Killing the medical device tax hasn't boosted jobs as Erik Paulsen claimed it would

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The Minnesota Republican sometimes dresses as a surgeon while playing the role of a lawmaker who's supposed to represent the people.

Zimmer Biomet, an Indiana-based manufacturer of artificial joint orthopedics and dental prostheses, has a BFF in Minnesota Congressman Rep. Erik Paulsen.  

The lawmaker, the single largest Capitol Hill benefactor of campaign donations from the medical device sector, threw the industry a tasty bone by championing a two-year moratorium of the Medical Device Tax, the 2.3 percent excise on such products as MRI machines, pacemakers, and artificial joints.

The tax took effect in January 2013. Its two-year respite started in December 2015.

Coming off his successful November reelection, Paulsen's "first initiative" in 2017 was introducing legislation that would permanently repeal the tax.

"One of the best ways to protect American manufacturing, spur innovation, and make sure the latest and best medical technology is affordable for patients is to repeal this burdensome tax,” Paulsen explained. “We are already seeing new American jobs and increased investment in research and development as a result of the temporary suspension of this tax."

Zimmer Biomet and other device manufacturers must not have gotten the memo.

According to an Ernst and Young report, the industry actually added almost 24,000 jobs in 2013, the first year of the tax. But that job growth mainly came from American companies hiring overseas, as was the case with Boston Scientific. In other words, the tax that was blamed as a job killer for U.S. workers, was more like an excuse for corporate handlers to layoff staff stateside and hire anew across the ponds. 

Moreover, between 2012 and 2013, the analysts discovered, the entire sector saw profits increase by almost $3 billion, from $8.6 to $11.4 billion. 

Data from pre- and post-tax years show the tax wasn't the armageddon it was supposed to be. 

Profits enjoyed by Twin Cities-based Medtronic, for instance, exposes the flaws in Paulsen's arguments. In 2013, the first year of the tax, and in 2016, when the tax had been suspended, Medtronic profits were almost identical, around $3.5 billion. 

As for Zimmer Biomet, its profits and employment figures don't show the device tax as the bane to the industry that Paulsen contends.   

According to the company's recent annual report, it averaged yearly profits of $549 million for the nearly-three-period that the tax was in effect. In fact, 2016 net earnings, without having to pay the modest excise, were about $306 million. 

As for Paulsen's claim that without the tax comes American jobs, consider:

Zimmer's 2015 annual report said it employed roughly 8,400 American workers, with another 9,100 people on the payroll "outside of the U.S., primarily throughout Europe and in Japan."

During the next 12 months, with the tax gone, the firm's 2016 annual report reads: "Approximately 8,700 employees are located within the U.S. and approximately 9,800 employees are located outside of the U.S., primarily throughout Europe and in Japan."

In other words, minus the tax, comes some new jobs. But most are workers being hired in foreign countries, not on American soil. 

In 2017, the report also goes on to say, job creation isn't Zimmer's priority.

Rather, "We intend to invest our savings from the medical device excise tax into our business in areas such as R&D, sales force speculation and medical training and education.” 

And executive pay.

President and CEO David Dvorak total annual compensation averaged $8.6 million between 2012 and 2014. Last year, according to Morningstar, Dvorak was compensated to the tune of almost $11.5 million.  

Paulsen spokesperson Andrew Johnson did not respond to repeated messages seeking comment.

But the congressman, who represents a district stretching from Chaska to Edina to Coon Rapids, isn't Minnesota's only elected official in Washington, D.C. shilling for medical device companies.  

Democratic Senators Amy Klobuchar and Al Franken, who both regularly rank among that chamber's biggest recipients of medical device and supplies industry campaign donations, are alsocomplicit.

The Dem duo are sponsors of a Senate bill that, like Paulsen's House version, would kill the device tax for good. 

Messages left for Franken spokesperson Marc Kimball and Klobuchar press secretary Kate Childs-Graham were not returned.

 


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