Although it doesn’t take effect until 2013, President Obama’s Medical Device Tax is already killing jobs.
Stryker, the Kalamazoo, Michigan-based manufacturer of a variety of medical devices including knee and hip replacements, announced last month that it was cutting roughly 1,000 jobs in anticipation of the 2.3 percent tax.
“Here we are, one of the greatest industries in the country, and we’re staring down on January 1, 2013 and the addition of a 2.3 percent excise tax, while meanwhile on the other side all the discussion in Washington is about creating jobs,” said Stryker CEO Stephen MacMillan, as quoted in MassDevice.com.
Rarely mentioned in media reports, President Obama’s signature on the Affordable Care Act in March 2010 imposed 21 new or higher taxes on the American people. The tax hikes take effect one by one, with the full brunt hitting in 2018.
One of the most infamous of the 21 tax hikes is the Obamacare tanning tax, a 10 percent tax on the amount people pay for indoor tanning services. The tax was slipped into the bill on December 19, 2009 after Senate Democrats scrapped the much-ridiculed “Botax,” a 5 percent tax on elective cosmetic surgery.
The reason for the Botax?
“We needed money to make the bill work,” Jim Manley, spokesman for Senate Majority Leader Harry Reid, told The New York Times.
Picture that for a moment. Democrat bean-counters sitting in their offices late at night dreaming up new taxes to fund yet another expansion of government’s role in health care, with no clue as to the real-world implications of their little project. A tax here on medical device manufacturers, a tax there on tanning salons — Obamacare proponents searched under every rock to find money.
While political pressure and public embarrassment caused the Democrats to drop their planned Botax, they inserted the tanning tax as a revenue substitute. This came as a rude surprise to the owners and customers of the nation’s 25,000 businesses offering tanning services. Most are mom-and-pop enterprises and would prefer not to greet their customers with a new 10 percent tax or lay off an employee to compensate for lost business. But that was of no concern to the authors of Obamacare, who had designs on the $2.7 billion in projected tanning tax revenue over the next decade.
Compounding the problem is the fact that the tanning business owners had very little time to prepare for the tax and the IRS did not issue clear compliance guidelines in advance of the July 1, 2010 effective date, due in part to the confusing nature of the legislation. Here’s a passage from a highly scintillating report from the Treasury inspector general — “Affordable Care Act: The Number of Taxpayers Filing Tanning Excise Tax Returns is Lower Than Expected” — released on Sept. 22, 2011:
More than 1 year after the passage of the legislation providing for the tanning tax, Excise Taxes (Publication 510) had not been updated to include tanning tax information. The updated Publication 510 was finally issued in July 2011.
Information should be provided to taxpayers in a timely manner in order to assist them with meeting their tax obligations. This is especially true of new taxes imposed on a unique population of taxpayers who historically have not had to pay excise taxes and who may not have any experience with them.
The report also states:
By the time the combined data were used to issue notices to potential nonfilers in early June 2011, the due dates for three quarters of returns had passed. Taxpayers who owed the tanning tax and were not aware of the filing requirement would have then had three delinquent returns due, along with the associated tax, interest, and penalties. In addition, if the taxpayers had not been collecting the tax from their customers, they would also owe the tax out-of-pocket, possibly affecting the viability of their business.
Whether owing to lost business or confusing bureaucratic compliance guidelines, the tanning tax has only raised a total of $54.4 million in its first three quarters, significantly below the expected $200 million-per-year pace.
There is evidence in the report to suggest that the tanning tax has caused over 1,000 employers to go out of business. For the quarter ending Dec. 31, 2010, there were 10,677 excise tax returns filed with the tanning tax; for the quarter ending March 31, 2011, there were only 9,628.
Makes you wonder how many people lost their jobs, how many business owners closed their doors, how many thousands of extra hours were spent on tax compliance rather than customer service, all because Obama and co. “needed money to make the bill work.”
As then-House Speaker Nancy Pelosi famously stated, we had to pass Obamacare “so that you can find out what is in it.” This holiday season, a thousand people at Stryker are finding out the hard way.
John Kartch is director of communications at Americans for Tax Reform.
