and such tactics are not helpful. I referred to you making political comments – and that is accurate. It’s also accurate to say we don’t need to consider the background or motivations on what is happening now. JUST THE EFFECT – right? It’s my assertion that the 2.3% tax is harmful and cost jobs. It does so in a nasty and insidious way for hardware type medical devices – because of when the tax is paid. WHAT would have been the HARM in making this tax a part of the normal income tax structure? Making the payments due in the NORMAL course of business? instead of the cash flow damaging method in place now? I do NOT believe in accidents – and this one was considered… more cash heavy companies – find this a wonderful way to crush startups, new companies, and small companies. This is JUST SIMPLE MATH. It’s my assertion that the 2.3% tax is JUST ONE of a number of mechanisms designed to drive US makers offshore – or out of business… A FEW people will benefits – hundreds of thousands will lose out and suffer. This is NOT the first time this scenario has played out… We have the benefit of experience in many such EXTINCTIONS to draw upon. John posted lots of examples, names, and companies to illustrate his position. YOU ARE WELCOME TO CONTACT THE PEOPLE DIRECTLY to get more insight… that’s research… RESEARCH is good… Have you actually DONE THIS RESEARCH? IF not… then you are entitled to your opinion, too.. I feel that – for a startup – that it is extremely hard to play in the US only… you HAVE to be thinking globally.. when you do.. there are EXCELLENT PARTNERS to work with.. the DISINFORMATION is that you would do so for low cost. That is not true, at least to me. You work with people of like mind because they are among the BEST and MOST CAPABLE people in the world. Frequency – they do not have the INSANE burden to overcome that we have in the US for medical device innovation and manufacturing. They certainly have other issues… and that is why you can work as a group. But that is not a topic here, either – or at least not a major component of the topic.. John Eckberg But maybe he’ll get this. He seems to like numbers and this is what happens to the numbers because of this tax, according to the president of a company out of Atlanta: “We have lower net margins than competitors solely due to the our choice to keep “By doing nothing but moving my production offshore we immediately see around a 65% savings per unit – which becomes all margin.We had made the decision to forego the additional profit in order to preserve and expand jobs domestically and do our part in getting the economy working again, small as that may be. With this new tax we are faced with 2.3% on gross sales of the products. So for a product we’re selling for $90 that is $2.07 additional cost for every unit. If our margin on that piece after production costs, shipping to client, commissions to sales force, etc…is running about 26% currently it would be about $23.40 on the sale. $2.07 is a 9% tax on our net margins. For one of our products it’s 38% “If we move production of that same product overseas we save in the ballpark of $30 per unit in per unit costs. That is still a 100+% increase in profits post excise tax. As a small manufacturer we have to make tough decisions then. Do we continue to use top of the line materials and components or try to cut corners in order to preserve margin (although some have definitely “There needs to be a distinction between those manufacturing domestically, paying decent wages,employment taxes, providing benefits for their workers, etc…and those who bypass our system by offshoring production.” Letters to Senators still work. Particularly now. Drop one to your Congressman, too. Jerry Robinson I think we have to be a lot more creative – than letters… Karl Schulmeisters John Eckberg Karl Schulmeisters * an 80% reduction in your labor costs vs Its the labor costs. After all, you could always go to your employees and say – we all have to take a 3% pay cut (most of the costs are labor costs but you do have some materials costs). Heck even a 10% pay cut is something you would take to keep a job in recessionary times. But the management of these companies is not doing that. Why? Why instead are they opting to reduce their labor costs by the full 89%? That’s not driven by a 2.3% increase in COGs. R&D got curtailed by the greatest implosion in GDP history. Not by a 2.3% increase in COGS that you can pass onto your customers. That’s just not plausible John Eckberg John Eckberg Remember, we talked earlier about GPOs and IDNs setting prices and no price hikes allowed? Remember, we pointed out how three- to five-year contracts prevent cost or any increases being pass through? Remember how 40 percent of the hospitals are operating in the red? Remember how prices not being able to float with cost of living increases has keep prices illiquid for about two decades now? At just about 6 percent of the cost of healthcare. Remember any of that? Remember how you wrongly thought this tax was imposed in 2009 and then despite all the evidence to the contrary, that it actually was first collected in January 2013, remember how in the face of all that evidence you continued to assert that 2009 was the year it was collected? Hugh F. McCann, Jr Hugh F. McCann, Jr John Eckberg That’s a headline nobody likes to see. Here’s the top of story from October, a story that suggests that next month, the hammer falls on lots of jobs out there in California. Think a journalist will cover the story and explore the causes? Fat chance… “Volcano Corp. is laying off another 170 workers in Rancho Cordova, where it expects to stop manufacturing altogether by next July. It’s part of a cutback that’s been underway since the medical-device maker moved its headquarters to San Diego and built a duplicate factory in Central America.” Read more here: http://www.sacbee.com/news/business/article3440085.html#storylink=cpy Hugh F. McCann, Jr Jerry Robinson This whole story has been in a modern phase of trainwreck since the 1930’s… a lot of the damage is also self inflicted… There is a sense may be that what is said here does not matter… I think it does… I know it does, since I have really dug into what Lorenz’s research showed… Anyway… back to typing for me… HS Graduation last night in Richardson, TX… Class Pool party afterward till 4AM in City of Garland water park… Glorious day!! Dan Stipe Hugh F. McCann, Jr Jerry Robinson There comes a monning when the CEO comes in – an says – “we are going to make a change”… some single thing may have driven that… One of the most STUNNING tipping points in recent business events… may be EVER… is that late one night Gates was pounding on playing on the internet… He used to use a pseudonym when he did this… and he just stopped for a moment and realized that in all this internet stuff… there was no Microsoft… There was a point – just like the mythical story of Newton and the Apple… There was a point – that things changed…. Next morning, so the story goes, Gates directed EVERYONE to change direction – and pursue this “internet” thing… I hope full details of the story are collected and verified.. It is really, really, really an important point in the computer story… and may be in human history.. Tipping points happen… events are quantum – so you tend to look for them – even when they may not be there… Hugh F. McCann, Jr Karl Schulmeisters Jerry Robinson It’s kind of like the “Newton and Apple” story.. something there – but it has moved to the realm of myth, in many ways… Because the result of this process is empty buildings, disappeared companies and jobs, and more.. When were you last at a shoe factory, textiles mill, or on a medical devices production line? SPECIFY what you mean by independently verifiable.. I can VERIFY that there are empty buildings all over the Midwest where the jobs went away… If you are SKILLED at this business, then you MUST understand the process… seriously… it you Don’t – then it’s like crossing a busy express way – by first closing your eyes.. Hugh F. McCann, Jr Karl Schulmeisters Karl Schulmeisters Leanna Levine Karl Schulmeisters Jerry Robinson Re casual claims… If you want to argue, then you will have to pay. Monty Python set a rate of a quarter per argument.. (or something like that) – I charge more – say $125 an hour.. paid in advance – you can use paypal.. You need to think about what you are saying.. companies that are DEAD and gone…. sometimes with only the slab foundations left – don’t have books left.. and you DON’T get to win these kind of arguments by default because of silence.. right? you are, after all, after facts – not high school debate wins… Hugh F. McCann, Jr Jerry Robinson I had a friend hit hard by the crash… he picked up a cheap RV and moved to Slab City.. near the Salton Sea.. even that is drying up now… I enormously respect your stubbornness, Hugh…. I appreciate how hard it is to fight around these situations… The 2.3 will do it’s damage… I just don’t think people really appreciate the cash flow impact on a stressed infrastructure… Karl Schulmeisters John Eckberg You own a small company that makes nephrostomy catheters. It’s been a long haul but after six years of effort, your company finally achieves black ink with profit margins that are not great but hey, better than grocery store margins. Your profits, as compared to revenues, are the industry average of 6 percent on annual sales of $10,000,000. So that’s a profit of $600,000. You pay a 30% federal tax rate because you’ve created jobs and have another credit in R&D. But that was in 2012, before this tax had to be collected. (I’d say 2009 like Karl thinks and has repeatedly written but that would be something else he has penned on this chat string that is flat out wrong so I’m not saying that). Then 2013 comes along and this tax is imposed, a tax that must be paid every two weeks, whether your client base is a bunch of no-pays or slow-pays or not. Doesn’t matter. You book the sale. You owe the money. The 2.3% of your top line, which is paid before the first employee is paid, the first bank note is paid, the first royalty payment is made, the first utility bill is paid, now bleeds another $230,000 from the balance sheet, leaving your company with just $370,000 in post-tax earnings. Prior to this tax, your taxable income after deducting for wages, interest, depreciation and amortization was somewhere in the neighborhood of $2.1 million, give or take a dinar or two. That tax tally was $700,000 annually to the feds. The new, $230,000 owed from the sin tax is one-third of that amount. When you factor in state and local taxes, it gets worse. As you can see, it also gets worse for thinly profitable companies. Keep in mind that of the 220 or so publicly traded companies in this space, only 1/3 actually made money last year. Public companies have average profit margins of 10 percent, a bit better but not great. As an aside, what I know about this side of the business pales when compared to Jerry and Hugh. What I do know is that this tax has chased companies to near shore locations. Next month Volcano has announced that it will close a factory it used to run that was just outside Sacramento in Rancho Cordova. The 170 jobs lost, the last in a wave of lay-offs that started when this tax was signed into law, will still exist – it’s just that they’re going to exist in Costa Rica. John Eckberg Hugh F. McCann, Jr Hugh F. McCann, Jr Karl Schulmeisters So that’s now a profit of $600,771. So you lost a whopping -$771 from your balance sheet. IOW Because you were a good manager, and you traded off lower sales but at a higher price you actually were able to use the tax increase to INCREASE your profits. Now the fact that previously your tax rate $700,000 (which is unrealistic since as a startup you are taking an R&D deduction ) and it is now higher, is frankly irrelevant. >>Keep in mind that of the 220 or so publicly traded companies in this space, only 1/3 actually made money last year<< Note the caveats here.
* Publically traded * On The Books Profit (which comes after writing off all manner of costs against the revenue stream - which is why we look at EBITda in the growth and startup world). So given that you are an R&D business. you are eligible for a 20% deduction in your tax rate. So instead of paying 30% - you actually are paying 10%. Further more you get to deduct COGS - so your actual Federal Tax bill looks like Profit = 0.6% of ($4,990,000 x 1.994 x 1.03) ==> $614,914 for a net tax bill of $291,491 So none of this has anything to do with Volcano moving to Costa Rica. The reason for moving to Costa Rica is that under CAFTA, Volcano can move to Costa Rica and sell in the USA without import duty. And the wage rate in Costa Rica is 12% of the wage rate in the USA. after all.. lets compare: * 2.3% increase in COGS vs Which is the plausible reason for the expensive decision of moving a manufacturing plant and retraining 170 employees? hmm? Karl Schulmeisters you are leaving out things like the R&D deductions Therefore you are misrepresenting the facts of the matter. Why? Karl Schulmeisters So again – the fact that you find a need to seek to attack me personally rather than doing an actual valid and fully inclusive analytic analysis – frankly speaks volumes in and of itself. Hugh F. McCann, Jr John Eckberg Karl Schulmeisters The politics of the ACA are different * you don’t have a direct push/pull. For example the Senate Dems can rely on a filibuster to keep any bills they don’t like from getting to the Floor of the Senate. They don’t have to openly oppose the issue in committee. In fact they may want to be seen as being supportive of a repeal, but then insist on it being done in a Budget Neutral manner knowing full well that such a requirement is a poison pill (the House won’t raise taxes elsewhere and the Dems in the Senate will filibuster or the WH will veto – any cuts to Obamacare programs) * its very clear that the GOP has been trying to dismantle the ACA wholesale or piecemeal since 2010. So they are not going to call a balanced panel of testimony, and they control both Houses. * people who feel impacted will speak up. people who don’t feel impacted won’t. It doesn’t matter if they actually WERE impacted its their perception. I’ve never said that the folks are being dishonest about seeing 11 coworkers let go or jobs be off-shored. The issue is whether there is evidence of any sort that this is the result of a small excise tax that can be passed on to the customer without measurable reductions in sales volume. Consider that the greatest GDP crash in human history took place in 2008/9. We were shedding 700,000 jobs/mo in Jan of 2009. Now many of theses jobs had COBRA benefits and extended unemployment through Dec of 2013. Furthermore States received block grant program subsidies through 2010 which many states used to extend benefits, keep state workers employed etc. So this means that we would not expect to see a drop in healthcare expenditures in 2009 or 2010. and indeed what we see is a plateau in 2009 http://healthcare-economist.com/2013/01/09/2011-national-health-expenditures/ but the failure to have a recovery past 2010 and the cuts to state grants meant that a lot of state workers (mostly teachers with good healthcare benefits) lost their jobs in 2010. Again with COBRA that meant their healthcare expenditures carried through the middle of 2011. So a medical service providers would not have seen a reduction in receipts until middle of 2011. That means their re-ordering of medical devices would not begin to fall until late 2011-2012. That in turn means that mfgs would not see their revenues drop in ways that require layoffs until 2012-2013 And that then is coincidental with the advent of the device tax. But coincidence is not correlation, much less causation. And no-one has shown any actual basis for even a correlation, much less the claimed causation Hugh F. McCann, Jr John Eckberg Hugh F. McCann, Jr Hugh F. McCann, Jr Hugh F. McCann, Jr Karl Schulmeisters As to R&D tax credits – John its the