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Tuesday Tax Tradeoff: $29 Billion Tax Break for Medical Device Companies or Healthcare for the Uninsured

By William Rice, Policy Consultant, Americans for Tax Fairness

shutdown graphicTo avoid a government shutdown Republicans in the House of Representatives set two conditions for the U.S. Senate to meet over the weekend: delay Obamacare for a year and cancel a $29 billion excise tax over 10 years paid by medical device companies.

Think about that – they were more concerned with giving a tax break to a multi-billion dollar industry than with helping to provide healthcare to millions of Americans. The modest 2.3 percent tax would apply to medical devices—from surgical gloves to MRI machines.

The companies’ complaints about the tax are largely bogus, and one of their beefs—about how the tax is levied—can be traced right back to their own pervasive tax dodging.

The corporations have plenty of support from lawmakers in Congress in their quest to repeal the tax—no surprise, since the industry contributed $10.4 million to influence federal elections, and has spent over $150 million lobbying Washington since 2008.

A Faulty Diagnosis

As the Center on Budget and Policy Priorities points out, the arguments against this modest, fair and efficient tax are trumped up.

The tax is unlikely to cost the industry money, since it’s helping to create millions of new customers—and new profits for the industry—from the formerly uninsured. It will not lead to offshoring of jobs, since the tax applies to both domestic production and imports. America’s export industry will not be hurt, since devices intended for overseas sales are exempt from the tax.

And the device makers have not been—as they would have us believe—singled out: Every industry in the health care field, from hospitals to insurance companies to drug companies, was required to contribute to help bring health insurance to tens of millions of Americans as they should be.

When Profits Can’t Be Detected

Leaders of the medical device industry may have no one to blame but themselves for one feature of the tax they find objectionable: It is an excise tax on sales, rather than an income tax on profits. But it’s possible the law was written that way because some of the biggest device makers are also some of the most practiced at hiding their profits offshore.

The industry’s sales leader, Johnson & Johnson, has $49 billion stashed overseas, some unknown portion of it in 55 subsidiaries in tax havens, according to the U.S. Public Interest Research Group. This money is out of reach of U.S. taxation until the day (which often never comes) the money returns to our shores.

Number Two in medical device sales, General Electric is Number One in offshoring profits, with $108 billion tucked away overseas. Using both foreign and domestic loopholes, GE also managed to not pay any federal income taxes on nearly $20 billion in profits between 2008-11, according to Citizens for Tax Justice. In fact, the company got $10.6 billion in refunds, for an effective tax rate of negative 18.9 percent.

With America’s biggest medical device makers always devising new and different ways to avoid their fair share of taxes, it’s not surprising Uncle Sam is demanding the money we need for health care reform be paid up front.