Republicans Push Medical-Device Tax Repeal in U.S. Senate

Republicans trying to end a U.S. excise tax on medical devices see a chance to capitalize on fractures among Democrats and score a long-sought victory.

If they manage to include the repeal in a package of tax breaks moving through the U.S. Senate this week, Republicans could make a dent in President Barack Obama’s 2010 health care law and help companies such as Medtronic Inc. (MDT) and Boston Scientific Corp. (BSX) that want the tax abolished.

Seventy-nine senators, including 34 Democrats, backed a non-binding vote last year to end the tax.

Medical-device companies are located in several states -- including Minnesota, Massachusetts, Pennsylvania and Indiana -- that are represented by Democrats who make this issue an exception to their support for the health care law.

“If it’s symbolic and largely non-consequential, then they’re willing to make the vote and go home and tell their constituents that they voted that way,” Senator John Thune, a South Dakota Republican, told reporters yesterday. “But, you know, when it really matters, I think they’ll be running for tall grass.”

Democrats, who are split on whether to repeal the excise tax, control the Senate floor calendar and haven’t decided whether to allow a vote.

“I’m not sure this is the right time or the right vehicle,” said Senator Bob Casey, a Pennsylvania Democrat who supports rescinding the tax.

Senate Majority Leader Harry Reid, a Nevada Democrat, didn’t explicitly rule out a vote on the device tax. He said the device companies are having success under the health law.

Artificial Hips

The 2.3 percent tax, which took effect in 2013, applies to medical devices that aren’t typically sold directly to consumers, which means that it applies to items such as pacemakers and artificial hips.

“I’m not going to cry any big tears over the device folks,” Reid said. “Their profits were huge last year.”

A 2013 Congressional Research Service report found that the tax would mostly affect consumer prices and not company profits. It said the effects would be “negligible” because of the small size of the tax and the device industry’s share of the U.S. health care system.

The broader tax bill being debated would revive more than 50 tax breaks that lapsed at the end of 2013 and extend them through 2015.

Research Credit

They include the research and development tax credit and a provision that lets individuals exclude debt forgiven if they sell their home for less than they owe on the mortgage.

It also would allow individuals to deduct sales taxes from their income, a benefit for residents of states such as Texas that don’t have an income tax.

The package of tax breaks scaled its first procedural hurdle yesterday in a 96-3 vote. Senators must cast several more votes before they can pass the bill, which would add $84.1 billion to the U.S. budget deficit over the next decade, according to the Congressional Budget Office.

Repealing the excise tax would reduce federal revenue by about $30 billion over the next decade, and Republicans have consistently argued that any changes shouldn’t be offset with tax increases or spending cuts.

A final vote on the bill may come by next week, and passage isn’t guaranteed in a Senate that’s torn on policy and procedure.

“Often in the Senate it’s hard to get people to order a Coca-Cola, let alone pass a tax bill,” said Senate Finance Committee Chairman Ron Wyden, an Oregon Democrat.

Wind Energy

The legislation includes provisions backed by most Democrats and opposed by some Republicans, including a production tax credit for wind energy.

It also contains policies that have the reverse partisan split, such as letting companies such as Citigroup Inc. continue deferring U.S. taxes on overseas financing operations.

“It’s a very difficult vote because there are some good things in it, and there are some horrendous things in it,” said Senator Bernard Sanders, a Vermont independent who aligns with Democrats.

Some votes before final passage will require support from at least 60 lawmakers, which means at least five Senate Republicans would need to join with Democrats.

Tax Policies

Republicans’ complaints about the way Democrats are running the Senate could trump their support for the tax policies. Minority Leader Mitch McConnell of Kentucky yesterday wouldn’t say whether he would encourage fellow Republicans to vote against the bill if they aren’t allowed to amend it.

Senator John Cornyn, a Texas Republican, said he hadn’t decided whether he would support the measure if Republicans can’t offer amendments.

“There’s a lot of good policy in there and there’s some bad policy in it,” he said.

If the Senate passes the bill, lawmakers would have to reconcile it with a very different approach in the Republican-led House of Representatives. There, lawmakers are picking individual lapsed breaks and extending them permanently, starting last week with the research tax credit.

The bill is HR 3474.

To contact the reporters on this story: Richard Rubin in Washington at rrubin12@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editors responsible for this story: Jodi Schneider at jschneider50@bloomberg.net Laurie Asseo

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