IRS’ own site. As to a Canard alarm – sorry price hikes are part of the healthcare business and have been for decades. Suddenly magically saying they go away is playing games with numbers to make an imagined scenario set of numbers come together. yes GPOs and IDNs demand 3-5 year contracts. SO and I’ll type very slowly so maybe you will read what I write this time – because it is tiresome to have you misstate what I wrote repeatedly. WHEN in 2009 – the Device Tax was announced… assuming a WORST CASE scenario where you had just signed a 5 year deal with a GPO or IDN in August of 2009…. when the Device tax did kick in, you would have been “unable” to do a price increase from Jan 1 of 2013- August of 2014… A worst case scenario of 21 mos. . OTOH if it was only a 3 year contract, then from August 2009- August 2012 meant that by the time the Device Tax kicked in, you would have renegotiated your contract to enable a price increase. Now realistically, since medical inflation was running about 6%/yr EVERY mfg had a price increase built into their cost contracts. And since with the advent of the ACA that medical device inflation rate dropped to 3.5%, you would have had a 2.5% cushion built in that you could continue to use to offset the 2.3% increase. That is unless you are an incompetent business person and you ignore what congress is doing until your tax accountant tells you how much you owe. And if you are that incompetent, you deserve to go out of business Hugh F. McCann, Jr Hugh F. McCann, Jr Joseph Schwartz “Profit = 0.6% of ($4,990,000 x 1.994 x 1.03) ==> $614,914 OK, that is roughly 10% of your allegorical company profits. “and you own an excise tax of $230,000” Which is roughly 37% of the company’s profits, and you call that a measly 2.3% tax? (Leanna, that is how a 2.3% tax becomes a 30% tax; in this case 37%) Now add them both together as you did “for a net tax bill of $291,491” When we analyze this with “flash card math, the federal government has now confiscated nearly 50% of that company’s profits…not even considering state and local taxes. And you still claim it is for wages a company locates offshore? Simple math, not complicated P-whatever formula that does not represent real life. Hugh F. McCann, Jr Jerry Robinson One odd result… R&D projects much get sped up – and it forced development outside the company when possible – so staff can be cut.. this is partly from the 2.3% – and partly from the offshoring strategy…. So… outside contracting and development companies will pick up some more business for a while.. I expect… It all REINFORCES the necessity of starting to think of a global sales strategy – first. The US is increasing in hostility for an economic climate.. I still think this is a very good place to design and develop – and these days the developers are very much from all over the world.. A real plus for design, I think… Jerry Robinson You appear to be a master sailor… I sail too.. I like working on boats… I make a day sail plan and sail intensely to the conditions at hand… So too, is the art of steering business through a hostile business space… Hugh F. McCann, Jr Hugh F. McCann, Jr Dan Stipe “Still wondering if deflate gate will disrupt the Patriots chance to repeat….LOL Now, John says that Emergo puts a positive spin on everything. I don’t see any spin in that data, nor in their accompanying analysis. Jerry Robinson Great rumor to start.. Hugh F. McCann, Jr Joseph Schwartz Hugh F. McCann, Jr Joseph Schwartz Joseph Schwartz Hugh F. McCann, Jr Joseph Schwartz Hugh F. McCann, Jr Karl Schulmeisters Out on a Texas Lake in late July – when 115 in the afternoon.. there may be wind.. . somewhere else.. Fortunately, with my 12V fan – I can generate some local wind.. Hugh F. McCann, Jr Hugh F. McCann, Jr Karl Schulmeisters Jerry Robinson Joseph Schwartz Karl Schulmeisters Karl Schulmeisters Jerry Robinson I don’t race boats.. I have worked with Sea Scouts (ie, boy scouts on water) – and it was fabulous. When a young person takes over the tiller the first time – it’s magic. It is certainly not about me “teaching” you anything on wind. I like wind conversion systems for salt water desalinization.. it has extreme potential to power fresh water conversions. PV=nRT mostly, ya know… So why does sailing have to be competitive? I think there is a lot of art in making the right kinds of boats, for sure… Jerry Robinson Joseph Schwartz Hugh F. McCann, Jr Karl Schulmeisters In the case of medical device taxes those instructions were available from Sept 2009 onwards even though the “start” of the course was Jan 1 2013. Now less skilled players/sailors just whack away with no planning. should we be designing courses to accommodate them more than the player who pays attention? And while wind and other course conditions make a difference (your cashflow metaphor ) the layout of the course (contracts and durations) and your own equipment (pricing and COGS) are affected by the playing surface (damp grass, 2.3% excise tax). But because the playing surface affects everyone equally (2.3% excise tax) its not going to make or break how you end up relative to everyone else Jerry Robinson I think planning a course means using the best data you have.. but on the water or in a business enviroment – conditions change and you MUST adapt to the reality of conditions… looking a 2009 is not going to help a lot in a 2015 plan.. – especially when you are out on the water….. Ranger 26 was an excellent balance of potential trailer sailer and on the water boat… My boats are not as good… but still fun… Hugh F. McCann, Jr Hugh F. McCann, Jr Karl Schulmeisters Karl Schulmeisters Hugh F. McCann, Jr Joseph Schwartz “Now less skilled players/sailors just whack away with no planning. should we be designing courses to accommodate them more than the player who pays attention?” You assume if they did not pass the tax on, they did not plan. A good strategy involves more than one action. Many CEO’s planed by reducing work force, reducing R & D budgets, M & A where advantageous, reducing production costs (though most were unsuccessful at that) as well as passing on the tax when they could. You just can’t seem to accept that anything other than passing on the tax, is strategy. I must also disagree with this statement: ” But because the playing surface affects everyone equally (2.3% excise tax) its not going to make or break how you end up relative to everyone else ” The metaphor breaks down here if I understand how the excise tax applies (not to mention other taxes & wages). If a device is made in the USA and is sold, even to a market other than the USA, does it not come under this tax, since it is sold in the USA? That makes it not an even playing field. Jerry, I must also disagree with you, The Ranger, with a fin keel, was never intended as a trailer sailor. I wish it was, then I could reduce costs and still keep it. Perhaps you are thinking of a different boat. It was designed as a balance between a racer and a cruiser, making it very fun to sail. Karl, that IN-14 looks like a blast to sail…and under an unlimited asymm… Jerry Robinson why do you feel the need to attack the “average golfer”… ? < We hauled one – a R26 around on a trailer – for scouts.. parked it in the lot, sometimes… used a swing arm to lift and drop in the water… Boy… it was AWKWard to haul – but possible.. never intended – was dead right… but.. things get “hacked” sometimes.. trailer width was 8’6″ for street legal.. comes close…. :> There is a fellow in Okla. who can customize trailers for it… John Eckberg “2.3 percent affects all medical devices mfgs by raising their COGs by 2.3%” Nothing is further from the truth. This tax clearly is unjust – skewed to benefit diversity of holdings and multinational global giants. We’ve been through this before: a global giant like Koninklijke Philips N.V. is a Dutch diversified technology company headquartered in Amsterdam with primary divisions focused in the areas of electronics, healthcare and lighting. Known as Philips, it gets half its revenues, for instance, (I have no time for 14DFEs or Proxies or 10Ks) from TV sales to hotels. Of the half that’s left, half of those revenues come from lighting or kitchen appliances or what not. Of the half that’s left, assume it’s medical device diagnostic revenues – all of it. Okay, so that’s 25 percent. But wait, there’s more. Half of those revenues come from International sales and are not subject to this tax. So Philips gets to pay the medical device tax on just 12 percent of their revenues – instead of the lucky U.S. company that pays it on 100 percent of the revenues because it only sells in the U.S. This tax is unfair, punitive and needs to be repealed. John Eckberg It concludes there on page 1 that a majority of US companies did not make major changes in response to the US medical device excise tax. What’s a major change? Fuzzy there. What we do know based on the one question they asked on this topic, what we do know in the details is that one of four companies that employ more than 250 reduced headcount. Another one in four companies reduced R&D. That means that half the companies that employ more than 250 reduced headcount and/or reduced R&D. Look closer and find that 42 percent of the companies that employ 50-250 cut jobs and/or reduced R&D. I’d say that those acts constitute major changes in response to the tax – yet Emergo think, meh, no big deal…. Karl Schulmeisters Karl Schulmeisters Karl Schulmeisters Karl Schulmeisters Jerry Robinson Like he said – a hard part is keeping it in the water – in a slip.. if you can trailer – then you can work on it yourself and save a lot.. I had a Columbia 28 for quite a while.. It was a magic place to be at night on the West Coast (Dana Point).. At 6500# – it would have been very difficult to trailer.. I am always amazed at how different water conditions are on the West Coast versus the Gulf Coast… Jerry Robinson Jerry Robinson Dumb or not.. the 2.3% effect causes people to lose jobs.. that was the point in this discussion… I think, for reasons pointed out – that is just one more in a series of things that really impact US companies. Karl Schulmeisters Karl Schulmeisters Karl Schulmeisters Jerry Robinson In fact – this is BIG PART of the dissertation I am writing.. About how ATT&McKinsey did an early analysis of projected cellphone subscription growth – between basically 1983 and the year 2000. McKinsey projected 960K subscriptions.. there actually were in excess of 109 million.. McKinsey grossly underestimated the size of the market.. AT&T broke up during those days and later had to buy a more mature cell phone provider. But.. McKinsey really, really were the experts on the block… They were “wrong” – but not dumb at all!! Based on the information they had – and the assumptions they made – the report was a good one… BUT.. conditions changed.. Tetlock studies this intently.. he studies how the “accuracy of Experts” play into the accuracy of expert predictions.. Which is what you comment on – Those managers may have made some bad or incorrect choices – but that does not make them dumb.. They aren’t. Tetlock has 80,000 + predictions logged into his data base – and the results are enlightening.. It does bring into view the value of good backup plans – and protections… This spot applies to the stock market – and related in extreme volatility.. again.. more predictions.. Nassim Taleb is and was a master at understand the downside of such economic predictions and taking a financial position in them. Not dumb or incompetent – just wrong this time.. In any event.. the question was “the effect” – lost jobs.. I think jobs were lost – you can call up people at companies and ask them – and why… Jerry Robinson People more expert with trailers had some other recommendations, as well.. John Eckberg Here’s another anecdote for you to dismiss as uninformed or not credible. It is from an Indianapolis device company employee: “The 2.3 percent federal medical device tax is an innovation-crushing measure that will and HAS already negatively impacted the med device & healthcare industry. Just look at the recent headlines now, Medical device giant Stryker, cut 5% of of its workforce in November specifically citing “The Affordable Care Act” and the 2.3% medical device tax that comes with it. This is only a sign of what’s to come.” Karl Schulmeisters OTOH by putting it in their contracts they would have been in a better place with Obama being reelected. Its just bad planning. As to your quote John… the employee is offering ZERO in the way of well reasoned and supported claims. Yes Stryker cited its layoffs. but consider. If you are Stryker management, and you have to layoff 5% of the workforce and you have a choice to blame * Economic plateauing because of a slow recovery that you failed to properly plan for or Which one is more palatable to use? Which claim has the potential for helping your business in the future? Hugh F. McCann, Jr John Eckberg John Eckberg Hugh F. McCann, Jr John Eckberg ,p>Karl Schulmeisters Karl Schulmeisters Hugh F. McCann, Jr Karl Schulmeisters And this focus on “illegals” has nothing to do with the issue at hand Hugh F. McCann, Jr John Eckberg It’s not a 2.3 percent increase in COGS. It’s a 30 percent tax surcharge. This tax is paid every two weeks. This tax, a sin tax, claims $1.8 billion annually from balance sheets of companies in this space. Assume each dime of that tax would have otherwise gone to job creation had it been left on the books of companies in our nation’s most innovative industry: that’s 60,000 research jobs that might have paid $60,000 each (and created three other jobs indirect in local towns, cities and hamlets) in the two plus years this tax has been in place. Four of five Senators want this tax repealed, including some of the most Progressive Senators in that august body. Two Houses of Representatives, in a strong bi-partisan vote, have repealed this tax. Another House is scheduled to hear the repeal later this month. It was the wrong tax at the wrong time on the wrong industry and now, patients are paying the price. We can argue about this until kingdom come: me telling truth, you repeating canards. In closing, here’s another testimonial from somebody in the medical device industry, who, in your estimation, has no credibility: “Our company (a medical device company) was seeing increases in sales of 10%-20% month over- month, but regardless, they let 30% of their work force go because they were “not going to hit their number” in 2013. I am positive this tax had something to do with it.” Rodney (Rocky) Bailar John Eckberg Here’s another one, this from the president of a Vermont firm that illustrates the unfairness of a tax on revenues: “As an owner of a small medical device company that manufactures infusion devices it is us who will bear the brunt of this tax. Many small innovative medical device companies use the larger players to distribute our products as the costs to establish a sales and marketing program are prohibitive for us. The way the tax is structured it’s the manufacturer who pays the tax even if it’s a small company and the distributor is a multi-billion dollar corporation.” Karl Schulmeisters John Eckberg A product made in the U.S. is taxed at 30 percent, assuming a handful of modest credits for R&D and job creation, then the device tax equals another 9 percent of earnings, and finally state and local taxes of, say, 6 percent, for a grand total of 45 percent tax rate on earnings. Same device made in Costa Rica: zero percent corporate tax rate, the 9 percent of earnings equivalency from the device tax, no state or local taxes for a combined tax rate of 9 percent. You are the GPO and you don’t care where products are made – which product are you going to buy? How is there any room for a price hike in that equation? And for that matter, where do you build your next medical device factory? Canton, IL? Or Tamarindo, Costa Rica? Or Baja, Mexico? Or Limerick, Ireland. This mess was not created by our President but landed in his lap from a Senator who wanted to