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New medical device tax threatens innovative American industry

By the end of next month, our long national nightmare of ObamaCare will hopefully be at an end. If the Supreme Court does not overturn the law in its entirety, however, it is imperative that Congress, along with the man we hope will be our new president Mitt Romney, repeal all 2,700 pages of the law. 

One example of the perverse policies in the law is the new 2.3 percent excise tax that will be levied on medical equipment and devices starting in January of 2013, less than 200 days from now, and that will cost the medical technology industry more than $28 billion. 

We strongly oppose this tax that was created to fund the president’s health law, have introduced legislation to repeal it and hope Democrats will join us to take down this job-crushing tax hike. 

The medical device industry is central both to America’s economic growth and to the delivery of new, much-needed medical technology to patients. Between 1980 and 2000, new diagnostic and treatment tools, such as improved scanners, catheters and tools for minimally-invasive surgery, helped increase life expectancy by more than three years. Medical devices helped to slash the death rate from heart disease by a stunning 50 percent and cut the death rate from stroke by 30 percent.

But in a mad rush to find additional revenue to support the law's trillions of dollars in new spending, the president and his Capitol Hill allies enacted this medical device tax despite the predictable impact on economic growth, job creation and health care innovation. What the proponents of the law fail to understand is the basic concept that if you tax something more you get less of it. If we want to be a nation leading the charge of new health care advancements to treat and cure diseases, then we must repeal this tax. 

Furthermore, medical technology is one of the leading industrial sectors contributing to our nation’s economy today. That could all change, however, with this new tax that will push research, development and manufacturing abroad and put tens of thousands of Americans’ jobs at risk. 

This is an industry that should be praised, not penalized. From 1980 to 2000 the medical device industry was responsible for a 4 percent increase in US life expectancy, a 16 percent decrease in mortality rates and an astounding 25 percent decline in elderly disability rates according to a study by MEDTAP International. In 2006, it shipped over $123 billion in goods, paid $21.5 billion in salaries to 400,000 American workers and was responsible for a total of two million American jobs. More than 80 percent of medical device companies are small businesses employing 50 people or less. 

Economic growth in this field is crucial to creating high paying, quality jobs in the United States. 

But, as America’s economy struggles to regain footing, this tax would deliver a staggering blow. As many as 43,000 jobs could disappear, as well as $3.5 billion in worker wages and benefits.

Even the prospect of this tax has been paralyzing. 

In 2007, according to a report led by PriceWaterHhouse Coopers, 116 early stage device companies raised approximately $720 million in initial venture capital. Since then, the number of device companies receiving this investment has declined more than 60 percent. 

And the total dollar amount of venture capital invested has declined more than 70 percent -- with only 55 new companies raising just under $200 million last year. This is the lowest level of medical device start up activity since 1996. What makes this data more troubling is that initial start-up company financings are a leading indicator for innovation and job creation in the medical device sector.

At least three major companies have announced that they will have to lay off thousands of US workers and outsource some production overseas. What is a now a robust, job-creating sector with the innovative vision to shape life-saving technology will be transformed into one that must struggle to stay abreast of the ever-evolving demands of the market.

And small businesses and startup companies, our greatest hope for job creation, will be severely handicapped. This measure taxes device sales in the US, regardless of whether a company has even made a profit. Small businesses investing in the research and development of new products often struggle during the early years of operation. Paying a sizeable new tax while managing inevitable start-up costs and meeting investor targets will be more than many small businesses can handle.

Medical technology is one of the few American manufacturing sectors that is a net exporter, with a positive balance of $5.4 billion – accounting for a stunning 40 percent of the entire global technology market. Remaining globally competitive can keep these jobs in the United States. But our lead has shrunk dramatically in the last decade, and we stand to lose further ground with the new tax with many device firms already closing or moving abroad to avail themselves of the more favorable tax and regulatory climate in Europe. 

This tax will be disastrous -- a prime example of what happens when Congress thinks it needs “to pass the bill so you can find out what’s in it,” as former House Speaker Nancy Pelosi famously said. Well, the Democrats did pass it and we did find out -- the law threatens patients, workers and the economy.

ObamaCare as a matter of policy is unsound and must be repealed. The elimination of the medical device tax will benefit our economy, workers, job creators, patients, and families that depend on the good jobs, high wages, and innovative medical products that this industry creates.

Republican Orrin Hatch represents Utah in the US Senate. Republican Erik Paulsen represents Minnesota's 3rd District in the US House of Representatives.

Republican Orrin Hatch represents Utah in the United States Senate.