One of the many Obamacare taxes that went into effect in January is having such an onerous effect on small businesses, and could ultimately prove so devastating, that some of Congress' most staunchly liberal Democrats are urging its repeal.
The health care law's Medical Device Tax might seem modest enough: a 2.3 percent excise imposed on manufacturers of durable medical equipment --e.g., pacemakers, wheelchairs, walkers, hospital beds, dentist chairs, breast pumps, blood pressure cuffs, even braces.
But as Ryan Ellis, tax policy director for Americans for Tax Reform, points out, appearances can be deceiving.
A lot of people don't understand how this tax is going to work, and why it's so unpopular even with Democrats, Ellis tells Sunshine State News. 2.3 percent doesn't sound like a lot, but it's not an excise tax: it's a gross receipts tax."
That means device manufacturers are not being charged that tax on their profits, but on the total amount their product sells for. For example, a company raking in $5 million in revenue but only making $1 million in profit would be taxed $115,000, an almost 12 percent tax on their profits.
And that's in addition to the other profit taxes, 35 percent to 40 percent, they're already required to pay.
It's a very, very damaging tax increase, Ellis says. A lot of these companies have said, 'Look, our profit margins are not very large, we bring in a lot of money but a lot of that goes out the door in costs, and if we were forced to pay this tax, we would go bankrupt and will have to ship this overseas.'
Kline Miller, owner of Capital Medical and Surgical Inc., agrees.
The cost of acquiring these products will go up, our reimbursement [from Medicare] is fixed and is actually declining, so our [profit] margins will get squeezed, he tells SSN. And we can't pass that cost on to consumers, the way other businesses can.
But Ellis warns the costs will eventually be passed on, whether directly or indirectly. If they survive long enough to be able to do so, device manufacturers can pass the costs on to insurance companies, which in turn will raise their premiums. And ordinary customers will almost certainly see prices go up for medical devices they purchase at their local pharmacies, like breast bumps and blood pressure cups.
Consumers can also expect higher costs at the dentist. Braces that can cost as much as $7,600 could cost an additional $175; and that's just one of the hikes patients might feel as dentists charge more to compensate for the raised prices of other medical devices they purchase.
Last month, most U.S. Senate Democrats joined all of that chamber's Republicans to pass a nonbinding resolution to repeal this particular Obamacare tax. A House bill seeking a binding repeal received its 218th co-sponsor on Tuesday, which is enough support to pass the measure.
Ellis suggests the medical devices tax is one of several provisions of the bill that was drafted and passed without careful scrutiny, given Democrats' haste to pass the landmark Obamacare legislation.
This tax might have even been written as a drafting error this bill was rushed through in the Senate on Christmas of 2009, he explains. But nobody wants to live with it anymore, that's for sure.
Reach Eric Giunta at egiunta@sunshinestatenews.com or at (954) 235-9116.