punish medical device companies. Our President has NOT indicated that HE will veto this measure. Rather, his staff indicated they think the repeal should be vetoed as a statement of administration policy….bit of a difference between that and our President vetoing a measure. Our President has been mum on the question. https://www.whitehouse.gov/sites/default/files/omb/legislative/sap/112/saphr436r_20120606.pdf Jerry Robinson You live in a bit of an Ivory Tower with a large bank account.. That’s the only thing that can make sense here… Here is why I say that….. * CASH FLOW – If you make software, there is little cost in making “product” and sticking it on the shelf.. There is a small support cost – and there is a substantial upfront development cost…. If you make HARDWARE THINGS, then there is a physical thing that has to be (a) paid for materials, (b) paid for repair of things when they do not work (ie, manufacturing product on line), (c) paid for materials – in products – on the shelf – until they are sold – if they even get sold, (d) reserve costs that apply to potential recalls, warranty repairs, and just plain “customer did not pay”. HARDWARE THINGS are MUCH more difficult to make – and HAVE MUCH WORSE CASH FLOW IMPACTs… * “BORROWING” – small companies are always BEHIND the curve when it comes to having money to manufacture.. ALMOST ALWAYS – you have to COUNT on your own internal resources to make things.. if you had an INFINITE POT OF MONEY – then this is not the case.. but I have NEVER seen that situaion happen – even if money WAS AVAILABLE – because it gets throttled by the accounting folks – and probably rightly so… So by this point – you are assuming I am “full of it” or “wrong”.. let’s change your mind… Get out of the Ivory tower and infinite bank account mentality… GET a LONG piece of paper… clean to start with.. a roll of white plotter paper is good… Draw a line down the MIDDLE of the paper – left to right.. in the center – horizontal.. Above the line – is cash… Below the line is actions… Below the line – on the left – Starting on the left – begin with the DECISION to build “x” number of units – on the bottom left.. then go time wise to the right – with each thing that has to be done – to make X number of units… have to buy parts .. have to test.. have to assemble – someplace – package – repair the ones that don’t pass the manufact. test… Just draw out all the items that have to be physically done.. this is what every medical device build process does.. Above the line – on the left – you have two kinds of cash.. what I pay now – and what payment obligations are incurred… GO ACROSS THE PAGE.. on the top.. what do you pay and when? what cash comes out of the bank account? what are the pending debt obligations rung up… AS SOME point – at the end of the process – on the FAR RIGHT – you have built products.. sold some – have some potential exposure – and hopefully reach a “break point” along the way.. where CUSTOMER PAYMENTS incoming – have met the outstanding cash and obligation requirements.. you aren’t done – but a long stretch.. Remember – the IRS and State view a box of parts on the floor.. or dead product that does not work – awaiting repair – as the same thing as cash in the bank. YOU might see it as unfortunate experience – THEY see it as cash.. but will not take a box of excess parts and dead units in as payment. Jerry Robinson Right when the company was in a MINIMAL CASH POSITION.. you spent money to build products – and you encountered debt to make product… You have to pay the FEDS withing 14 days of booking that sale.. Where does that money come from? From your infinite bank account? It does not exist.. From BORROWING money from loan sharks? that’s expensive.. you observed that they want 20% – reality says even more.. The WEAKEST SPOT in the cash flow chain gets HIT to pay this tax.. and since it takes a while to sell all your medical devices – it just keeps building up over months.. LOOKING at the cashflow process… It’s a killer.. of jobs – and a destroyer of manufacturing – of product DEVELOPMENT – of R&D, and a killer of US Manufacturing… It’s simple… If this was just about your COG or PEoD, and you had that infinite bank account to pay bills with – then MUCH of your argument is right.. Wouldn’t matter when you paid – and life is good.. but it doesn’t work that way… But that is NOT the situation… It’s different.. Its very much like you having to pick up a HEAVY, AWKWARD load – and holding it… barely – and then someone sticks a 2.5 pound weight – at the end of a long stick – in your arms. Easy to drop the load, right? By this analysis – you SHOULD be able to hold a 2.5 pound weight on your belt clip – with no problem.. Ok… I can see that. If you put that SAME 2.5 pound weigh on the end of a 5 foot long stick – and hold it straight out with your hand – parallel to the ground.. IT”S NOT THE SAME THING.. Try this – do this test – and then come and talk about TRIVIAL and NO PROBLEM. AN HONEST TAX would have been to simply tag it on at the end of the normal taxing process… So.. in an ordinary tax cycle, you pay income and state tax. Just a 2.5% tax on sales at that point – HAS A COMPLETELY DIFFERENT EFFECT than 2.5% – due 14 days after “booking” as sale. UNTIL you REALLY UNDERSTAND THE DIFFERENCE that these two approaches make -then you WILL NOT UNDERSTAND THE REALITY of what is going on.. IF you REFUSE to understand or at least acknowledge the difference – then you are not qualified to comment on the issue. So.. WHY did the “lunatics” who wrote this law – require an entirely new way of paying it? Why did a WHOLE NEW ACCOUNTING STRUCTURE HAVE TO BE IMPLEMENTED – and the associated cost/risk? Why did this rule get written in such a DAMAGING FASHION? well.. NOTHING happens by accident.. people who wrote this rule calculate it out… NOTHING happens by accident – who will benefit is the real question – and you can’t even get there – until you can see the cash flow effect.. just get a roll of paper – and try this simple test out.. Karl Schulmeisters This notion that my view is based out of infinite $$ is anything but. so you have a $103k accts receivable that is net 90. since you are supposedly 6% profit that means your COGS were $94k (remember the 3% is your ACA markup) So and on that $103k you owe $2.4k ….. So you borrow $97k You pay your suppliers and your staff $94k That’s $101.2k. But your sale was $103. you made a profit. But in reality that 6% profit is AFTER your ACCTS rcvbl costs so realistically we are talking about an 11% profit ie $11.3k So your real COGS was $87.8k. to which you had the $2.4k of taxes. so that’s now $90.2k. your 5% cost of the ARL will be $4.5k So that’s $94.7k. you get paid $103. So you pocket $8.3k now whether or not you think the tax is dishonest or whatever… you have not shown that it is in any way “a killer of US Manufacturing” you keep making up this mythical problem of Net 90 but that’s a normal accounting process and a normal Accts Receivable lending process. In fact this is such a normal process, that if it goes south the economy implodes – which is why Cash for Clunkers was so brilliant … but that’s a completely different opera Karl Schulmeisters Jerry Robinson First – I am not proposing or saying anything new. BUT – you still don’t seem or want to understand what I & others are saying.. You assert that it won;t break a company.. but in ADDITION to all the other crap that companies have to deal with – it certainly can. ALL along – I have satid that there are MULTIPLE things working against companies manufacturing here. This is ONE MORE PROBLEM – and the Cash Flow impact is dramatic. Second – OK… let’s say you CAN”T borrow money… not 97K for 90 days at 20%. And “even if you could” – there is a a cash cost and impact. There is also the cost of a second method of tax accounting – that has DOES cost money and DOES increase tax assoicated risks. So when the state and FEDs come calling -they can audit for NEW things – and take up MORE OF YOUR TIME and make you EAT THE EXPENSE. RIGHT? Yes Karl.. some companies DO NOT borrow the money – others can’t. so… redo your analysis.. Instead of paying the Gov’t at the end of your tax year – you get to pay his new tax NOW – and there is a compounding effect there as well. Third – I really don’t need to show you anything. You do not, as I understand it, have to deal with the IRS calling to audit your 2.3% payments – and do not in fact manufacture things. This is not aimed at you – but it is to say that people IN THIS POSITION of dealing with THIS PROBLEM – are saying it IS a problem – and DOES ELIMINATE JOBS. Do “I AGREE” with all of the evils lumped onto this tax? no… Doesn’t mean that it still does not elimnate jobs.. which what the point.. So.. In your analysis.. ASSUME that you can not borrow your 97K for 90 days.. and carry on.. where does the money come from? This is the dilemma that high growth and startups deal with… WHen there ISN”T funds free to pay the tax? how to solve the problem… Fourth.. Normal processes do not excuse difficulties of dealing with the problem. SOME COMPANIES mention the net 90 day expectation… frequently – that is an average – and more companies also take longer. Brother.. . the economy is imploding.. when 40% of governement expenditures are “printed out of thin air and not backed up by revenue” – there is a problem.. when 55 million Americans are on food stamps – and can not find work – there is a problem.. when offshoring is subsidized by our own government – and imports are subsidized as well.. there is a problem. I am glad you eat well. A lot of people don’t. that’s a problem. Jerry Robinson In a 4000 character forum.. you want to see excel spreadsheets? How about you do some “actual research yourself” and build a try survey monkey research questionnaire? Make it neutral – and send it out.. then you can FOLLOW UP for more details.. get some real answers.. That is.. if the companies you send the survey to – have people left to answer the questions and have the patience to deal with academic annoyance… Karl Schulmeisters Karl Schulmeisters Karl Schulmeisters Karl Schulmeisters Jerry Robinson Jerry Robinson Jerry Robinson Self fund to grow -and you become EXTRA sensitive to impacts on your cash flow.. which the 2.3% is… WHY would the govt require a new type of accounting system for paying this “tax”?? Why not just use the one – already in place? Doesn’t that question get you curious? A second accounting process cost extra money – for the IRS, for the company, and all of it takes more time.. Your observation is that it is “minor and irrelevant”.. mine is just the opposite… Those people spending the time DOING THE ACCOUNTING – and the AUDITING – get paid. that money comes from somewhere.. for the company, there could have been R&D or intern jobs… instead.. lets just count beans in new and exciting ways. so.. your foundation – about borrowing money – is just flat wrong.. DO YOUR OWN RESEARCH and base disagreements on facts.. not your “expert opinion”… which I think is wrong… :> As always – with 14K+ med device companies – people and companies do things differently.. I know for my own efforts in start-ups – I don’t plan much on the “sugar daddy” method of startup.. Jerry Robinson Karl Schulmeisters If you want to self-fund a hardware startup you will need Accts Rcvbl lending even more. so that doesn’t have any really change here. That’s part of managing cashflow. And the interest you pay on Accts Rcvbl is part of your deductible COGS Now why the “second accounting system”? From Ernst and Young’s viewpoint it doesn’t exist http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0CDYQFjABahUKEwjly-uw9oXGAhXFtxQKHQMmAKk&url=http%3A%2F%2Fwww.ey.com%2Fpublication%2Fvwluassetsdld%2Ftechnicalline_bb2439_meddeviceexcisetax_21november2012%2F%24file%2Ftechnicalline_bb2439_meddeviceexcisetax_21november2012.pdf%3FOpenElement&ei=k5h4VaW2B8XvUoPMgMgK&usg=AFQjCNH-4zRWePKIpye3NyVPdRJ9Mw6XqQ&bvm=bv.95277229,d.ZGU But perhaps your accountant is better than Ernst and Young. however according to E&Y, its just a matter of having the correct column in your spreadsheet, or category in your accounting system . which in part again, is why one should run things in a modern system rather than on butcherblock paper. That way you let the electronics do the calculations. And my basis for how you deal with accts receivable is based on… using accounts receivable lending. I don’t need to “do research” I’ve researched, I’ve used it, and our current startup has it in place as a financing option. And no 14 thousand medical manufacturing companies are not doing it differently. Nor are medical device companies “gone” there is a consolidation and as in any downturn (particularly one exacerbated by not using tried and true recovery fiscal policies) the weakest companies in every sector do get shaken out. Its what Mitt Romney called “creative destruction of capitalism” John Eckberg Karl Schulmeisters I just quoted the person in the last election cycle who most vehemently advocated for the benefits of capitalism and CAFTA. And the moving to other countries is SOLELY about COGS.. the labor component of COGS in most cases though in Ireland its the COGS of First In Man testing Jerry Robinson I’m not paying E&Y to do my thinking.. they are not posting here, either… do you speak for E&Y? the link observes.. taxes incurred when sold. payments due twice a month. if you have returns, or any of a SLEW of other things – then life gets more complicated… and more expensive to track… so you are GOING to have to carefully track – outgoing – incoming – and may be down to the serial number… right? this cost money to track.. it costs more money to audit.. so jobs are getting created here – right? but these jobs are outside of the primary path – of goods to services from mfr… cost consumed in this admi/tax – isn’t in place for R&D – or other jobs.. result? fewer prodcuts… longer dev times… fewer ancillary workers… So.. people like Steve Jobs – would be LESS LIKELY to be hired by the old HP – as an example.. and my accounting is better than E&Y. here’s why: I don’t have to pay them – and I work for effectively – for free. Less accounting cost – is BETTER… even if I have to hire local dedicated professionals – I will STILL SPEND LESS… less expense is better money – ie, not spent. Cash is King here… In any event – we are just observing… right? after all, I charge for arguments.. just like E&Y charges for accounting. Hugh F. McCann, Jr Hugh F. McCann, Jr Jerry Robinson Eliminate that one job – for an intern with “potential” – and it can affect the world. really… Karl Schulmeisters Why? well because it doesn’t really cost anything to track that electronically and it is something you want to do if only for liability, customer service, and reliability reasons, but which is also going to be required by FDA regs on Device UID. And its great that you are trying to self-fund your way. But policy isn’t set to cater to the exceptional part of the industry – particularly when that’s not where most of the innovative work comes from (even though some great innovation can occur there). Hugh, you betray your ideological bent when you talk about the automotive bankruptcies. In fact what happened there was that creditors, not the government, forced an organized bankruptcy path even though they were being offered more than the face value in bankruptcy by the Federal government bailout. The reason they did this was because the big Credit Default Swap holder AIG. This made the CDSes covering the automotive debts worth more in bankruptcy than in bailout – so the creditors forced the bankruptcy. To pretend otherwise is to ideologically ignore the actual financial history. By making that sort of digressive and wholy politically ideological comment in a discussion on actual fiscal facts, largely discredits most of what you have claimed so far Hugh F. McCann, Jr Hugh F. McCann, Jr Karl Schulmeisters leverage is everything from outside investment capital to accts rcvbl lending and all in between. Karl Schulmeisters John Eckberg