Say It Ain’t So! The Medical Device Excise Tax Doesn’t Hurt?

The medical-device excise tax, part of Obamacare, is a universally reviled 2.3 percent levy on medical devices. Many people think that it will finally be repealed, with Republicans in charge of both chambers.

Now, along comes the Congressional Research Service to pour cold water on the idea that the tax is a job killer. The writers agree that the tax makes no economic sense:

Viewed from the perspective of traditional economic and tax theory, however, the tax is challenging to justify. In general, tax policy is more efficient when differential excise taxes are not imposed. It is generally more efficient to raise revenue from a broad tax base. Therefore excise taxes are usually based on specific objectives such as discouraging undesirable activities (e.g., tobacco taxes) or funding closely related government spending (e.g., gasoline taxes to finance highway construction). These justifications do not apply, other than weakly, to the medical device case. The tax also imposes administrative and compliance costs that may be disproportionate to revenue.

However, they dispute the argument that it will harm device makers:

The estimates in this report suggest fairly minor effects, with output and employment in the industry falling by no more than two-tenths of 1%. This limited effect is due to the small tax rate, the exemption of approximately half of output, and the relatively insensitive demand for health services.

So, all is well? Not at all:

The analysis suggests that most of the tax will fall on consumer prices, and not on profits of medical device companies. The effect on the price of health care, however, will most likely be negligible because of the small size of the tax and small share of health care spending attributable to medical devices.

That’s not a slam-dunk for repeal, but it sounds like the basis for a fair case that device makers’ customers could use a break. However, the medical-device industry resists the conclusion that its members pass the tax on to customers. It prefers to argue that its companies basically eat the whole tax. So, it is unlikely to use this report in its lobbying for repeal.

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