Archive for Friday, May 11, 2012

Taxing jobs out of existence

May 11, 2012


BLOOMINGTON, IND. — Bill Hewlett and David Packard, tinkering in a California garage, began what became Hewlett-Packard. Steve Jobs and a friend built a computer in the California garage that became Apple’s birthplace. Bill Cook had no garage, so he launched Cook Medical in a spare bedroom in an apartment in this university town. Half a century ago, in flight from Chicago’s winters, he settled here and began making cardiovascular catheters and other medical instruments. One thing led to another, as things have a way of doing when the government stays out of the way, and although Cook died last year, Cook Medical, with its subsidiaries, is the world’s largest family-owned medical devices company.

In 2010, however, Congress, ravenous for revenues to fund Obamacare, included in the legislation a 2.3 percent tax on gross revenues — which generally amounts to about a 15 percent tax on most manufacturers’ profits — from U.S. sales of medical devices beginning in 2013. This will be piled on top of the 35 percent federal corporate tax, and state and local taxes. The 2.3 percent tax will be a $20 billion blow to an industry that employs more than 400,000, and $20 billion is almost double the industry’s annual investment in research and development.

An axiom of scarcity is understood by people not warped by working for the federal government, which can print money when it wearies of borrowing it. The axiom is: A unit of something — time, energy, money — spent on this cannot be spent on that. So the 2.3 percent tax, unless repealed, will mean not only fewer jobs but also fewer pain-reducing and life-extending inventions — stents, implantable defibrillators, etc. — which have reduced health care costs.

The tax might, however, be repealed. The medical device industry is widely dispersed across the country, so numerous members of Congress have constituencies affected by developments such as these:

Cook Medical is no longer planning to open a U.S. factory a year. Boston Scientific, planning for a more than $100 million charge against earnings in 2013, recently built a $35 million research and development facility in Ireland and is building a $150 million factory in China. (Capital goes where it is welcome and stays where it is well-treated.) Stryker Corp., based in Michigan, blames the tax for 1,000 layoffs. Zimmer, based in Indiana, is laying off 450 and taking a $50 million charge against earnings. Medtronic expects an annual charge against earnings of $175 million. Covidien, now based in Ireland, has cited the tax in explaining 200 layoffs and a decision to move some production to Costa Rica and Mexico.

Already 235 members of the House of Representatives — 227 Republicans and eight Democrats — are co-sponsors of a bill to repeal the tax. Twenty-three Republican senators but no Democratic senators favor repeal. The Democrats who imposed this tax on a single manufacturing sector justified this discrimination by saying Obamacare would be a boon to the medical devices industry because, by expanding insurance coverage, it would stimulate demand for devices. But those insured because of Obamacare will be disproportionately young and not needing, say, artificial knees. And well before Obamacare, the law had long required hospitals to provide devices to the needy who are uninsured.

Unsurprisingly, Sen. Scott Brown, R-Mass., supports repeal of the tax. Surprisingly, so does his opponent, Elizabeth Warren, an impeccably liberal Obamacare enthusiast who notes that in Massachusetts the medical devices industry has 24,000 employees and accounts for 13 percent of the state’s exports. Warren is experiencing another episode of New England remorse: “When Congress taxes the sale of a specific product through an excise tax ... it too often disproportionately impacts the small companies with the narrowest financial margins and the broadest innovative potential.”

Well, yes. In 1990, when President George H.W. Bush’s recanted his “no new taxes” pledge, he enabled the Democratic-controlled Congress, with a legion of New England liberals in the lead, to impose a 10 percent tax on yachts costing more than $100,000. Yacht sales plunged 70 percent in six months, a third of all yacht building companies — many in New England — stopped production and more than 20,000 workers lost their jobs. In 1993, the tax, although not the damage, was repealed.

Given humanity’s fallen condition, almost everyone’s tax policy is: “Don’t tax you, don’t tax me, tax that fellow behind the tree.” There are, however, vulnerable wealth-and-job creating businesses behind most trees.

— George Will is a columnist for Washington Post Writers Group. His email address is


cato_the_elder 6 years, 1 month ago

An excellent column about an insidious, outrageous tax buried in Obamacare that is generally known only to those associated with medical device manufacturing companies and the investors in those companies. Many such companies, which are already booking major charges to their bottom lines if Obamacare isn't held unconstitutional in its entirety, will be crippled by this tax, and meaningful dividends to investors will be few and far between.

Richard Heckler 6 years, 1 month ago

George Will has no idea what he is talking about. The health care industry is the fastest growing business in the nation.

Artificial knees and such are being installed at younger ages. Athletics are hell on joints and other parts of the body.

What is crippling to the health care industry is high dollar medical insurance and fraud committed by the industry.