Tax backers who make this contention time after time after time are just spouting off. This tax is a 30 percent tax surcharge. It has eliminated EBITDA for this sector. It crushes free cash flow and can even claim ALL 2012 profits for thinly profitable companies. It cannot be “passed on to customers” because customers are huge buying groups called GPOs and IDNs, which collectively account for 50 percent to 60 percent of sales. They refuse price hikes and simply sign contracts with companies that manufacture in low-tax or no-tax zones. They also have three- to five-year contracts and none of those contracts have clawback provisions. The lesson here: repeating a lie does not make it true. No matter how many times it is repeated. Karl Schulmeisters Btw john I think you are confused about what a “red herring” is: http://www.nizkor.org/features/fallacies/red-herring.html nowhere have I introduced a topic not directly relevant to either the top post or points raised by others. See what Hugh and Jerry and you have done are actually “red herrings”: that jobs offshore to lower labor cost markets is not an issue of the 2.3% tax, and you have not offered any data that supports that. Hence it is a “red herring”. same to some extent applies to your claim of Canard. a Canard Claim is an ungrounded claim. Making the claim that a company who sees an 88% reduction in labor costs is incurring the massive expense of moving because of a 2.3% reduction in COGS is a case of an ungrounded claim. So too is the claim that just because a buying group is large you cannot pass on increases in COGS. This last is particularly ungrounded because there is nothing inherent in the largeness of a client that precludes passing on COGS increases. Even more so when there is a 30 year track record of doing just that. Trebly so when the Price Elasticity of Demand in that marketplace of GPOs and IDNs is 0.2. You have never once actually backed up your claim about this magically barrier. your 3-5 year contract claim is both a Canard and a Red Herring. Its a Red Herring because the medical device tax has been known about for more than 5 years. Well outside the realm of re-neogiability. And this has been pointed out to you multiple times and you have not once addressed it, other than by putting untrue claims into my mouth. You are absolutely right that repeating an unsupported statement does not make it true no matter how often you repeat it. I’ve cited you the respected economic analytics source that puts the PEoD at 0.2 I’ve shown how even a 5 year contract in the absolute worst case only would have resulted in an 18 month lockin but that on average even 5 year contracts would have no such lockin Now as for “Misleading Vividness” http://www.nizkor.org/features/fallacies/misleading-vividness.html you cite “30% tax surcharge”… … well the definition of a “tax surcharge” is http://dictionary.reference.com/browse/surcharge So by definition this is ADDITION not percentages. So an ADDITIONAL 2.3% tax on top of other taxes.. by definition is * a 2.3% surcharge. Not 30%. You are playing numbers games by trying to claim that 2.3% is an additional 30% increase over the base tax rate they pay today… but that’s a number that has no relevance except in trying to make the increase sound more dramatic (more vivid) than it actually is. QED that is the Logical Fallacy of both Appeal to Emotion and Misleading Vividness. Please John.. reason civilly and using valid reasons and facts and address the questions, not strawmen John Eckberg Whether red herring or dead rabbit, your untruths stink. No pass along. No tsunami of new patients. No hope for jobs to return after $40 million plants are built in Costa Rica, Baja or the Dominican. U.S. companies become take-over targets for global giants. None of this is particularly complicated. And 20 headlines about jobs, HQs, and engineering departing from the US because of this tax are fairly commonplace. What I am beginning to wonder: are you right about anything in this sector because you sure have missed the reality of GPOs, predatory global giants, 4 of 5 Senators wanting this repealed, R&D and lay-offs at 45+ percent of all companies with payrolls between 50 and 250+, according to Emergo. The list of what you are wrong about is extraordinary. In closing, here’s commentary from the president of an Eden Prairie, MN, company: “Medical device support service provider who will be affected by an exodus of MDM’s leaving the country for friendlier business environments.” Give my regards to your buddy Jon Gruber Karl Schulmeisters So the fact that you are resorting to stuffing FOUR logical fallacies into a single sentence – strongly suggests you have no actual factually reasoned case to make. >>What I am beginning to wonder: are you right about anything in this sector because you sure have missed the reality of GPOs, << And again with the personal attacks and the strawman assertions. I have addressed your GPO issue. You have not even tried to support it. >>predatory global giants<< again - its been addressed. >>4 of 5 Senators wanting this repealed<< again its been addressed and you've done nothing to address the points I've raised in response >>R&D and lay-offs << again its been addressed and you've done nothing to address the points I've raised. >> according to Emergo. << Again this has been addressed and you have not even tried to address the points raised. >>The list of what you are wrong about is extraordinary.<< Repeating a lie is what Goebells did when he had nothing to go on other than hate. >>”Medical device support service provider who will be affected by an exodus of MDM’s leaving the country for friendlier business environments.”<< And again * Red Herring Fallacy * Begging the question Fallacy * Circumstantial evidence Fallacy all in a single sentence You really don't believe in civil discourse do you? You really don't believe in discussing facts rationally and logically do you? Michael Arellano Karl Schulmeisters Jerry Robinson My dad fought these kinds of issues his whole life. 1930s on…. So… where does one deal with them? People down on the production line – and in manufacturing don’t have direct say for what is happening.. At least before the internet and such forums did show up… the posters have all been very, very knowledgeable…. different positions – but it is worth getting the issues posted. In the Textiles Industry, millions of jobs were lost and are gone because of these issues.. the technology is GONE…. That’s a simple matter of record… So it can be important to get the issues out and forward.. There are whole clans of economist, managers, MBAs and consultants who spout the benefit of offshoring and endorse techniques that destroy millions (yes.. and that is conservative…) of American Jobs.. Not for reasons of LOWER COSTs – but because it is to their economic advantage to do so. It’s a cult – that like any cult – will deny the dogma. The only counter is to insist on objective research and to resist the character assignations that go along with opponents to cult ideological theology. Objective facts and speaking up are what makes a democracy work, after all. Jerry Robinson E&Y.. you brought it up. Not me. I avoid such, wherever possible.. I think (my opinion) that they say what the management wants to hear- if at all humanly possible. What do you think the story of Enron and their accounting firm tells us? Do you know the story? ABOUT ACCOUNTING COSTs… One accounting approach is for a company to deal with Year End taxes and such – in a standard fashion. It’s another approach to deal with a bi monthly payment of excise tax – based on the “soft” reality of title transfers.. Product churn causes an accounting problem and is a big cost. If you have had to PAY FOR and BABY SIT an IRS or STATE TAX audit – then you would not so callously say “doesn’t cost more”.. because it does. People work hours – get paid and it is expensive. Legal risk is part of the “did you pay your tax” story. You pay your income tax at the end of the year.. what happens when you have to ACCOUNT for a tax paid bimonthly? And work with an IRS whose budget is getting cut to shreds? If you have ANY sense of reality – then you can see what a real problem that JUST THE ACCOUNTING effect – will diver jobs away from manufacturing and R&D. Jerry Robinson Here is a test for you.. John identified a company that is bailing from the US – closing manufacturing – and going to Costa Rica. PICK.UP.THE.PHONE. Call them. ASK about the 2.3% tax – and ASK them if this was a significant part of their decision to move. GO.AHEAD. DO REAL RESEARCH. Stop quoting long dead economist who never had a Cell Phone… Cease with Strawman Blather! So I do not have to bring up constructive uses of Duct Tape again.. Go do some real research. Jerry Robinson GO DO YOUR OWN RESEARCH! FUND YOUR OWN STUDY.. or… offer a specified contact to do the research and produce the study. If so trivial, then fund it yourself! E&Y and McKinsey do those kinds of things all day long! Joseph Schwartz Karl Schulmeisters * $4 million in excise tax savings is the cause? or * $100 million in labor rate savings is the cause? please answer Joseph Schwartz Karl Schulmeisters BTW before 2013? no FFTA (ie sone of CAFTA) was NOT in effect http://en.wikipedia.org/wiki/Free_Trade_Area_of_the_Americas FFTA only went into effect in October of 2012. Still think its plausible that $100 million is the same as $4 million? or that $4 million drives a risky $45million move? Jerry Robinson Go do some real research. You will be more comfortable with the numbers you spend time collecting. Make sure your research is objective. Jerry Robinson go do some real research on the 2.3% question… what do company LEADERs say…? If a company has moved offshore – or out of the US (incl. PR, etc) – then what were the reasons. CALL THEM YOUR SELF. do the research… Karl Schulmeisters Karl Schulmeisters So please answer the question. What is more likely to cause a company to take a $45 million risk? * $4 million per year reduction in excise tax? OR * $100 Million per year reduction in Labor costs? Be honest and credible please Jerry Robinson NO.. they do not always do this…. They are NOT all HIGHLY PAID LIARS…. You are COMPLETELY IGNORANT if you think that is the case. Seriously… they have Fiduciary Liability – and can be SUED – if public – for misleading people in public statements… That is reality.. DO YOU LIE TO YOUR CLIENTS? probably not.. why would you think Company Leaders would do that? Is this just a “Blow Off Excuse” so that you do not have to “actually do some work?” Pick up the phone.. start calling and asking.. it’s called RESEARCH. Karl Schulmeisters Nor are these CEOs talking to clients – they are talking to those they wish to influence. Asking them for a PR statement is not “research”. so please answer the question. What is more probable? that they took a $45 million dollar high risk move to save $4 million OR that they took a $45 million dollar high risk move to save $100+ million c’mon. You know what the answer is. that’s why you are ducking answering it. Jerry Robinson Shareholder suits happen all the time – based on Corporate Officer comments… CEOs do talk to clients.. the ones I know have… may be they don’t want to argue with you? :> why am I being asked to answer a troll question? In High School – Junior level – debate class, we learned all about asking “leading questions”… didn’t you? You know the “do you BEAT your wife in the MORNING or EVENING” kind of question. One should never take the bait and directly answer such a sucker question.. So why would you ask an equally sucker question? can you not do math? Do you like the Magician’s tricks of “balls and cups” or “pick a card”… ? Jerry Robinson do you have a Cell Phone? you can call “411” and ask for phone numbers – then call companies DIRECTLY to get question answers.. How do you know that they will LIE – unless you call and find out? Man UP!!! do your own research and see what happens!! Karl Schulmeisters Karl Schulmeisters Jerry Robinson You asked for “verifiable proof”.. when company names and stories are given – you immediately dismiss them as “unreliable”.. “that’s not proof”.. this has happened over and over.. You blow off the expert opinions and exeperiences of expert professionals in this industry…. So I make the LOGICAL suggest that you ACTUALLY DO SOME REAL RESEARCH. Case studies are taught at the best business schools, after all.. I am not talking about speeding. don’t dissemble.. (more HS debate tactics…). DO SOME REAL RESEARCH – that way – YOU WILL KNOW FIRST HAND what the stories and numbers are… If NO ONE ELSE can do it to your satisfaction – then DO IT YOURSELF. Pick the Cell Phone – start calling. * which number is bigger, 3 or 7? if you want math questions.. here is mine…. the distance around a tire is finite and knowable.. you can take an extraordinary accurate tape measure and measure it.. The formula is C = 2*Pi*R. So the circumference is precisely measurable.. yet on the right side of the equation.. PI is an irrational number – and does not have an finite answer… it repeats.. So.. finite number on the left…. irrational number on the right… how can they be equal? Jerry Robinson Go do some research, Karl… you won’t believe company disclosures, the people who work there and have legal responsibilities to be accurate, or anyone else that has posted.. No basis for your disbelief.. that’s ok.. And ya know.. even an accurate rendition of reality can come out of theatre.. it’s why we quote Shakespeare sometimes.. Karl Schulmeisters They do not even break out the Medical Device Tax as a line item. So the notion that somehow the SEC filings prevent CEOs from spinning the business reasons for doing something – well isn’t supported by the facts. And if you really need an answer to your question on measuring the circumference of circle, I recommend the excellent read: The Measure of All Things. http://www.amazon.com/Measure-All-Things-Seven-Year-Transformed/dp/0743216768/ref=sr_1_1?ie=UTF8&qid=1434094621&sr=8-1&keywords=the+measure+of+all+things&pebp=1434094621524&perid=0764B3FF4001497F8369 I’m using John’s own number: * Opted to be built after FAFTA came into law * 6% profit margin and only adding in the external numbers – which I support by citation * The percent of Labor Cost reduction comparing DR and CR to the USA This gives us two very crucial numbers: * – what the cost savings in avoiding the device tax is by moving to the DR or CR * – what the cost savings in labor is by moving to the DR or CR and for #2 I am in each case taking the bottom end number of the range. So this lets us compare the cost savings driven by Free Trade policies like FAFTA and CAFTA vs the cost savings of avoiding the Medical Device Excise tax which we are discussing. So the question still stands to you Jerry: Which is more plausible? taking a $41 million risk (because moving mfg is always risky) because of * $4 million in Excise tax savings/yr OR * $100 million in Labor Cost savings/yr why won’t you answer that simple question? Joseph Schwartz You also contend that the lay offs of workforce is due to the recession. I don’t concede that point either, an analysis of the type of jobs involved would be necessary to better determine the cause independent of company management. Another thing to consider is if the tax made it impossible to retain employees that otherwise would have been retained, waiting out the downturn of GDP, if the recession has lowered sales at the same time. John’s example was a company experiencing growth in sales, yet the bottom line was still too low. What else is affecting the bottom line during sales growth to cause a company to look for ways to reduce it? Raw materials or a 30% hit on profits by the MDT. Which would be the larger number here and the more likely answer? Karl Schulmeisters You also had a fairly nasty insurgency war in the region through the 80s… And we did start seeing stuff move in the 1990s . Sure there may be some “patriotism” but that’s not really that meaningful and most CEOs