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GE Didn’t Pay 2010 Taxes but May Pay Medical Device Tax in 2013

On the one-year anniversary of the passage of the healthcare reform bill (March 23), conservative politicians, business organizations, and manufacturers of medical devices took the opportunity to focus on a provision in the law that calls for a 2.3 percent excise tax on medical devices to go into effect in 2013.

The regulations pertaining to implementation of the device tax are still being hammered out, but the law expressly seeks to generate revenue for the government from big companies like {complink 8019|General Electric Co.}, Siemens, and Phillips as well as smaller original equipment manufacturers.

Indeed, a broad range of products could be levied — everything from magnetic resonance imaging machines, ultrasound systems, and radiology equipment to patient monitoring devices like glucose and blood pressure meters. These devices are composed of parts supplied by electronics companies and include integrated circuits, microprocessors, sensors, flash memory, and other components.

The medical device tax, the government says, is to help pay for healthcare reforms, and part of those reforms have to do with the cost of bringing America’s healthcare system into the modern technological age.

Since President Barack Obama took office the administration has assigned billions of dollars to accelerate the adoption of health information technology that will transfer paper-based patient records to digitized medical records. This transformation helps build momentum for high-tech medical device manufacturers to sell their product in the lucrative healthcare sector. Indeed one study reveals that the medical device market was estimated to be $94.9 billion in 2010.

Under the American Recovery and Reinvestment Act (otherwise known as the stimulus package), which includes the Health Information Technology for Economic and Clinical Health (HITECH) Act, $19.2 billion was allocated to support healthcare delivery organizations' adoption of electronic health records (EHRs) systems used for storing patient information such as lab results, medications, past medical history, and radiology reports.

Additionally, HITECH has also authorized up to $27 billion in incentive payments for providers, and $2 billion to build a national infrastructure for the adoption of EHRs. Investments are also being made in broadband development and tele-health projects.

Medical device manufactures stand to benefit from these investments as their technologies become more widely used to manage computerized patient information in the medical setting. Medical device manufactures will also make further gains when an additional 32 million Americans receive healthcare coverage under the health reform law.

While federal investment in health IT is likely to boost sales at OEMs like GE and parts suppliers such as {complink 2657|Intel Corp.} and other medical device manufacturers, that fact was brushed aside in recent harsh criticism of the tax. Indeed, support to abolish the tax, which will generate $20 billion, is gaining some traction.

In January, US Rep. Erik Paulsen (R-MN) introduced H.R. 436, the “Protect Medical Innovation Act of 2011,” which aims to repeal the excise tax on medical device manufacturers. According to Paulsen, his bill was introduced in the US House of Representatives with 41 bipartisan original co-sponsors; today the bill has 110 supporters in the House. Companion legislation has also been introduced in the US Senate by Senator Orrin Hatch (R-UT).

Last week the US Chamber of Commerce voiced its support for the repeal legislation in the form of a letter from R. Bruce Josten, its executive vice president for Government Affairs who described the tax as an “onerous $20 billion excise tax on medical device manufacturers.”

Josten’s letter of support to Rep. Paulsen said the tax will weaken the medical device industry's ability to create and maintain well paying jobs in the United States and hinder the development of breakthrough treatments:

    This new 2.3 percent tax on virtually all medical devices beginning in 2013 will lead to increased health care costs, undercutting one of the primary goals of health care reform. Further, by driving up the cost of medical technology, the tax will undermine America’s global leadership position in product innovation, clinical research, and patient care…

    Finally, the tax singles out the medical technology industry to help pay for the cost of the health care reform law. The Chamber opposes punitive taxes that target a particular industry, sector, or income group.

The president and CEO of the Medical Device Manufacturers Association (MDMA) Mark Leahey also had this to say: “MDMA and its members strongly believe that the device tax included in health care reform will harm patient care and thwart innovation and job creation at a time when we can least afford it.”

I don’t have a crystal ball, and therefore cannot predict how this issue will be resolved. I do know that I was disgusted to learn last week that medical device maker General Electric wiggled its way out of paying taxes for 2010. We'll see if it can do so again.

9 comments on “GE Didn’t Pay 2010 Taxes but May Pay Medical Device Tax in 2013

  1. SunitaT
    March 30, 2011

    Increasing the Medical Device Tax is very sensitive issue since it direclty increases the  health care costs for the public. Recently similar medical tax was axed in India following lot of opposition from the general public.

