Company's decision to nix expansion over ObamaCare tax renews pressure on Congress

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Published July 30, 2012

| FoxNews.com

An Indiana company's decision to scrap expansion plans due to a looming tax on medical devices has renewed pressure on the Senate to consider a House-passed bill repealing the tax. 

House Speaker John Boehner, in a written statement, urged the Senate to take up the bill "as soon as possible." 

Companies in the medical device industry for months have been calling on Congress to strip the provision. Amid the complaints, though, several firms have already taken steps to cut back U.S. investment out of concern for the tax's impact. 

Cook Medical, an Indiana-based medical equipment manufacturer, last week said it's nixing plans to open five new plants in the next five years -- claiming the tax will cost between $15 million and $30 million a year, cutting into money that would otherwise go toward expanding into new facilities in the Midwest. 

"Unfortunately, we have had to shelve these expansion plans and look overseas for that," Allison Giles, vice president for federal affairs with the company, told FoxNews.com. "It's a huge amount for us." 

She urged the Senate to take up the repeal bill, even if it has to wait for the post-election lame-duck session. 

"We're hoping that members will look at this, not so much as a health care provision, but as a jobs provision," she said. 

The Affordable Care Act imposed the 2.3 percent tax on medical devices beginning in 2013. It is projected to raise nearly $30 billion over the next decade -- the House voted to repeal it last month.    

The Obama administration argues that claims the tax will shift jobs overseas are overblown. The tax, after all, would still be imposed on equipment produced overseas and imported into the U.S. -- though it wouldn't apply to equipment produced and sold overseas. 

According to the Treasury Department, the medical device companies actually stand to benefit from the law. Though the 2.3 percent tax hits the industry, the department argues that the millions of new health care customers insured as a result of the law will increase the demand in hospitals to order more equipment -- in turn boosting medical device companies' profits. 

The White House, in threatening last month to veto the bill, also complained that the House-passed repeal bill would offset the lost revenue from the tax by cutting down on subsidies for some families. 

This, the White House said, would effectively "raise taxes on middle-class and low-income families." 

Giles, though, said the Senate could always negotiate a different way to pay for the repeal. 

Cook Medical also argues that the impact is greater than just a 2.3 percent uptick in taxes, and that the impact on actual earnings is closer to 15 percent. 

Hundreds of representatives from the device industry sent a letter to congressional leaders last year arguing for repeal, and citing the impact on jobs. "It will increase the effective tax rate for many medical technology companies, thereby reducing financial resources that should be used for R&D, clinical trials and investments in manufacturing," they wrote. 

The repeal bill passed the House in June with bipartisan support. 

Republican leaders in both chambers are now calling for the Senate to give the bill a vote. 

"The medical device tax repeal  not only stops a devastating new tax that is already forcing American job creators to ship work overseas, it makes common-sense reforms to help reduce health care costs for families and allow them to keep more of their hard-earned dollars. I hope the Senate takes it up as soon as possible," Boehner said in a statement. 

A Senate Republican Policy Committee report last month said companies are already "shrinking their payrolls" in advance of the tax, pointing to the announcement last November by medical device firm Stryker Corp. to lay off 5 percent of its workforce in advance of the tax. 

A spokesman for Senate Republican Leader Mitch McConnell said Republicans in the chamber want to have the vote, but are being "blocked" by Democrats. 

A representative with Senate Democratic Leader Harry Reid's office has not returned a request for comment. 

Device companies aren't the only ones concerned about the looming tax. 

Kevin Kuhlman , legislative affairs manager with the National Federation of Independent Business, said the cost of the device tax could, in some cases, be felt by employers in the form of higher premiums. And that could affect job creation. 

"More resources will have to be devoted toward increased cost of benefits," he said.

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