take their fiduciary responsibilities to shareholders as their primary responsibility. The primary barrier is risk. Not only are you extending your supply chain risk you are also taking on a host of other risk potentials – everything from exchange rate risk to political stability risk to USA trade policy risk to product quality and corruption risk. Which is why a 2.3% COGS issue is not a tipping point. The risk factors are too great. So you really need to have a very substantial offset in COGs to take on that sort of risk. And particularly for a company that can afford to spend $41 million on a plant, a mere $4 million/yr in extra costs is not going to tip anything. Just the opportunity cost alone on that money is $3.7 million per year. So you are trying to convince me that $300,000/yr in excess cost is going to be a tipping point on a deal with that much risk? C’mon. >> but as has already been show with simpler math than that used to calculate the PEoD, that this tax can easily confiscate more than 30% of a company’s profit,<< And I showed how that calculation was bogus. Precisely because the 2.3% is passed on to the customer. That's in fact what the PEoD tells us. Whenever a numbers argument devolves into "percentages of percentages" - you know that there is something being played fast and loose. this is not a number you can plausibly claim. its made up by ignoring various inconvenient factors >>You also contend that the lay offs of workforce is due to the recession. I don’t concede that point either, an analysis of the type of jobs involved would be necessary to better determine the cause independent of company management. << um huh? The question raised was "how come the layoffs are happening in 2013 and 2014 when the "recession was over in 2010". And what I pointed out was that while the recession itself was over (ie we had a quarter of GDP growth) - because of how the recovery ran, and because of the complex interaction of fiscal policies and benefits during the recovery, you would not have seen a major drop in healthcare device revenues until 2012. And companies then take about a year to respond with new budgets. So that puts the start of the layoffs into 2012-2013. what sorts of jobs were being laid off doesn't matter particularly - because the issue is when did the revenue downturn signal arrive at the Med Device mfgs.. not what their particular response was. >>hn’s example was a company experiencing growth in sales, yet the bottom line was still too low. What else is affecting the bottom line during sales growth to cause a company to look for ways to reduce it?<< 70%-80% of the COGS is labor. that's just the facts. And then you also have energy costs - which until the last year were starting to climb as well. Jerry Robinson Perhaps you will answer my “which is greater – 3 or 7”? Because that may be just as relevant as your math question.. I also followed your link – it does not address my math question for you. But it still looks like a good book to read.. In return, I suggest that you read Dava Sobel’s book http://www.amazon.com/Longitude-Genius-Greatest-Scientific-Problem/dp/080271529X/ref=sr_1_1?ie=UTF8&qid=1434114165&sr=8-1&keywords=dava+sobel Yes – 10Ks are dry – but they have a LOT of detail – and sometimes things between the lines… You said “So the notion that somehow the SEC filings prevent CEOs from spinning the business reasons for doing something – well isn’t supported by the facts.” SO.. pick the top 10 Med Device companies.. CALL them with your 2.3% effect question – ask the CTO… ask Investor relations… If you have NOT done this – then where DOES your odd assertion come from? Are you assuming that all answers by Company officers and staff are Lies or Misdirection? If so, then why are you messing around with this question?? Yeah.. you are using HS Debate Tactics.. Seen it before.. been there – done that…. The big fallacy in your “which is greater in size – the chicken or the egg?” question is that the question is distorted – and answers are partial. The question was “is the 2.3% tax – costing jobs?” – and the answer is yes… AS I HAVE ALSO SAID – over and over – there are MULTIPLE FACTORS working against a company making products in the US… Many of our friends in Govt ALSO created these problems – intentionally…. It’s been a problem since the 1930’s… it is an extreme problem TODAY.. Watch the Friday night fights sometime.. It’s not usually ONE PUNCH AND DONE.. its a combination of PUNCHES and where those punches land – that make one fighter a winner and the other fighter the defeated… Your REFUSAL to accept expert opinions presented is EXACTLY the same as DENYING THAT THE REFEREE has the qualification to call the fight – because the REFEREE gets paid for the fight.. It is the same as asserting that Judges are only motivated by money they get in salary – so their decisions can NEVER be accepted.. You DON”T accept the opinions expressed by trainers and managers – because they lie too.. On top of that.. you HAVE NOT DONE RESEARCH – and WILL NOT EVEN PICK UP THE PHONE TO DO SO. Yet you have lots of time to post here.. Pretty amazing…. So which is greater? 3 or 7? >>why won’t you answer that simple question?<< Jerry Robinson >>>> but as has already been show with simpler math than that used to calculate the PEoD, that this tax can easily confiscate more than 30% of a company’s profit,<< And I showed how that calculation was bogus. Precisely because the 2.3% is passed on to the customer. That's in fact what the PEoD tells us. Whenever a numbers argument devolves into "percentages of percentages" - you know that there is something being played fast and loose. this is not a number you can plausibly claim. its made up by ignoring various inconvenient factors<< You did not show that the calculation was bogus.. To be profitable - a company must FIRST break even.. You showed - and the numbers support - that the effect on a company might be 5% - with expense and tax accounting thrown in.. and that is of SALES - not profitability.. Profitability for medical devices is END GAME - not when the sale occurs.. MANY COMPANIES - come on... DO THE RESEARCH - are NOT profitable.. or have SUBSTANTIAL R&D to pay off.. so the 2.3% or 5% of cost - come directly out of the MEAT of the company.. JOBS are what gets lost.. It's clearly obvious - it happens A LOT.. AND - since you HAVE NOT DONE THE RESEARCH - my assertion is clearly correct.... Karl Schulmeisters Jerry Robinson b – DENYing – that 2.3% cost jobs – as you do – does not make it so. c – what you show is not logical is and is in error. I went over HOW The cost affect (a) hospital patients and (b) medical device makers cash-flow – and you had NO REAL comment whatsoever. That does not pass the SMELL test Karl… Seems fair to refuse to answer your skewed question when you won’t answer mine. As John observed – some companies have to “eat” the cost. All med device companies have a new, complex set of accounting to pay for and manage. How much do you think the IRS has to pay to implement the taxing system for the 2.3%? Is it “free” or will you “Dismiss the cost” with another classic Karl “Poo-Poo” Blast? WE can agree on one point.. WHEN A COMPANY IS NOT PROFITABLE – THE 30% of profits number is BOGUS.. no PROFIT – yet STILL PAY this “tax”… Jobs get lost here… Any simple accountant can tell you that… Numbers have to balance between outgo and income. Jerry Robinson I guess the answer is more like 5%. ESTIMATE only.. YOU ARE ENCOURAGED TO DO SOME REAL RESEARCH TO FIND OUT REAL NUMBERS>.. but UNTIL YOU DO.. you are not entitled to disagree out of ignorance.. We went through research, published figures that show that medical device cost markups ranged between 157% and 709% in one study.. There are, I am sure, other studies.. These ARE REAL, RESEARCHED STUDIES. So that 5% cost – gets markets up to 7.85% to 35.45% of the hospital’s medical device cost. More expensive medical cost for patients WORKS AGAINST BETTER HEALTHCARE.. SO.. not only does the tax COST JOBS.. but it also WORKS AGAINST BETTER PATIENT HEALTHCARE COST.. Karl Schulmeisters And as you and John have pointed out – repeating something without being able to back it up – either with logic or independently verifiable facts – does not make it so. The CLAIM here is that the 2.3% tax costs jobs… QED the onus is on you to demonstrate this * with valid logic. All I have done is to point out that you have failed to do this. The onus is not on me to prove it has not. I’m not the one making a claim. As to how the costs affect hospital patients – that is a red herring fallacy. because the title of the thread is : ======> “Tax leads to lay-offs, frozen R&D, no raises ” not Tax costs patients more in one part of their bill. Those are all red herring fallacies unless they directly support your claim. You have not shown your claim to be true Jerry Robinson You have disputed John’s numbers – which is fine – and don so without any shred of actual research to back you up. I DETIALED – carefully – how the 2.3% can have a PROFOUND influence on a small or growing startup – and how it costs jobs.. It is very much like a professional boxer’s experience.. They can take punches – it’s part of the job.. but LET THEM TAKE A JAB UNDER THE BELT – twice a month – and they are not going to do so well. Thee is no “onus” on us to prove anything to you .. especially when you insult evey single thing that has been brought up. In fact, Corp. CEOs by are large are doing the BEST JOB THEY CAN – in running a company and being honest to both shareholders and employees. That bargin is changing, one might argue – but If IS FALSE TO ASSERT THAT THEY LIE ALL THE TIME OR SPIN REALITY TO FIT WHATEVER THEY WANT. I am NOT going even to assert that YOU MIGHT DO THIS>.. since you ARE – after all – in management – right? YOU DEMAND PROOF… that’s good.. GO DO RESEARCH and FIND THE TRUTH.. STOP INSISTING THAT OTHERs FIND THE TRUTH -and BRING IT TO YOU FOR A BLESSING. You are not the Pope.. and.. You aren’t paying people for thier time. TRY actually PAYING FOR WHAT YOU ASK… Go DO SOME REAL RESEARCH – and CEASE THE Wooly Bully. You are correct about the core TOPIC.. These are other EFFECTS that do not help patients, the IRS, or companies eating cost. THERE IS an accounting cost – but it’s not minor.. DO SOME RESEARCH HERE – how much extra expense do you think it is? I estimate – that when all things are considered – it might be 2.7% or so. Just my estimate.. BEFORE YOU DISAGREE AND “PooPoo” again – go do some RESEARCH to actully back up such an assertiion.. what is a real number?? My claim is that it DOES cost jobs.. for small companies, the money has to come from somewhere – either reduced growth, less R&D, layoffs or decisions to not hire people. This is SIMPLE MATH. WHAT IS SO HARD TO UNDERSTAND ABOUT THIS? >>why won’t you answer that simple question?<< Joseph Schwartz Karl Schulmeisters Jerry Robinson In this thread.. the 2.3% tax results in MORE JOBS for the medical device makers in some areas.. more accountants to keep track… better software processing of outgo – like sales – and receiving – like keeping track of the incoming product serial numbers.. BUT LESS JOBs in making things and designing things – as that there is more friction in the business process. Engineering gets affected.. R&D gets affected – and manufacturing jobs are driven to be leaner… With the IRS budget being REDUCED – AND now having to deal with HEALTHCARE and this 2.3% excise tax – their job functions are INCREASING – yet the BUDGET is decreasing.. This will reflect back to medical device makers, too.. Karl Schulmeisters And yes, if a 2.3% tax increases the value of growing and innovative companies (which it does because of valuation based on EBITDA) the it increases R&D and jobs in this area Jerry Robinson I have a Taig CNC Mill and Lathe machines, two Bridgeport (NC/CNC) mills, three Southbend lathes.. and dabble with 3D printing.. so YES I HAVE WORKED WITH CNC files.. I MAINTAIN and USE them. Classics…. It’s not STUFF.. What comes from CAD files is something that a program like Mach3 or MasterCam can process into “gerber files”… Sometimes one worker- – actually a CNC programmer – can operate 5 machines.. whether CNC Lathe, Mill or VMC. I really think one “worker” can produce a LOT more than 10-20 people used to produce.. the “worker” is a programmer, Karl… Are you a “worker”? Well as John pointed out.. we don’t have the effect of EBITDA anymore.. we have this DRAIN on production, R&D, productivity, AND manufacturing. Along with CAUSING JOB LOSS – it drops the profitability – and we know that VALUE is frequently measured by multiplying the earnings to reach an approximate valuation – or at least if often can.. Karl Schulmeisters but we are digressing the issue is that you and John and Hugh have made a particular claim.. Jerry Robinson Yes.. WE DO digress from the forum thread topic.. kind of.. You brought up CNC. I like CNC, too. YES.. John and I made a set of claims.. No, you are NOT the authority that solely decides credibility on this.. WE do not have collect a set of information and present it to you for your blessing.. You are PERFECTLY FREE to follow up our claiims.. DO YOUR OWN RESEARCH.. I STRONGLY ENCOURAGE IT!! contact the companies that John mentioned.. TALK TO PEOPLE.. Pick up that CELL PHONE and start talking to people.. I have done it.. I helped Boy Scouts Raise funds for local troops over the years.. I helped make telecalls for sales support – in the 1980s – to our distributor network… This is not hard to do.. get a list! start calling!! Jerry Robinson Karl Schulmeisters Jerry Robinson CNC type jobs in the Medical Device area is so bound up in technology change – as 3D printing jobs and products rise – that it is hard to really get a handle on the industry. It’s the same kind of job – with a good bit of learning curve between them. Starting with a CAD design – and then tweaking the design to be used with additive or subtractive technologies is a real art… then understanding the process and materials make it a good bit of overall art. But.. I would have to say that overall, CNC is not part of what I would think of as job loss due to the 2.3% tax effect… Your point – is that YOU do not think that “independently verifiable” facts have been presented to support the OP top claim. let’s look at $$ for the govt – and patient effect first.. Jerry Robinson About the IRS.. let’s see… 14K+ internal US med device companies.. a lot more “international ones”… 100’s of thousands of products.. crossing the “title ownership” – boundary mostly in one direction – with some back-flow in the other direction.. so you are TRACKING EVERY SINGLE MEDICAL DEVICE SOLD IN THE US – and trying to handle the TAX and the TRACKING the unit.. At the company level – and at the IRS auditing level… Your tracking point is 2X month. Does this process improve health for ANYONE? OK.. once we have gone down the hole with Alice, reality does not really have to hold sway any more.. SO…. Let’s look at medical devices that go to hospitals – or insurance companies.. etc, etc.. etc. HOSPITALS mark up the device – per ONE REAL STUDY – showed a 157 – 709% markup.. SINCE a LOT of these costs are picked up by the government in medicare/medicaid – you have the PECULIAR situation of.. NET EFFECT…… BOTTOM LINE.. there is a HUGE COST in this tax.. I don’t even see that the Gov’t will actually make ANY money out of this.. Hospitals will rake it in, though.. BUT NONE of this RIVER of cash actually improves the lives of patients. it will all cost them more money. BIG CASH SPENT – NO RETURN ON IMPROVED HEALTH>. THEREFORE A BAD IDEA….. This part is just part of the irrational logic of this tax.. it may not raise money for the Govt – yet drives up health care cost. now.. to jobs… Jerry Robinson Your point – is that YOU do not think that “independently verifiable” facts have been presented to support the OP top claim. John gave companies, stories, and situations. You reject the statements of CEOs, company officers, and others… ok… WE (people who post here) are NOT obligated to go do research – to your unstated standards with no funding. You are an experienced professional – and don’t do projects for free, do you? SO… define your criteria for a “independently verifiable” study – and GO DO IT… I DO absolutely agree with you – that MULTIPLE damaging effects are AT WORK here – it’s not just this one 2.3% effect that is Killing Jobs and driving up the cost of healthcare.. But these other things are not part of this question – and should be filtered out of YOUR STUDY. Good Luck. Karl Schulmeisters And you cannot point to any independently verifiable fact that combined with valid logic, supports the OP claim. Annecdotal claims are inherently not “independently verifiable” unless those companies open their books and their executive meeting minutes.. which they have not nor will not. so BY DEFINITION that is not independently verifiable. In legal terms it is simply hearsay. John’s own numbers, plugged into simple analytic logic shows that it is very unlikely a company would take on a $45+ million risk to save $300,000 annually – vs. saving $100,000,000 annually. The onus of ANYONE making a claim is in fact to support it with valid reasoning and independently verifiable facts. Neither you nor John nor Hugh have presented that. Jerry Robinson You, on the other hand, have done no “real research”. Meh. I do assert. I do have facts – you may not like them – and you are not the “fact judge”. Those who are expert and legally responsible – you have “blown off”…. double Meh. Karl Schulmeisters Jerry Robinson I have had to deal with paying things before.. Growth was completely constrained by cash-flow and profitability in those situations. You weren’t there – you did not have to SCRAMBLE to pay those bills and pay those people. This is a serious reality for small companies and small start-ups.. Unless you have BEEN THERE – and DONE THAT.. they I don’t see how you can judge with absolutely no knowledge and possibly no experience… . Hardware oriented device makers just have a MUCH MORE DIFFICULT situation with cash-flow.. Companies may have deeper financial problems. Many do.. and when short CASH – and the implied CASHFLOW.. people lose their jobs. That was the point in this discussion.. “Are jobs lost”.. and the answer is yes. John Eckberg Karl Schulmeisters Since you have not opened your books nor fully opened the discussion of all the financial choices and opportunities that were on the table it is basically not a meaningful example. For example, that you “had to scramble to pay bills” does not mean those were the only options open to you. Examples of things you could have done differently (but which are hard to accurately assess since you studiously are withholding information) include * Anticipating the cashflow crunch and bringing in outside capital, be it Seed Funding, SBA loans, Kickstarter, or VC funding. True many of those choices would have diluted your personal ownership share and possibly lost you control of the company, but that does not mean that they were not options to accelerate growth. * You could have arranged for Accts receivable funding long before the cash crunch. Had you established a longer term record with an Accts Rcvble lender, your rates would have been lower and your “scramble” non-existant * You may well have been suffering from deeper financial problems – in which case the cause of a “cash scramble” are the deeper financial problems, not a 2.3% change in COGS. Again, using logical fallacies (in this case Hasty Generalization) and incomplete and unverifiable claims does nothing to make your point be based in independently verifiable fact and valid logic Karl Schulmeisters John Eckberg Okay, where were we? About 2,397 posts ago I offered some study evidence of jobs lost. I guess I have to do it again. The Emergo Group look at 2015 Medical Device spending suggested that somewhere between 44% and 50 percent of 5,400 companies in this space either laid off employees or curtailed R&D, which is, not to get too technical here, the same difference. Lost jobs. Of course, those jobs didn’t disappear, they just got relocated to Costa Rica, Mexico, Singapore, Ireland and the UK. Of the 15,000 companies in this space, that means 7,500 peeled back payrolls. Note in the Duke Study, I’m not going to cite with a link, google Duke, Costa Rica, Medical, Device, Global, Value, Chain. When that comes up, look on page 32 and note the footnote No. 21. Looks to me like 14,500 jobs are now in Baja, Mexico, in this industry. In 2007, according to this study, there were 7,499 jobs…not 7,500 jobs but 7,499 jobs. That means there are now twice as many jobs in this space in this one near-shore country in just eight years. And those figures are a few years old so it is doubtlessly worse by now. Costa Rican medical device exports were up year-over-year by more than 50% from Costa Rica from 2014-2015, the Tico Times reported recently, from $97.3 million worth of medical devices in January 2014, to $149.9 million in January 2015. Exports increased by 58% between 2008 and 2013. If you used the years 2009 and 2013, exports are up 65%. http://www.ticotimes.net/2015/02/23/medical-devices-top-costa-ricas-export-sales-in-early-2015 Finally, I think tax backers ought to hear another anecdote from the real world about the impact of this tax. This is from the president of a Kendall Park, NJ, company: “This tax is much more than what it appears to be. What matters is where in the ledger the 2.3% is applied. This additional burden increases the tax obligation significantly.” John Eckberg So, assuming half the tally came from U.S. based companies and since the tax has been in effect for two years (not since 2009, as Tom the big tax backer and buddy of Jon Gruber, no wait, I mean Paul,….no, wait, I mean Karl) that’s $3.6 billion raised. Again, it did not come from thin air, it came from the books of companies in this space. I think every dime of that would have been spent on job creations, a euphemism for R&D, but just assume that since payroll is 80% of most companies’ cost, just for the sake of argument, what would that $2.8 billion meant in terms of jobs. Well, it’s 48,000 jobs that might have paid $60,000. That is, it’s a good-paying job disappearing from the balance sheet of companies in this space every 30 seconds since January 2013. John Eckberg Karl Schulmeisters your core assertion: >>Again, it did not come from thin air, it came from the books of companies in this space. << Is what you started out with and which remains not only unproven but highly dubious.: FACT --> cited research shows a Price Elasticity of Demand of 0.2. So while the collection mechanism may be these companies, it is far more likely that the money is coming out of those paying for the devices at the end – be it individuals or healthcare insurance companies. Since that comes from the customers and since PEoD tells us what the drop in demand is we can calculate the potential jobs impact: $1,8 Billion x 0.2 ==> $360 million in reduced sales volume. That works out to $17,152 of revenue loss per manufacturer. That’s not even a full time job Karl Schulmeisters John Eckberg Tell him he’s wrong and that it’s all about COGS so things are fine. (Note use of Treasury and not ACA, as funds are not earmarked in any manner, nuance or fashion for the ACA. This is the dumbest tax since Diocletes thought capital punishment for violators of his wage and price controls was a good idea.) Karl Schulmeisters Karl Schulmeisters Karl Schulmeisters Jerry Robinson you have a NAME (Company) and can FIND THE REPORTER’s name to ask them… SO.. GO DO SOME RESEARCH and STOP WITH THE unsupported opposition DRIVEL.. What is your VERIFIABLE basis for disputing John’s comment? You dispute OPINION – yet hurl out your counter disagreement. NO BASIS for opposing this information – yet you feel it NECESSARY to dispute – and “PooPoo” it? Do do some research – CALL and find out the numbers.. FIND some basis for splurging out this opposition point… Jerry Robinson It’s unrelated to this discussion…. But.. since you saw fit to post it.. His point is >>”Secondly, I say something like this: “I’m sure you’ve heard the expression ‘everyone is entitled to their opinion.’ Perhaps you’ve even said it yourself, maybe to head off an argument or bring one to a close. Well, as soon as you walk into this room, it’s no longer true. You are not entitled to your opinion. You are only entitled to what you can argue for.””<< so... in other words.. it the language is different.. if you are an infant, child, have a relevant disability.. if you are infirm.. if you speak a different language or have a different culture... or have NOT had the benefit of a sound debate training.. then you MAY NOT have an opinion.. This man - Patrick Stokes - is both an moron and ignorant.. That's my opinion. BUT - AS SAID - it is not relevant to our discussion of 2.3%. Jerry Robinson >>$1,8 Billion x 0.2 ==> $360 million in reduced sales volume. QED – that is from the numbers YOU QUOTE>> YOUR NUMBERS << THEREFORE - John is ABSOLUTELY RIGHT - JOBs ARE LOST... QED - KARL... YOUR numbers - REAL SALARIES (per Social Security Admin) ==> a REAL JOBS LOST BY THIS ANALYSIS. good.. NOW can you say “John… you were right.. my numbers show it.. JOBS WERE LOST”. Jerry Robinson As an Engineer – I USED to Randomly Capitalize Words in my communications.. worked fine in emails.. But in longer documents – my GRAMMAR CHECKER objects… I still slide in the Necessity for Capitalizing the First Letter of Sentences.. and it’s Hard to Change. But NOW – I find that if you just go ahead and occasionally CAPITALIZE all of the letters of impact words – that it KEEPS the READER awake and at lease SERVES a PURPOSE. The Grammar checker STILL COMPLAINS – but I feel more RELAXED about IGNORING it. just a suggestion.. We are going to ignore nizkor, to.. kind of sounds unhealthy, anyway…. Jerry Robinson Karl Schulmeisters Karl Schulmeisters Karl Schulmeisters Jerry Robinson YOU provided the figures… BASED ON YOUR NUMBERS….. I can add and divide. This is part of how math works. Your argument – is one of the more ABSURD I have heard lately.. Do you know how to divide? Are you actually saying – without serious fortification by Whiskey – that a $360 million reduction in sales – results in ZERO JOB LOSS – because it- in total – is >>not even a full time minimum wage job?<< Jerry Robinson 1. – I used your numbers – ones you POSTED. 1. – I used a number supplied by the Social Security Administration. Your numbers + Offficial government information. That says.. 8,019.93 jobs lost. It’s MATH, KARL.. I am not even COMMENTING on numbers you provided – but you SHOULD be able to accept what you wrote. RIGHT? EVEN if you declare everyone WRONG but yourself – well… THOSE WERE YOUR NUMBERS… EVERY other reader here – can LIKELY do the math… BASED ON YOUR OWN NUMBERS… Whether YOUR numbers are VERIFIABLE>.. I am not commenting.. I don’t need to. Meh. QED. EIEIO. John Eckberg Karl Schulmeisters John Read your own quote: >>”I believe that …<< Belief is not what we should be basing public policy on. So far you are providing the "beliefs" of folks who perceive themselves to have a vested interest in this. Do you not understand how weak a claim that is? John Eckberg John Eckberg Jerry Robinson According to YOUR NUMBERS – 8,109.93 jobs would be LOST.. So OBVIOUSLY – we could “assume” that some companies might lose jobs – others might not. Companies vary… But.. the ISSUE – was JOBS LOST. not HOW THEY ARE Partitioned. For example.. the US Govt statistics on families in 2014: 3.13 people per family. Would YOUR logic say “Since can’t have 0.13 people, THEN this family size MUST be actually ZERO?” That would be pretty silly, wouldn’t it? So the point it – YOUR OWN INFORMATION combined with OFFICIAL GOVERNMENT RESEARCH information projects 8,109.13 jobs LOST. Can you please MAN UP and concede the point? Do you REALLY not understand the corollary of Tetlock’s “Accuracy of Experts” research? Jerry Robinson Karl Schulmeisters But secondly you have to allocate it per company. because people don’t work at two competing companies So with 20,998 companies registered, that’s 8109/20,998 – less than 1/2 of a job per company. Karl Schulmeisters As for J&J having layoffs… sure.. no question. So what? how is that attributable to the medical device tax? You still have not shown the connection. You are still engaged in that logical Goebbelian fallacy of obfuscating coincidence with causation. Its good propaganda. It proves nothing. John Eckberg Jerry Robinson Increasing prices – whether passed on to consumers predict reduced sales. The prices aren’t just passed on, either. COSTS are marked up and then charged to consumers. So actually job loss effects – would increase by 1.57 to 7.09 times – for those devices sold to hospitals. You supplied the base numbers. The SSA posts average salaries in the US. This simple math points to job loss. So.. You have to wonder… Just why it is that you seem to be unable to admit you were and are wrong – about this issue – and may be other things. The mark of a true expert is that they are objectively fact driven. Best comprehension of the existing and known facts are what makes them expert.. This is an absurd comment – and totally false. Karl Schulmeisters Karl Schulmeisters Jerry Robinson So the point is – YOUR OWN INFORMATION combined with OFFICIAL GOVERNMENT RESEARCH information projects 8,109.13 jobs LOST. Can you please MAN UP and concede the point? Jobs Lost is the subject of this thread. LET’S SAY IT AGAIN (note the DRAMATIC all capital letters. for the hard of understanding….) YOUR SUPPLIED NUMBERS.. show MANY JOBS LOST. Simple Math….. MAN UP..!! John Eckberg John Eckberg Two dynamics are also likely to drive the shift of global production further towards developing countries: the first is rising tariffs and complex regulations and reimbursement in key emerging markets, such as Brazil and China; and the second is reform of the US health care system, WHICH PLACES AN ADDITIONAL 2.3 PERCENT EXCISE TAX ON ALL MEDICAL DEVICES MANUFACTURED AND SOLD IN THE U.S. Karl Schulmeisters And John, if you can’t even quote me correctly, then you really aren’t particularly credible. show us where I didn’t get the first date of tax collection incorrectly. I’ll give you $10 if you can show where I got the collection date wrong. Show us the post. Yes I have no doubt Costa Rican Medical exports are up. This has exactly what to do with the excise tax. And again, the Duke report doesn’t address that it is a 25x bigger cost savings by offshoring. You haven’t even tried to address the issue that according to your own numbers your company would have no meaningful cost savings if the move was based on the 2.3% excise tax. Jerry Robinson This is a very simple story… FIRST – you supplied the DATA – so USING YOUR NUMBERS.. >>$1,8 Billion x 0.2 ==> $360 million in reduced sales volume. I can add and divide. This is part of how math works. So.. a – are you choosing to be a complete Moron here.. ? seriously.. just to argue for the sake of arguing? Cause it LOOKS LIKE YOU CAN’T divide here.. Math.. It’s GOOD. Try it – you might like it… b – I don’t need to show you books. Companies don’t either… YOU provided the base numbers.. the SSA provided a US average Salary.. John’s numbers are fine.. Demonstrate that you can DIVIDE – (that’s math…) and then complain to John… I bet John can divide numbers just fine.. Karl Schulmeisters John deliberately misstating what I have said and you now calling me a moron. It only shows how weak your arguments are. Enjoy – feel free to call me whatever you would like, and to put forth beliefs as fact. The record of your writing stands. John I can somewhat forgive, he’s stressed with a family and a pregnant wife (by his own statement) so if he transgressed the code of honesty his military service instilled in him its forgivable. I’ll leave you two to calling people names, and misrepresenting what they have said. Jerry Robinson I also do not prefer to find my position misstated or confused. Using numbers