Math is the unrelenting arbiter of all government entitlement programs. It does not take a rocket scientist to understand that if a person or business is required to pay more in taxes, that person, family or business MUST make cuts somewhere to stay even, or in the case of a business, try to make a profit. Only the federal government believes one can continue to run in the red infinitely.
The Monster will continue to hammer the point that this administration is all about draining the personal coffers of citizens and businesses, not so much to re-distribute the wealth to other citizens, but to keep the bankrupt treasury afloat. Remember, Washington is all about how it looks, and not how it is.
By: Byron York
Chief Political Correspondent
March 23, 2010
The people at Zoll Medical Corporation saw a ray of hope in January when Scott Brown was elected senator from Massachusetts. Located in Chelmsford, 30 miles outside Boston, Zoll is the nation’s leading manufacturer of heart defibrillators, which save thousands of heart attack victims each year. Back in January, as the Senate race was raging, both House and Senate Democrats wanted to impose a crippling new tax on the makers of medical devices, Zoll included, to help pay for Obamacare.
The total tax on the industry would be about $2 billion a year, or $20 billion over the next decade. Companies watched nervously as lawmakers pushed ahead, first the House and then the Senate. But then Brown was elected on the promise to be the crucial Republican vote to stop health care reform. For Zoll, things were looking up.
Not anymore. The bill passed by the House Sunday night contains a particularly damaging version of the $20 billion hit for the medical device industry, meaning Zoll and other medical device makers could well be headed for hard times.
“We believe that the tax will cost us somewhere between $5 million and $10 million a year,” says Richard Packer, Zoll’s chairman and chief executive officer. “Our profit in 2009 was $9.5 million.”
That would be a devastating blow. Zoll employs about 1,800 people. Roughly 1,600 of them are in the United States, and about 650 of those are in Massachusetts. Once the new tax kicks in, that could all change. “We can’t run this company at a break-even or a negative rate,” says Packer, “so we will be forced to look at alternatives.”
The company’s first option is to pass the increase on to customers like hospitals and ambulance companies. That might or might not work, given that they are coming under increasing pressure to cut their own costs.
The next option is to cut research and development — a short-term, money-saving move that will surely cost Zoll down the road. And a third option, says Packer, is to “look at trying to shift jobs to lower-cost places around the world.” That would be bad news for Massachusetts and the USA.
It’s still not clear precisely how the new system will work. The Senate bill, which becomes law as soon the the president signs it, imposes the $2 billion annual tax on the industry starting almost immediately. The government would calculate the size of the entire medical device industry and charge each company a fee based on its share of the market. That’s how Zoll estimates its part will be $5 million to $10 million.
For Zoll, that’s the worst-case scenario. Things will be a bit better if the Senate approves the reconciliation bill passed on Sunday by the House. One of the “fixes” in the reconciliation bill would impose a 2.3 percent excise tax on medical devices, going into effect in 2013. Even though it would cost the company about the same amount of money, Zoll executives prefer that scenario, if only because the delayed onset would give them time to prepare.
No matter what happens, the makers of the devices that save our lives are going to take a major hit.
“It’s a real concern for some of these companies, in that they probably are operating on pretty thin margins,” says Brian Johnson, publisher of MassDevice, an independent business journal devoted to the medical device industry. Johnson adds that even those companies that can pay the tax face perhaps even more serious problems because of recent government actions, apart from health care reform, making it harder and more costly to win Food and Drug Administration approval for new products. “As a whole, in terms of stricter regulation and the added tax, that’s a pretty big bag they’re carrying right now,” says Johnson.
And then, of course, there is the continuing economic downturn. All in all, it’s not a good time to levy a new and burdensome tax on a highly innovative American industry. And yet that is exactly what Obamacare does.
When I called Richard Packer at Zoll on the morning after the House passed the bill, I asked how he was doing. “A total state of depression,” he answered, with the kind of short, dry laugh that says it’s not really funny. A lot of Americans are feeling that way now.