Med insurance over charging consumers:

Medical Insurance charging more yet providing less:

Missouri has recently introduced a single payer plan and New York state has introduced health care as a human right:

States that put forth these measures will attract jobs jobs jobs because it will save consumers and business people money.

Sharon Nottingham 6 years, 1 month ago

Have we learned nothing from the book, Atlas Shrugged? Let the innovators do their jobs without the government taking away the innovators profits that they rightly earned by their intelligence and hard work.

JackMcKee 6 years, 1 month ago

I learned that Ayn Rand was a hypocritical hack.

Sharon Nottingham 6 years, 1 month ago

I agree, Jack, but the book itself was interesting.

just_another_bozo_on_this_bus 6 years, 1 month ago

Your entire existence is based on fiction, so I can understand why you like it.

just_another_bozo_on_this_bus 6 years, 1 month ago

So, which would be more disastrous to the economy-- a general strike by the bottom 20%, or the top .1%? The top .1% makes considerably more money, but what happens when the trash doesn't get picked up, restaurants can't serve, offices don't get cleaned, lawns don't get mowed, streets don't get repaired, grandpa's butt doesn't get wiped, etc.....?

just_another_bozo_on_this_bus 6 years, 1 month ago

I agree-- and the .1% have been on strike for the last several years, one of the main reasons for the current recession. And it's not like they aren't paying the lowest rates of taxation in many, many decades.

So why are they on strike?

just_another_bozo_on_this_bus 6 years, 1 month ago

As prolific as your backside is, it'd have to come with hazardous duty pay.

Patricia Davis 6 years, 1 month ago

And at 62 I want to make sure that Ann Rand's social security and medicare is there for me, too.

tomatogrower 6 years, 1 month ago

Those innovators were paying much higher taxes when they were innovating. What's your point?

Richard Heckler 6 years, 1 month ago

First of all George Will provided no hard evidence to back up his conjecture.

Perhaps Cook Medical and all others should take a hard look at:

  1. CEO pay packages ( terminate the CEO positions)
  2. spending on political campaigns ( stop spending)
  3. golden parachutes ( eliminate)
  4. BOD pay packages ( reduce significantly)
  5. Maybe a corp jet needs to go ( eliminate)

My best guess we're talking billions in unnecessary spending. How about cutting way back on the above and put money back into the company? Keep the workers on the payroll to fuel the economy.

USA workers made USA manufacturing a wealthy business now they want to leave and support other governments. What's the point in supporting communist China?

This wealthy industry needs to step up and pay their taxes!!! Instead of you and me making up their shortfall!

jafs 6 years, 1 month ago

All of the money in politics bothers me, regardless of which side it's on.

Can you say the same? If we could simply eliminate money from politics, would you be on board?

JackMcKee 6 years, 1 month ago

Move to Kansas, George. This place sounds like your version of paradise.

Richard Payton 6 years, 1 month ago

JP Morgan's $2 or $3 Billion slide created in London will not be helping jobs either. Whats your point?

seriouscat 6 years, 1 month ago

"If [people] place such things as friendship and family ties above their own productive work, yes, then they are immoral. Friendship, family life and human relationships are not primary in a man’s life. A man who places others first, above his own creative work, is an emotional parasite."

Ayn Rand

seriouscat 6 years, 1 month ago

“Democracy, in short, is a form of collectivism, which denies individual rights: the majority can do whatever it wants with no restrictions. In principle, the democratic government is all-powerful. Democracy is a totalitarian manifestation; it is not a form of freedom."

Ayn Rand

Nellane Laney Croan Stussie 6 years, 1 month ago

Never ends!

Americans with Disabilities Act in 1990 to protect people with severe handicaps such as blindness, deafness or paralysis. It was updated by the Americans with Disabilities Act Amendment Act (ADAAA) in 2009 to accommodate far more disabilities and now also covers a plethora of other afflictions — including bashful bladder syndrome.

jayhawklawrence 6 years, 1 month ago

Having been very involved with manufacturing across the country for the last 30+ years I am not impressed at all with George Will's take on this because this kind of blame game has become the status quo and the status quo is not fixing the problems we have with competing in the global economy.

When you break down the rhetoric and start to question his superficial and overly simplistic interpretation of the facts and the history it seems beneath someone of George Will's vocabulary to write something this sophomoric.

I would be more concerned with the political environment we have created and the lack of intelligence being brought to bear on the critical issues of our time. The American people deserve better and we just are not getting it out of our leadership or our political commentators.

Jimo 6 years, 1 month ago

The portion of national GDP taken by the federal government in taxes reaches lows not seen since the Polaroid camera was first sold, 45 rpms records were introduced, and 'A' You're Adorable sung by Perry Como was #1 ..... and a dunce like George Will pens a screed titled "Taxing Jobs out of Existence".


How many little green men do you see, George?

No, no, seriously: too much Propaganda Channel viewing or the onset of Alzheimer's?

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