YOU supplied – and the SSA reported average, salary – I just found it astonishing that you would not do the math – or chose to sidestep it. Again – I mean no offense to your personally and do so apologize. . John Eckberg Joseph Schwartz But secondly you have to allocate it per company. because people don’t work at two competing companies” So with 20,998 companies registered, that’s 8109/20,998 – less than 1/2 of a job per company.” Those are job losses as a result of passing on the tax (the .2 PEoD). You can’t pass on a price increase to a lost sale. It does not even consider the jobs loss due to not being able to pass the cost on. Concerning GPO’s do you really believe they won’t look around for lower prices when offered a contract that passes on the excise tax? A few days ago you mentioned CNC machining as a means of cutting costs. This shows an ignorance of the medical device industry, at least the orthopedic implant industry. Implants have been manufactured by CNC machinery for more than 20 years, so how will that help a company cut manufacturing costs. The same for lean standards. In order to remain competitive, lean manufacturing principles were applied to manufacturing as well as shipping and receiving and any other area that could be improved, years ago. I know, lean mfg has the concept of infinite possibilities for leaning out a companies processes, but in reality, there comes a time, like a starving cow, that there is nothing left to lean. I can’t say if the company I work for has reached that place, but each stage of leaning results in less savings. Eventually jobs becomes the easiest place to cut costs. You want to argue that the job loss predicted from the PEoD is less than 1/2 job per company? OK, I’ll accept that, it comes out to 2.8 companies per job loss. So some companies have not cut jobs, I don’t think anyone here would argue that point, but one job loss per 2.8 companies is still a job loss and that supports the original statement, just from applying the PEoD to total sales. Again, that does not account for companies that could not pass on the cost increase or lost contracts to offshore companies that could offer a lower price due to lower taxes and lower labor costs. One final argument, you said : So who did that research and what was their motive. You expect us to accept the researched PEoD as valid simple because it is math? The results of Med device company surveys is analyzed mathematically yet you call that biased because of the source. Who is the source of this PEoD? How do we know it is unbiased? We don’t, anymore than you know the results of the surveys are invalid due to their source. So none of the evidence is definitive, but using your own argument of PEoD, Jerry has shown it results in at least one job loss for every 2.8 medical device company. That is an access of 8,000 jobs, just from passing the tax on to the hospitals. No misquotes, no name calling, no debating tricks, just valid reasoning. Dan Stipe For what it’s worth, I find Karl’s logic compelling. Seems to me he’s arguing his positon with data and clear reasoning. Comments from the other side of the argument come across as shrill and often insulting – “I really believe I’m right on this — it’s obvious! — why can’t you just agree with me? Moron.” (Jerry, it really hurts your case when you SHOUT all the time). Now, it stands to reason that a 2.3% tax on revenues would be burdensome and could indeed cause companies to reduce workforce in response. The only data we have on that at this point — from the Emergo report — indicates that yes, that has been the case. And John has provided a lot of anecdotal evidence that supports his argument. However, it also stands to reason that the world financial crisis and subsequent deep and long recession would play a more substantial role in companies’ decisions to relocate operations in regions where the labor force is significantly cheaper — and Karl has pointed this out and backed it up with, what seems to me, a solid analysis. His argument seems much more credible. — Dan Hugh F. McCann, Jr Jerry Robinson I tried to put some numbers to it in my earlier post.. For those devices being sold through Hospitals – the numbers show that the Gov’t could ( will??) actually end up LOSING MONEY on device purchase – and how that happens is documented above… When you add the Regulators, AUDITORS, and the like.. that MONEY LOSS GOES UP A LOT. Clearly.. the tax has the effect of driving companies OUT OF BUSINESS – or OFFSHORE. Large companies can deal with this very well.. They LIKE it when smaller competitors are hindered, R&*D is reduced – and startup companies are put out of position. With the damage being done to companies – I think you are perhaps far too optimistic that we will retain any kind of medical leadership in the world. I have done some research on this.. and efficiency is NOT an important gov’t goal. WIth the aging population.. this whole business will have a devastating impact on the US healthcare industry. If you follow the methodology of Dr. Lorenz – then look at what is happening.. the long term effects are just huge… and quite negative.. Jerry Robinson It’s not collected in the same fashion that income tax is, either.. you have to account and pay it 2X a month.. That will need a whole new PILE of accounting software and systems.. EVERY SINGLE Medial Device will have to be serialized and tracked – at a company level – and all along the chain. Returns won’t be credited, if you don’t. This is going to be a real nightmare to track… I don’t believe in “accidental effects” like this. Very cold and calculated in planning and execution. John Eckberg “Most med device companies that have publicly reacted to the device tax have announced layoffs to help pay for it. The most frequently mentioned department to target is R&D. That’s where I live. Besides the direct loss of jobs this entails, many of us still employed, at least for myself as of this note, are battening down the hatches. Due to this insecurity about the future, I for one have postponed plans to remodel my John Eckberg Rodney (Rocky) Bailar John Eckberg As an aside and to get the discussion back to what’s important, here’s anecdote 10,141, which Karl says has no credibility. (Merit employees are all over the cyber-petition at www.no2point3.com) Jerry Robinson Who were the people – names.. who came up with this rotten idea – and method of taxing… What were their names? The METHOD of collection and reporting – is JUST PLAIN evil.. this was well thought out… John Eckberg Jerry Robinson is that hat a bad thing? Karl’s analysis indicated 8100 +/- jobs to be lost… you posted about ” Remington Medical, Inc.” with their job loss.. People are responsible… those folks at Remington – might want to know about who came up with this “tax”.. how they got it passed and names at each step of the chain? “Unfair”.. ? you might ask… well.. how much though do you think the “bigshots” gave to the children of US workers whose jobs were destroyed? not a single thought.. we have things like facebook and Youtube as tools today.. It’s people who caused this act to happen in the fashion it did. no “random chance” at work here.. John Eckberg Jerry Robinson Someone ran a real “piece of work” scam on them.. they are not mentally equipped to understand.. And I have seen this OVER AND OVER again.. The Oblique solution would be preferred here.. who what behind the tax – which could have been fairly “harmless” but was constructed to be “deadly”? There was a serious, real economic analysis done to plan and create this effect.. Who benefits.. who loses – and who financially gains.. which lobbyist were paid to push.. which “puppet masters” pulled the strings.. As said.. my dad started to work against this kind of thing in the 1930s.. it’s an old formula… Joe Hage Jerry Robinson Question is… what to do – how to be effective… I don’t think a vote approach will work.. but that is for another topic… Time to go Joe?? Closing time on this topic?? John Eckberg John Eckberg Jerry Robinson Re-express it as a Gangrene Tax – one which seems small to start – yet siphons off a company’s immune system and then kills it – This is something that people can relate to. Like Gangrene – it would seem to be small – but the effects can be devastating – fatal, in fact…… John Eckberg Jerry Robinson Like Gangrene – it does appear small – and irrelevant, just as Karl insisted. YET.. in PRACTICE – because of WHERE it impacts in he cash flow process, how this “small tax” gets marked up by hosptiatls and then billed back to the gov’t at a huge markup.. because of a new – huge accounting, tracking, and regulatory system.. it has the Gangrenous effect of “killing the patient (company). That’s something that mapping out the cash flow stream shows… People relate to Gangrene – starting small and resulting in chopped off limbs or death.. and Corporate Death can certainly happen.. Think is.. there are those who WILL profit off this Gangrene Process… and therefore push the issue.. as a crude illustration.. “get the bone saw, nurse.. we must remove this (R&D) limb to save this patient (company…). Joseph Schwartz Jerry, in a post more than 20 hours ago you said the tax was insidious and intentional. I agree. This administration views our country in a colonialist fashion. In other words, the US is a monster who forces its will on as many other countries as possible. They think we are evil and are actively trying to dismantle our “power” and make our neighboring countries equal. This can only happen by tearing down the perceived more powerful country. They actually WANT jobs to go offshore…spread the wealth. They understand fully that this means lost jobs on our shores and less higher paid jobs. That is the equalization process. One radio commentator called it equalizing the misery. There is no doubt in my mind that this is a strategy actively pursued by this administration. Who is responsible? I don’t think we will ever know the names of those behind closed doors…that is why the doors were closed. However, I do believe every politician who either gave or followed the instructions to “vote on it, then we will find out what it says”, should be driven out of office with such a resounding vote that they will never be able to run for office again. Let them discover what unemployment is like. Harsh words, you bet, hate speech? Not in any way or fashion. Jerry Robinson Sometimes identifying the “perps” is a good way to start their office exodus.. It’s the people behind the scenes that the light of the sun on them.. Martin Padget Jerry Robinson What do you suggest as alternative – how would you have handled the issue differently?? Dan Stipe When you write things like that, it gives you zero credibility. And though not as explicit as Joseph’s, many of the repeal-the-tax postings in this thread have a similar mind-set oozing between the lines. Can you understand why we don’t trust what you say? Jerry Robinson I think skepticism is really important on this particular – and on related issues.. If trust – only after you verify – is a good point, too. How the tax damages companies is probably a lot more important than the amount.. For this 2.3% tax, there is 24 taxing periods per year… with all of the accounting, auditing, record keeping and such each year.. It’s a tax that must be paid – perhaps before – or long before a company gets paid by the purchaser – if you sell on “net” terms.. Tax is DUE 14 days from title transfer – in these 14 day windows.. Companies that would not owe ANY tax – now will. 2.3% of sales. In times past, the R&D could offset a tax bill – but not for this one. So it erodes that R&D budget. For some companies, it is a big effect – for others – little effect… It hits on things you would not think about.. If it is a Medical Device – then tax is due.. things like.. pacemakers.. tongue depressors (??) and such… For those devices sold to hospitals – their typical MARKUP is 157 – 709% (according to the Atlanta Journal Const.). I am sure these numbers vary.. Since virtually ALL companies have the OPTION to return a good – for some reason.. So you have the REAL scenario of the Gov’t seeing 2.3% income on one end – and paying out MULTIPLES of this on the back end.. it’s how Social Security, Medicaid, VA, etc, etc. work… So the NET EFFECT – for those products – is that the Gov’t loses money.. and that is before cost accounting for the tax auditing – accounting process. companies will have to serialize products – in order to handle tax credits on sales… There are a LOT of products sold as Medical Devices.. tracking.. well.. it will be pretty surreal.. Dan.. from a PURE COST STANDPOINT.. it is much cheaper for the Gov’t to audit/tax account for imports than for domestiv products.. that’s been true on average – for a long time. How much that affects Medical devices – I really don’t know.. I DO KNOW that these numbers can actually be dug out… I don’t assign any “motivation” to the administration… There are poeple whare are motivated who helped write these laws.. I am curious who they are and what their stake is…. This story is just another chapter in a long story of US Mfrs getting hit by our own rules to put our own companies out of business. Regan complained of this in the his first election campaign.. how the US trade reps would go to work for foreign interest they had been negotiating against…. Patent enforcement was another area of impact.. UNTIL Texas Instruments really put the squeeze on.. no US company had gotten IP revenue from US patents – in the US or in Japan.. this is a pretty clear story.. Repealing the tax? Congress?? have they ever seen a tax the did not like?… to collect?? :> I really encourage skeptical approach.. there is a lot of factual info that can be dug out.. and the “chicken little” theatre just needs to get out of the way. What are the facts and what are the effects.. John Eckberg John Eckberg Jerry Robinson If you look back in time – you can follow the threads back a long way… My dad talked a good bit about times after WWII. I followed threads back a lot further.. the techniques go back many, many hundreds of years.. Post WWII – the US DoD and State Department made a decision to financially support certain countries and set up the rules for import accordingly. They could and did craft offshoring in certain target industries. Very well crafted technique. Many individuals found that they could also reap enormous profits in the process. Especially if they crafted the rules. My point is not to detail history lessons here.. It’s just to say that there are multiple techniques in play NOW – forcing industry off shore – and subsidizing the offshore process – and subsidizing the import process. There is an effect.. you see it all over small towns in the America.. Shuttered factories. The death of industry and jobs.. the rise of hard drug use among the young.. and the corresponding death rates of those kids. You see the effect in Bridgeport.. in Detroit.. in Akron.. you get my point… Assume for a minute – that I DON’T know anything – at all.. Just look at the death rates of kids in a small Midwestern town – and then dig in. Go look at the community – how employment changed over time.. job prospects for “locals”… and look back through the generations of their parents – through their eyes…. It’s a sobering story.. The 2.3% “tax” is just one tool in this nasty little story.. and because it happens so diverse – and in so many places – that you can’t really see what is going on very well. Numbers tell the story, though. As Dietrich Bonhoeffer taught.. If you don’t contest the issue now.. then who will be left when they come for your job and family? Just for a minute.. look at the empty slabs of the textiles industry.. the hollow buildings where shoe and clothing companies used to be.. Why would you think that Med Device or Pharma is any different? So.. yeah.. sometimes you get in the muck and conduct the dirty opposition – in a fair and appropriate manner. Dan Stipe Jerry Robinson John Eckberg There’s a reason why 46 Dems blew off their President’s veto threat to vote for repeal yesterday. That tally is a near-veto-proof majority – if not a veto-proof majority. There is a reason why Congress Members like Terri Sewell of Alabama and Philadelphia’s Chaka Fattah and Brendan Boyle and Washington’s Suzan DelBene voted to repeal this tax. It’s clumsy, harms small businesses and start-ups alike and ultimately means less innovation for patients. Now it’s time to get the Senate engaged at the same level, particularly Senators in California, Oregon, Washington, New Mexico, New Jersey, New York and Michigan. Janett Jalil Jerry Robinson But the mechanics of how it works is quite clever… the 2.3% tax is not much… but in the “right place” – and the “right method” – there is an effect… First – the tax filing – return and money – are due twice a month.. that’s 24 returns per year.. where you and I have one return to fill out per year. Med Device makers get to PAY this tax every 14 days… even though the customer might pay on NET 90 or worse.. that cashflow effect impacts jobs – especially in R&D. Where else does the money come from – EXCEPT jobs? Second – there is a WHOLE new accounting structure for Medical Devices companies.. which ain’t free… so figure that that will likely DOUBLE the tax cost on a company.. 