December 16, 2015
Most people realize that politicians don’t always give the true explanation for their actions. For example, few politicians are likely to say that they vote against gun control measures because the NRA is a powerful lobby that could derail their political career, even if this is the real reason for their vote. They are more likely to claim they vote against gun control measures because of their belief in the rights of gun owners.
While most people may recognize this fact, apparently the folks at the NYT do not. In an article on the new budget deal it noted that several Democrats had joined with Republicans in suspending the Affordable Care Act’s (ACA) tax on medical devices through 2017. The piece told readers:
“Republicans said the device tax discouraged the development and sales of innovative, lifesaving medical technology. Some Democrats from states with thriving medical technology companies agreed.”
Of course the NYT does not know that the Democrats who voted to suspend the tax agreed with the claim that it would discourage the development of new technologies. They may have just voted against the tax because the companies in their states and districts are powerful lobbies.
The economics of the medical device industry are similar to the economics of the prescription drug industry. Companies have large research costs, but then are able to sell devices for a markup of several hundred or several thousand percent above their marginal cost. By giving more people access to health care, the ACA was increasing the demand for medical devices and therefore increasing the number of devices that could be sold at high markups, creating a windfall for the industry. The purpose of the tax was to take back some of this windfall.
Opponents of the tax may actually disagree with this logic. Alternatively, they may just be doing the bidding of a politically powerful industry. It is worth noting that the Obama administration did not propose a similar tax on pharmaceuticals, even though the logic would be identical. The pharmaceutical industry is of course even bigger and more powerful than the medical device industry.
On the topic of the article itself, we are told in the first sentence:
“Republican and Democratic negotiators in the House clinched a deal late Tuesday on a $1.1 trillion spending bill and a huge package of tax breaks.”
A denominator would be helpful here. Most of the package covers the next two years, a period in which the government is projected to spend a bit less than $8 trillion.
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