Our Leave No Tax Behind President
Early this morning, as detailed in James Pethokoukis's posts below, President Obama told us "the private sector is doing fine." Later in the day, Obama added, "it is absolutely clear that the economy is not doing fine."
I'm glad we cleared that up.
One possible explanation for the confusion is that Mr. Obama approaches the private sector like Hollywood's version of a Mafia Don selling "protection" to a local shop owner: "Nice business you've got here, shame if something was to happen to it." To Obama, the private sector is not the aggregation of millions of citizens pursuing happiness by freely associating with one another to pool their labor and create wealth. The private economy is just a juicy target from which to extort funding for the important things in life; namely those matters under Barack Obama's direct control.
Consider the heady days leading to the passage of Obamacare. In addition to buying congressional votes--remember the Cornhusker Kickback and Louisiana Purchase?--the Obama administration was desperate to neutralize industry opposition to the bill. After some arm-twisting, the pharmaceutical industry trade group cut a deal, ending the threat of a reprise of the Harry and Louise television ads that helped sink Hillary Clinton's single-payer Trojan horse in 1993. In contrast, the medical device industry--pharma's less profitable cousin--withheld its support and was therefore singled out for punishment.
The result? A 2.3% tax--levied solely on medical device manufacturers--takes effect on January 1, 2013. Since, conveniently enough, the government dictates the price of most high-technology medical products through the Centers for Medicare and Medicaid Services, this tax cannot be passed on to customers. So all else being equal, company profits will decline. But things aren't equal. We live in a global economy: capital is mobile and investors demand a return. So to avoid collapsing stock prices, med-tech company chief executives are in the process of slashing research and development expenses, meaning layoffs by the thousands.
I hope the high-tech solution for whatever ails you or your family members has already been perfected (our expectation of steady year-by-year advancement in medical technology is oh so 20th century). If not, take comfort in the fact that federal law now guarantees you access to that lifesaving technology that will never be invented.
Now you may be saying, "Heck, the tax is only a measly 2.3%." But remember: this is a levy on sales not profit. The feds already charge all corporations a highest-on-earth 40 cents on each dollar of profit.
Sales taxes that can't be added to the price take a deep bite. One of the most successful medical device companies, Medtronic, a pioneer in pacemakers and implantable defibrillators, has a net profit margin of 23%. The new tax whacks 10% right off the top. Medtronic employs 45,000 people, or did before Obamacare, and spends 10% of sales on R&D, about $1.5 billion annually, or used to.
For Medtronic competitor Boston Scientific, which employs 24,000, the situation is dire: the company's net profit margin is only 6%. So for this manufacturer, Obama's 2.3% off-the-top exaction to scratch his transformational itch amounts to a full 38% scraped off an already-thin bottom line.
Rep. Erik Paulsen (R-MN) is leading a vigorous fight in the House to repeal this economic weapon of mass destruction, winning passage yesterday with bipartisan support on a vote of 270-146. Predictably, the Community Organizer in Chief is promising a veto, preferring to decimate a leading U.S. manufacturing industry rather than permit the slightest change to his [in]Affordable Care Act.
Obamacare delenda est.
CORRECTION: It just occurred to me that I erred above in stating that "the feds already charge . . . 40 cents on each dollar of profit." The actual federal corporate income tax rate is 35%. The average combined corporate tax rate--federal plus state--is 39.3%, the highest in the world. Here in sunny California, the combined rate is 43.84%.
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Comments:
Dec '10
Re: Our Leave No Tax Behind President
Is it November yet?
God, we need an election, STAT.
Nov '11
Re: Our Leave No Tax Behind President
Hmm, this puts in context Zeke Emanuel's recent ridiculous NYT blog post telling us that the da Vinci robotic surgery system is a "fake" as well as a "pseudo" innovation, because
Uhh, thanks for quantifying that, Zeke.
Yeah, totally a fake innovation, nothing to discuss there at all. And that's not even discussing the other uses of da Vinci (study is on prostatectomy only).
Nov '11
Re: Our Leave No Tax Behind President
Also
I find that last sentence to be hilarious, and frightening at the same time. Yeah, penalizing hospitals that have higher than average readmission rates will save the government money, but it will negatively affect patient outcomes. Quoth Doug Perednia:
May '11
Re: Our Leave No Tax Behind President
Obama promised to control health care costs, and here it is. By destroying medical innovations, he not only avoids having to pay for these new devices, he also gets to avoid treatment costs for the patient who dies.
Re: Our Leave No Tax Behind President
Mothership_Greg: Also
Most people will not notice the absence of the product that, but for government intervention, would have been there to save a life or relieve pain and disability.
The statists all talk a good game about "preventive" care. But the real objective is buying the votes of healthy people--the majority--by paying for "free" services that nobody really needs. Sick people are expensive, and don't matter nearly as much as a voting bloc. So the political trick is to progressively spread the wealth around from the sick to the healthy, maintaining the illusion of healthcare for all along the way.
Of course, there is always a catastrophic collision as reality t-bones illusion. But as long as the wreck occurs one sad patient and family at a time, this remains a winning political strategy (c.f., UK National Health Service).
Edited on June 9, 2012 at 8:12pmMay '10
Re: Our Leave No Tax Behind President
George Savage
The statists all talk a good game about "preventive" care. But the real objective is buying the votes of healthy people--the majority--by paying for "free" services that nobody really needs. Sick people are expensive, and don't matter nearly as much as a voting bloc. So the political trick is to progressively spread the wealth around from the sick to the healthy, maintaining the illusion of healthcare for all along the way.
Brilliant point.
I think we now understand even better than we cynically did back in 2008 why Obama likes to run on vague slogans such as "hope" and "change." When people know about the details of Obama's policies, they will be outraged. Including with Obamacare.
This story about the medical device companies is a perfect example of the kinds of stories that our side needs to be highlighting. It's the only way we can cut through the Left's sob stories and feel-good arguments about "health care for all."
Mar '11
Re: Our Leave No Tax Behind President
For our environmental/luddite friends on the Left, that's what is known as a "win-win".
Jun '12
Re: Our Leave No Tax Behind President
Every time I see that FORWARD logo I imagine it says FORBERRY.
Jun '12
Re: Our Leave No Tax Behind President
I am not an economist, nor do I play one on TV, but I've heard there's an economic rule that goes something like, "whatever you tax, you get less of."
This principle is easily demonstrated in the various "sin taxes" the Progressive Puritans (those lefties, like Bloomberg, who are haunted by the thought that someone, somewhere, is having fun) like to propose, to discourage people from doing things that the Progressive Puritans don't like.
Therefore, by taxing medical devices, the Obama Administration is declaring that they want fewer medical devices.
QED.
Edited on June 9, 2012 at 11:01pm