  2. DataCrunch
    March 30, 2011

    The US has one of the highest corporate tax rates in the world, which causes companies like GE, who have armies of lawyers, accountants and tax professional, as well as have government connections, to find loopholes in the system that can provide them with legal offshore tax havens. Some may argue that a higher corporate tax has a negative effect on companies to actually pay taxes and that a lower tax rate would actually provide incentives for companies to leave their money in the US, which would get taxed, but at a lower rate. Something is better than nothing.

    As for GE, over $14 billion in global profits, $5 billion coming from the US and $0 in taxes. On top of that GE will receive a $3.2 billion tax credit. All legal.

    Nicole, I am not sure your “disgust” should be directed at GE or the policies that allow this or the current corporate tax structure that motivates companies to avoid paying the taxes. I bet GE shareholders are not disgusted.

  3. Barbara Jorgensen
    March 30, 2011

    I hadn't heard about this–very informative and very controversial. Great blog

  4. The Source
    March 30, 2011

    Dear Dave,

    First, thanks for your thoughtful post.  I want to tell you this, we are Americans, and we all cherish this country’s future.  Part of our responsibility to this country is to make sure that our schools properly educate our children, the air is clean, the water drinkable and health care is efficient, affordable and accessible.  

    One of the ways we do this is to pay the taxes we owe.  Your point that we have one of the highest corporate tax rates in the world is well taken, but then we have the largest economy in the world.  We also top the list of country's that has the highest military expenditure (but I digress). 

    Now, I’m always concerned when I hear that our taxes are improperly spent, or the government wastes money on some program that benefits few if any, or companies that earn billions of dollars don’t pay a dime at tax time. 

    Let me get back to the 2.3 percent medical device tax.  In this particular case the Obama administration’s investments to boost the use of technology in health care settings is commendable, and there is evidence that technology, such as electronic medical records, has improve the quality of care as well as helped hospitals raise their efficiency.  Who can argue with this?  Similarly, if companies benefit from these investments, who can argue with contributing by way of a 2.3 percent tax to these efforts? 

    Many of the technology investments the government is making will help medical device companies increase sales of their products in the health care market.  Looking at it from this point of view, I can’t see how a medical device manufacturer would think that they shouldn’t contribute to health care reform, which has as its foundation the technological modernization of the country’s health care IT infrastructure.   

    Let me take the opportunity to thank all of you who responded to this post.

    Nicole

  5. Backorder
    March 30, 2011

    Thank you for the very insightful blog. What I do not often understand is how companies always find a way to wiggle out of tax liabilities. If the coroporates have brains enough to find their ways out, why cant the legislators go back and devise flawless systems or at least plug the lopp holes quickly!

  6. maou_villaflores
    March 31, 2011

    I totally agree with you. I hope they would review the possible cause not only in the US but also to the countries who rely with this company.

  7. SP
    March 31, 2011

    Its amazing to see how everyone not only the big companies but also a common person takes care of their tax filing in US. I guess that may be one reasont hat government can deliver good infrastructure. Hope the same attitude comes in Asian regions also.

  8. GAH65
    March 31, 2011

    1) Other than a blanket statement that GE did not pay any taxes in 2010, I do not see any reference or proof of this statement.

     

    2) GE, as a tax entity, is a multi-industrial conglomerate and not strictly a medical device conmpany. Can anyone separate the tax liability between GE Corporate and GE Healthcare?

     

    3) I am amazed at the naivite of generalization in this discussion. Healthcare IT initiatives is a small part of of the medical device industry and the vast portion of inovation for therapeutic devices has no dependence or benefit from this governmental “investment” which is completely contradictory to the biggest cost increaser of recent times HIPPA, which prevents medical information from being accessed even by treating healthcare providers without mountains of red tape.

    4) Medical device is defined in government terms as anything from an adhesive bandage or cotton swab to a computerized remote surgical robot. A broad tax on all medical devices manufacturers/developers will stifle innovation which tends to be driven by small start-ups and emerging companies. It is not just an avenue to ensure those who benefit from one government program contribute to cover the costs through another. As you have already identified the the huge conglomerates with armies of lawyers and accounts will find ways around the tax and the smaller engines of innovation and progress will be taxed into oblivion leaving only the giants to control the market.

  9. GAH65
    April 1, 2011

    I did some research and it is not that GE did not pay any taxes. They got a $3.2B refund on the taxes that they had paid during the year. I did a quick comaprison and if my net income after all household operating expenses is $10K and when I file my 1040 on April 15. A $2k refund would be proportional to this GE refund on $14.3B of net profit.

     

    So if you don't get lost in the decimal point they are no different than middle class america.

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