Ron Paul: This Cruel Tax on Medical Advance Must Stop

Government programs, taxes, and bureaucratic mandates are the closest thing the United States has to the mythical perpetual motion machine – they keep going and never seem to stop.

Once put into place, it is rare for Congress to hit the brakes and reverse course by amending or eliminating faulty laws.

Although the medical device tax has been one of the rare exceptions, it may be nearing a comeback if Washington does not act soon.

The 2,000-page Affordable Care Act inflicted the 2.3 percent tax on medical device manufacturers, but many legislatures were not aware its existence nor the severe repercussions it would have on healthcare innovation until after its passage.

The ink was barely dry on the legislation when a bipartisan coalition agreed that imposing a new tax on medical devices would harm consumers and impede technological advancement.

When I was still a member of Congress in 2012, there was a bipartisan vote in the House to repeal the tax. One year later, 79 members of the Democrat-controlled Senate voted to eliminate it as well.

Congress finally put the medical device tax on a two-year moratorium in 2016, but the suspension is set to expire this month. Now, the clock is ticking. The 115 th Congress must revisit this damaging tax while it still can.      

The medical device tax is a major handicap to treating life-threatening diseases.

Since Congress imposed this levy on total sales rather than overall profits, it ties the hands of many manufacturers from meeting the needs of patients. Although 91 percent of medical device manufacturers are small or medium in size, the non-partisan Tax Foundation found that a company making just $75,000 in profits could be taxed $46,000 –  an effective corporate income tax rate of 60 percent.

GettyImages-136194216 Ron Paul at a town hall meeting at the Iowa Speedway on December 28, 2011 in Newton, Iowa. Justin Sullivan/Getty

As a result of this punitive levy, approximately one third of medical companies and innovators cut their research and development spending. Three-quarters either had difficulty raising capital or stopped planned capital investments, ceased opening new facilities, reduced start-up funding, or canceled immediate employee compensation increases.

These significant declines, which the moratorium largely reversed, were unacceptable given that America leads the world in technological advancement. In the battle against cancer, Alzheimer’s and other critical diseases, the nation needs more scientific progress, not less.

Support for repeal comes not only from industry but also from patient advocates and medical researchers. Research!America, a nonprofit alliance of organizations ranging from universities and health centers to patient groups and research institutes, is leading the fight against it.

Research!America notes that the medical device tax “works against progress toward new medical technologies that can save lives and provide transformative support to individuals with disabilities.”

The coalition argues that the levy sways companies away from treating critical health issues like cardiovascular disease, paralysis, combat-related injury, and organ failure – conditions that disproportionately rely on medical devices.

If the government is to tax the citizenry, it should at least do so transparently. Like all excise taxes, this one is largely hidden from the public’s view. As a result, few realize the magnitude of impact this levy has on America’s economy and healthcare system.

New legislation championed by Reps. Erik Paulsen (R-Minn.) and Jackie Walorski (R-Ind.) would suspend the medical device tax for an additional five years. The bill has the support of Rep. Kevin Brady (R-Texas), the chairman of the House Ways and Means Committee. While a step in the right direction, permanent repeal is a better option.

Both parties agree that discouraging investment in America’s healthcare is not smart policy. Repeal of this tax will usher in a never era of investment and promise that will help pave the way to new cures and treatments.

The only question is, why the delay?

Ron Paul, a former congressman from Texas and Republican presidential candidate, is host of the Ron Paul Liberty Report and Chairman of Campaign for Liberty.