2.3% tax – and something link 5% after cost is passed on… Accountants, documentation, lawyers.. these things aren’t free…. Third. – The AJC did research and showed HOSPITAL MARKUPS of 157 to 709%. The COST of the 2.3% tax gets marked up – and passed along to PATIENTs.. If a company passes on the cost to about 5% – which is likely… that’s the base markup.. So the Gov’t takes IN 2.3% – but when it pays OUT money for MEDICAID, VA, ETC.. then it is PAYING OUT 7.85% to 35.45% of the base medical device cost… In a nutshell.. the 2.3% they take – is a lot LESS than the 7.85 – 35.45% that they are shelling out.. the HOSPITALS are getting the markup – not the Device makers.. Fourth.. the Govt will have to have a whole new accounting and enforcement effort.. they get to deal with 24 tax returns per year – for about 20,000+ Medical Device companies.. where does that money come from? the 2.3% income? Who is going to administer – the IRS? their budget is being cut now…. Fifth.. ALL of the Medical Devices – will have to be SERIAL NUMBER IDENTIFIED and TRACKED.. this is not cheap.. this is because of potential product returns – and tax accounting.. just like you have a VIN on your car.. you will have serial numbers – or batch numbers on your tongue depressor box.. tracking drives up cost – too.. After all that.. the markups posted are HOSPITAL mark ups.. not for the device makers.. Karl caluclated that the increased costs would be about a sales loss of $360Million. That translates to a loss of about 8100 jobs in the US – give US average salaries.. SO.. give all that.. there is NOTHING to be happy for in this tax.. IT absolutely drives cost up – and provides absolutely NO BENEFIT to the patient. It just drives the medical patient cost UP. Will the gov’t actually MAKE any money off the tax… ? I have no idea… there is just a much larger bureaucracy with absolutely no patient benefit. Jerry Robinson Here is an example.. If the amount of money currently parked offshore = $2.1 Trillion that represents $2.1 Trillion / 44,888.16 per job = 46,782,937 person-years of salary. it’s a lot. Tax on this amount is essentially 0. If you are a US Medical Device maker – these numbers are nothing to celebrate… They are like looking into the abyss. Jerry Robinson John Eckberg John Eckberg John Eckberg Jerry Robinson driving up Medical Device costs to hospitals.. gets marked up to consumers a lot…. So to summarize the numbers presented so far… First Payments will made 2x a month.. based on title transferred sales.. This is irrespective of (a) if you get paid or (b) when you get paid. So if it takes 3 – 9 months get paid, then you have to carry the cost in between. This point is where jobs get lost and innovation gets stiffled. Second Because I DO NOT KNOW what this will be on average – and can only guess.. I picked 2.7% as a number. It’s going to vary from company to company – and will will likely end up costing a lot more.. for the moment – 2.7% seems a number.. So a company’s actual cost is increased to 5% of sales.. That will ALSO get marked up – by some substantial number… I have no clue what it will be.. but DOUBLE is not so unlikely.. and that is likely low… So that number drives ups the mark up cost to 10%. AGAIN – it is just a guess and will vary… Thrid… For hospitals – this 10% number gets marked up before getting billed to a patient. The AJC did a study of hospital markups. They found that prices were marked up an average of 157% to 709%. so using these real numbers – that means that the DEVICE TAX of 2.3% -has ballooned in cost to NOW for the FUN PART For these government programs – the results stand that 2.3% of the medical device price was brought in as revenue. That’s the PLUS side.. On the negative side… The IRS is losing a LOT or money in auditing and compliance… (or IRS equivalent). It cost money to administer compliance. How much? I don’t know – it’s a lot of money for a resource limited group to have to come up with.. Clearly.. it has a cost… on the negative side – for hospital medical devices – the Gov’t is going to pay out 15.7% to 70.9% of the based medical device cost – versus their income of 2.3% – for those patients they end up paying for… This is the math.. each device – each company – may hae to plug in different numbers.. but NONE of these cost work to make patients more healthy – or to reduce overall medical system costs… I am not even sure if the overall tax will BREAK EVEN in total cost – other than shuffling money from one point of government to another. about the ONLY groups that MAY benefit are hospitals… who mark up expenses.. and that point is suspect – since they have real costs, too. That’s the math. John Eckberg John Eckberg Dennis Vetrano John Eckberg Bill Schnoebelen https://www.youtube.com/watch?v=2ZBYLIUqmIs John Eckberg They have also moved their manufacturing overseas. Resulting in lost jobs here in the states…the Government telling me how to run mine has just about ruined and certainly made it harder to be a success. How is it our responsibility to fund Health Care? Because I profit from it? What about the insurance companies or the payment processors that process the credit cards that consumers use to pay their medical bills or the how about the hospital executives who make absurd salaries….why not them? Rick Stockton Joe Hage Jerry Robinson Neil Sheehan John Eckberg Neil Sheehan Rick Stockton I know both Joe and John, and they are are both leaders of great courage, conviction, and wisdom. The subject here is an unfair tax that is introducing new harm to real human beings who have lives and families whose lives also matter. Can we agree, their lives matter? => These people are our “dog” in this fight. And “Whining”? Really? #1 – Have some compassion on all the lives impacted. Real people are being hurt, and unfairly. #2 – Stop opening your posts by insulting people, and perhaps you will not get insults back. Neil Sheehan Paul M. Stein As scientists, we learn from experiments, our successes and failures. We modify those “procedures” for optimal outcome. When it comes to politics, perhaps that was an option decades ago, when people were more reasonable, but not now, again, unfortunately. To now choose death for the tax is, in essence, another social experiment. What would the ramifications to our Industry end up being? If jobs gains rapidly occur, offshoring drops precipitously, and companies’ profits increased so they stopped disappearing, then the opponents to the tax could be rightly stated to have been correct all along. However, if all the negative connotations of the current tax then do not get reversed in a reasonable amount of time, what would that say about anyone who was being so dead set against the tax, and their motives? Could they ever be trusted again with their opinions, correct or not? I like to hear everyone’s opinion and take that deep think. I don’t want to dismiss anyone down the line just because they got something oh so wrong once in the past. That’s why I’m still holding out that ridiculous hope for a modification of the tax. That way, everyone can be right…and so, listened to next time. John Eckberg Jerry Robinson It did succeed in the process of driving up the cost of health care – which is just the opposite of the goal. Whether the tax actually generates a positive NET after the Hospital Markups and Medicare/SS/VA insurance payouts – is something that is really debatable. As the cost increases ripple through the whole chain – the answer is increasingly NO net income… just a loss.. If the tax had been structured differently.. say you paid tax on device INCOME – then the whole story would have been different.. I know that this part was not an accident. Jerry Robinson Mary Jartcky Rick Stockton But one logic-defying thing: How can you possibly reduce the cost of medical care by adding a brand new tax on medical devices? Jerry Robinson after hospital markups – it adds a lot of cost.. the hospital keeps the markup… so.. who benefits? It’s carefully written.. and someone sure benefits… Rodney (Rocky) Bailar John Eckberg Jerry Robinson At some point – the cost DOES GET PASSED ALONG.. When a small company is building something and selling.. the BREAKEVEN point is a lot harder to reach – and that cost will eventually get passed on to the hospitals.. as part of the group of customers.. for a lot of companies, they pass that cost along NOW – since if there is no contract in place, then no reason not to. There real goal should be reducing health care cost, just as you say, Rocky… Adam Gross Jerry Robinson First.. the 2.3% required a 2x per month – 24x per year tax accounting and payment. This put tremendous pressure on small companies and startups. Instead – if you HAD to get this tax.. make it no different that (a) regular accounting periods – no different than what companies do now.. If you SELL something – then get PAID later.. for purposes of the tax – be on a cash basis – and transfer the title when paid… Second.. EVEN the FDA inspection burden.. inspect OFFSHORE – as much as ON SHORE.. and charge OFFSHORE COMPANIES THE COST. If it cost 4x to inspect offshore than charge 4X the “tax”… If the offshore entities do NOT PASS a fair test, then suspend imports. Third.. IN THE LAW – allow a tax surcharge – immediately. So the “negotiated” costs are immediately increased – in hospitals and such.. Making those providers EAT the cost – is completely destructive… Fourth.. ALLOW PATIENTS to buy DIRECTLY… like from Costco and Walmart… for their medical devices.. It does NOT have to go through a hospital and get the 157% – 709% markup… As a practical matter.. a patient can buy a $2 bottle of asprin at Walmart – instead of paying $15-$19 for a single tablet – at the hospital level.. Build a list.. buy the list direct.. cut out the “hospital” middleman. Fifth.. ALLOW competition among device purchases – and direct publishing of prices. Competition will reduce cost.. You know it will.. Allow NEGOTIATION from the Govt’ on Pharma. These are some very simple things to do… and the gov’t still gets their tax. but it still would save many thousands of jobs. IN TRUTH – there are a lot more things that could be done to actually” level” the playing field for US companies.. RIGHT NOW>. the idea of a Level Playing field – means MORE MONEY in the pockets of accountants, tax folks, lawyers, and hospital admins… NOT a more level playing filed for patients… Ramon Babasa Jerry Robinson Karl Schulmeisters I DIVIDED your number.. $360 million of sales loss – to arrive at approximately 8100 lost jobs. That is a valid analysis and thing to do. In no way – is this dishonest to do a simple division – based on SSA numbers. There is no misrepresentation there.. I do not intend a personal attack – and did apologize if you interpreted it that way. That is posted. Nothing dishonest in actually using numbers THAT YOU PROVIDED. The only issue I have is that (a) you seem to be able to do math to calculate the $360 million lost sales number – but (b) can’t or won’t take it a step further and divide YOUR NUMBER by the US Gov’t supplied (Social Security Administration ) average wage $ amount in the US. So why is that Karl? Why did you stop – one step short – of finishing the simple math – based on your information? I observe that YOU supplied the numbers.. not me – and logically following that extension out – it comes to about 8100 +/- jobs lost. That was the point of this thread.. were jobs lost? The answer is clearly YES.. Re: your quote.. Let’s avoid a politics discussion – that is ALSO your instruction in this thread. Susan K Jones Karl Schulmeisters Jerry Robinson >>FACT –> cited research shows a Price Elasticity of Demand of 0.2. So while the collection mechanism may be these companies, it is far more likely that the money is coming out of those paying for the devices at the end – be it individuals or healthcare insurance companies. Since that comes from the customers and since PEoD tells us what the drop in demand is we can calculate the potential jobs impact: $1,8 Billion x 0.2 ==> $360 million in reduced sales volume. That works out to $17,152 of revenue loss per manufacturer. That’s not even a full time job << So.............................. Where is the misrepresenting part? you wrote and posted the above... It required division in your analysis, as well... The Social Security Adminstration - posts numbers too.. They say >>average US Job Salary is 44,888.16 << (from Social Security Admin numbers) Yes... I did the math... YOUR NUMBER: (Sales reduction) / SSA average US Salary of a worker = $360 Million / 44,888.16 per job = 8,019.93 jobs. Hey... This is pretty simple math - so perhaps you mis-stated your math or your analysis? I am doing a direct quote.. straight from the posts.. I don't mind being criticized. As an Engineer and a Art Technologist - it's possible that I can be wrong. That is why Tetlock did such a thorough study of the "Accuracy of Experts" - and also why Nassim did the same kind of thing for Wall Street and financial instruments.. The real trick - and where the professional part comes out - is to try and recognize if you are wrong and change track to GET RIGHT. It's important. SO>>> by YOUR OWN DEFINITION – we can look at a JOB LOSS OF 8,019 jobs from this tax.. John Eckberg Did multinationals based in Ireland and elsewhere use this tax as a chance to shutter factories in the US and reopen them in Costa Rica and other no-tax enterprise zones? Yes. Are patients and their loved ones suffering because R&D no longer is vibrant and rewarded? Yes. Will this tax eventually be repealed? I dunno but a veto-proof majority and 46 Dem Reps signing on for repeal certainly has implications for our level-headed president. That’s for sure. What a pleasant surprise: 46 votes for bipartisanship and patient care. Jerry Robinson Reductions of jobs – based on just increasing the cost.. I really had not thought about it so hard – until Karl did the math and pointed it out. I fully believe there are a host of active detriments at work – and your 10K numbers are sure low.. Like riding a bucking horse in some ways.. if one jolt doesn’t get you – then the next might – or the one after that might.. Karl Schulmeisters Jerry Robinson Jobs were and will be lost. We talk. The jobs lost represent people. They will suffer. Jerry Robinson We charge OTHER people for our consulting services… sometimes A LOT. so how does your effective prediction affect the message you tell clients? Every experience military officer could tell you that it’s necessary to have a plan. But the first contact with their “opponents” will change that plan. That’s a good business and economic analogy as well. Joe Hage Marked as spam  Posted by Asked on May 19, 2015 7:04 am 237 views |
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