Monday, September 14, 2009

Taxing innovation will cost lives

As we have long predicted on this blog, the health care "reformers" propose to finance at least part of the "savings" or new benefits -- it is impossible to know which -- by decreasing the rate of return on medical technology. There are many ways in which this might be done, but the Senate Democrats are proposing to do so directly, by levying a "value added tax" on medical device companies according to their proportion of U.S. sales. This tax would be without regard to profitability, so it would amount to a capital tax on start-ups and a massive income tax surcharge on profitable companies, varying as net margins do. In the case of my own mid-sized company, the tax would be the equivalent of a roughly 20% surcharge on our net income (in all likelihood raising our economic tax rate well above 50%) or 50% of our research and development budget, depending on how you want to look at it.

Any way you look at it, the proposed tax is a calculated effort to divert capital from the medical technology industry to other uses in the economy, because new medical technology drives costs that are now going to be assumed by the government (or at least will be if the Senate leadership gets its way). Of course, innovative medtech also extends and saves lives, and makes them more comfortable and more productive. Which is, after all, the point of medicine.
Two points here. The first is economic. If you tax something, you get less of it. If there is less of it, the price will go up. These are basic economic truths. One of the stated purposes of Obamacare is to reduce medical costs. You do the math.

Second, as the quoted passage says, the technologies these companies deliver save lives. Sarah Palin has been called a liar by the president of the United States for claiming that Obamacare will create "death panels," an incendiary description of the idea that Washington bureaucrats will be making life and death decisions about which medical treatments will be made available. I'm not sure this is what she had in mind, but isn't this just such a decision? Every dollar of extra tax put on these companies is a dollar that won't be available to create, develop, and deliver new life saving technologies. It's inescapable that this policy, imposed by Washington bureaucrats, will cost lives.

We can argue about whether this constitutes a "death panel," but the end result is the same.

No comments: