<p>[What?s</a> All This Federal Fuss Over An Obscure Medical Device Tax? | CommonHealth](<a href=“http://commonhealth.wbur.org/2013/09/medical-device-tax-repeal]What?s”>WBUR)</p>
<p>Calmom, I’m not going to get in an argument about this based on you being an attorney as I speak about business issues.</p>
<p>You can post from the law all you want. It’s an excise tax.</p>
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<p>here is treasury calling it an excise tax.</p>
<p><a href=“http://www.irs.gov/pub/newsroom/reg-113770-10.pdf[/url]”>http://www.irs.gov/pub/newsroom/reg-113770-10.pdf</a></p>
<p>Poetgirl, I don’t want to get into an argument. I posted the actual law. I think that even most non-attorneys can understand the words, “tax imposed on the sale.” </p>
<p>If anyone wants to see how these sorts of taxes are passed directly to the consumer, all you have to do is look at your phone bill. The article you cited specifically states that the IRS refused to prohibit companies from passing on the tax to the hospital. And that web site lists dozens of companies that are definitely passing the tax on as a line item on their invoice- so in fact that is the practice.</p>
<p>then why are treasury and the irs calling it an excise tax? </p>
<p>Are they mislabeling this even in their official correspondence on the matter?</p>
<p>Really? No.</p>
<p>It is an excise tax. But thanks.</p>
<p>from the treasury comment period document linked above:</p>
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<p>I know how taxes are passed on. </p>
<p>thank you. I also know how insurance works and the difference between a sales tax and excise tax.</p>
<p>However, you asked me a question and I attempted to answer.</p>
<p>If you do not think this is an issue, feel free to drop it. I will.</p>
<p>Poetgirl, I cited the primary source, which is the law as written. I think it’s clear on its face. I’m not going to debate further, because its a silly debate. There is no better source that than the statute. </p>
<p>Sometime statutes are badly worded and confusing. There are a lot of parts of the Affordable Care Act that is kind of murky and hard to understand. But I don’t think that section 4191 has any ambiguous or obtuse language.</p>
<p>If you disagree, then I’d be happy to answer any question you have about the statute itself. I’m not going to engage in discussion over commentary about the law, because that’s backwards. The only relevance of commentary would be to address an ambiguity in the law. And I just don’t see anything ambiguous in that particular statute.</p>
<p>calmom, you know. When I’m wrong about something? I pretty much have a reputation for admitting it.</p>
<p>Treasury and the IRS call this an excise tax.</p>
<p>You can cite all sorts of things from the “law as written,” but given the way it is being put into practice, much of that citation would just be wrong.</p>
<p>carry on.</p>
<p>Treasury and IRS don’t write the laws. Congress does. I don’t care what you agree to or not. The law is what it is. </p>
<p>In any case the document you cited is a new release from IRS, announcing the period for open comment on a proposed regulation. All of the text printed prior to the part on page 31 where it says “List of Subjects in 26 CFR Part 48” is verbiage – it has no legal value and quite frankly, I haven’t read it and I’m not going to bother. It’s essentially ancient history, because the period for comments ended in March of 2012, and IRS issued its final regulation in December 2012. </p>
<p>If you are interested, here’s a link to the Federal Register that reports on all comments that the IRS received, their response to those, and the final regulation that issued:
<a href=“http://www.gpo.gov/fdsys/pkg/FR-2012-12-07/pdf/2012-29628.pdf[/url]”>http://www.gpo.gov/fdsys/pkg/FR-2012-12-07/pdf/2012-29628.pdf</a></p>
<p>From the IRS:</p>
<p>[Medical</a> Device Excise Tax: Frequently Asked Questions](<a href=“http://www.irs.gov/uac/Medical-Device-Excise-Tax:-Frequently-Asked-Questions]Medical”>http://www.irs.gov/uac/Medical-Device-Excise-Tax:-Frequently-Asked-Questions)</p>
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<p>The fact that you are fighting so hard on this tiny place where you were/are flat out wrong really makes me question all this “advice” you are giving out in the other thread.
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<p>Look! you have to file a quarterly federal EXCISE tax return. Imagine that.</p>
<p>Because importers also pay the tax, the threat of shipping jobs overseas is diminished…</p>
<p>Yes. I hope so.</p>
<p>I really hate to see good manufacturing jobs get lost. But I know some are being lost.</p>
<p>It is what it is.</p>
<p>Jobs lost just because of the medical device tax?</p>
<p>I really don’t understand this quibble about whether the tax on medical devices is a “sales tax” or an “excise tax.” I don’t think it makes a dime’s worth of difference what you call it. The statute calls it a “tax on the sale” and some Treasury documents call it an “excise tax on the sale.” Both are correct, because an excise tax is just a tax on the sale or use of a particular type of product or service. So gasoline taxes are excise taxes. Cigarette taxes are excise taxes. Alcohol taxes are excise taxes. And the medical device tax is an excise tax–an excise tax on the sale of medical devices, or what is the same thing, a sales tax on a particular type of product, namely medical devices. Call it what you will, it works the same way.</p>
<p>The medical device industry is trying to portray it as a tax on their gross revenues, but that’s bogus. It’s no more a tax on their gross revenues than the federal gasoline tax is a tax on the gross revenues of oil companies. Who pays the federal gasoline tax? You and I do. We pay every penny of it at the pump, every time we fill up the tank. Some states do impose, in addition to federal and state excise taxes on gasoline, a tax on the gross revenues of oil companies earned within their state; but that’s a very different kettle of fish. </p>
<p>It’s hard to see why this tax won’t be passed on, dollar for dollar, to health care consumers, just as gasoline taxes are, or alcohol taxes, or cigarette taxes. Now in the case of alcohol and cigarettes, the tax is intentionally set at a high rate to discourage consumption of those items. The same is true for gasoline in Europe. We set gasoline taxes at a lower rate that doesn’t seem to do much to discourage consumption. And it’s hard to see why a modest 2.3% tax on the sales of medical devices would do much to discourage consumption of medical devices in a notoriously price-insensitive industry. Nor will offshore manufacturers be advantaged, because their medical devices will be taxed at the same rate if sold here. So I’m inclined to think the howls of the medical device industry are much ado about nothing. Nobody likes to be taxed, and no industry likes to be singled out for taxation, but the impact on the bottom line of the medical device industry will probably be close to zero. We’re as addicted to the latest medical devices as we are to gasoline, and possibly more than to cigarettes (as evidenced by declining cigarette sales in an era of high taxation). And that’s saying something. So we (and our insurers) will keep paying, even when the price rises from $100 to $102.30, or from $1,000 to $1,023, or from $10,000 to $10,230 as a result of the tax.</p>
<p>If all revenue comes from sales of device, the tax on the sale is revenue tax, isn’t it? If 2.3% is so small why aren’t pharmaceuticals get taxed?</p>
<p>argbargy - Here’s an index fund for buyback companies that includes every company with at least 5% buyback programs in the 12 month period, PKW. Who knew? Their YTD performance is 34% compared to total market index fund 22%. If we generalize it assuming it’s valid to do so, buybacks influence stock prices about 50%. We still have 250% left to explain. Besides, I would guess UNH or Well Point wasn’t buying back stocks every year since 2007. This would explain the better performance only in years they were buying back.</p>
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<p>Yeah but the Rule is more important than the law, unless you feel like litigating it in court.
For instance Congress passed a law that had an Employer Mandate in it starting in the same phase as the Individual Mandate. The administration has decided to delay the Employer Mandate until after the mid-term elections. Thats not what the law said at all. </p>
<p>So what do you follow? - the rule not the law. </p>
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<p>In general its a bad idea to start the ball of cost take out rolling, because once there is a list of cost savings proposed it in variably includes off shoring something. </p>
<p>My knowledge of Excise is limited to a college warehouse job. My understanding is that you can manufacture goods but the ‘sold’ and unsold need to be segregated. Once the boxes got moved for shipment we had to make sure they were marked with tax stamps. That way you can have an inventory without being taxed to hold it. </p>
<p>I’d imagine the same rule might apply if you off-shored <em>component</em> manufacture. The components could be imported without triggering the tax (although I thought it was termed a duty in this case), with the US company doing some kind of packing into the final form, and then the tax would be payable when there was a “sale” realized. </p>
<p>This was a while ago and things have probably gotten much more sophisticated in off shore manufacturing so who knows what the systems are. Its possible that device manufactures even pre-stage inventory at hospitals and it is considered “unsold” until actual used. It would be a bummer if you had to wait for a bunch of stents to be shipped from a plant in Ohio.</p>
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<p>Your inferences are out of control. </p>
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<li><p>You are arbitrarily picking a point during the recession when the stock price is the lowest as your starting point. </p></li>
<li><p>You ignore the effect of the stock buy back on the stock price during the period that the buy back was occurring.</p></li>
<li><p>You ignore the comparison between WLP and UNH. Both have similar pre/post recover prices. Both had stock buy backs. The have the opposite position on Exchange participation. </p></li>
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<p>Lets suppose that I pick the low point for PKW- $12.25 March 2009. PKW is now $40. Therefor PKW is up 325%. Since ACA was signed PKW is up 204%. Therefor Obamacare benefits share repurchase plans. These arent valid inferences because the time frames being used are artificial. </p>
<p>In contrast, UNH was trading in the mid 50’s for a year before the recession. Now it is in the low 70’s. So its up about 35-40% over 6 years. Some of which we know is due to share buyback plans. </p>
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<p>So the question is what can we say <em>specifically</em> about Obamacare and insurance companies? My feeling is not much. </p>
<p>Yes they could get new customers. But we really dont know anything about the profitably of those customers or how many there will be. And in any event the new customers will be a small percentage of the existing pools. </p>
<p>Its entirely possible that best customers (ie the ones with no claims) will realize that the cost/benefit isnt there for them and not sign up at all. The IRS cant collect the Mandate tax like a regular tax so there is little downside to being a scoff law.</p>
<p>If everyone is required by law to purchase a product and many are getting subsidies with which to buy I am failing to see why it would not help that industry. Seems like a no-brainer.</p>
<p>i think argbargy is a politician into managing impressions. He turned my data comparing health stocks 44% vs 13% over 6.3 years to annual rate making the number appear marginal, “it’s only 6%” without ever referring S&P. I also happened to notice he rounded off 6.3 years, from June of 2007 to Oct. 2013, to 7 to come up with 6%.</p>
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<p>Well, I’m not sure there is such a thing as a medical device manufacturer that makes 100% of its revenues on sales of medical devices, but leaving that aside, I think there’s still a technical difference between a tax on sales and a tax on revenues. With an ad valorem sales tax (or ad valorem excise tax on the sale), the seller sets a sale price and the tax is calculated on the basis of that price. So if the medical device costs $1,000 and the sales tax is 2.3%, the tax is $23. The seller will typically try to recoup that $23 by invoicing the tax to the purchaser–$1,000 for the device, $23 for the sales tax, total $1,023. Revenue to the seller is $1,000. Revenue to the government is $23. Cost to purchaser is $1,023.</p>
<p>With a gross revenue tax, what’s taxed is the seller’s revenue, not the sale price of the item sold. So if the seller sells a device for $1,000, the seller’s revenue is $1,000, and the revenue tax is $23. But a revenue tax can’t be separately invoiced to the buyer because it’s not a tax on the sale, it’s a tax on the seller’s revenue. So the $23 comes out of the seller’s $1,000 in revenue; the seller is left with $977 in net revenue, and the government gets its $23. Cost to the purchaser remains at $1,000. Of course, the seller could try to recoup the $23 by raising the price to $1,023. But then its gross revenue is $1,023, and the 2.3% revenue tax on that is $23.53, so the seller’s net revenue is $999.47 ($1,023 - $23.53). Seller could try to recoup that lost $.53 by raising the price to $1,023.53, but then its revenue is $1,023.53, and the 2.3% tax on that is $23.54. So seller is still out a penny, and the cost to the purchaser is $1,023.54. Seller would need to raise the price to $1,023.54 to net out $1,000 in revenue after rounding. It’s a small difference at this price point, but multiply that by thousands of sales, some of them involving much more expensive devices, and it adds up.</p>
<p>The difference between a sales tax and a revenue tax is the taxable “event.” On a sales tax, the taxable event is the sale. On a revenue tax, the taxable event is revenue accruing to the seller (or investor, or whatever). There is a difference, albeit a technical one.</p>
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<p>Yes 6% Y2Y is more than the S&P, but then the S&P is a general index whereas the the largest health insurers are doing stock buy backs and they are in a field where sector inflation is higher than general inflation. Based on those factors you’d expect them to out perform. </p>
<p>Like I said, I dont see any evidence of an ACA windfall in the insurers stock prices. Whats your best evidence?</p>
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<p>Again you are talking like a politician. I initially chose Aug 2009. I thought thta’s when the law was passed. Instead I think thta’s when the architecture of ACA was mostly decided. I stopped following ACA around that time. At any rate, following your objection I provided three additional starting points. That was a few pages ago.</p>
<p>Are you really thinking buybacks will explain everything? Your numbers PKW 325% up vs. S&P 200% is in agreement with my earlier YTD numbers, 34% vs 22%, PKW is performing 1.5 times better than S&P. Health stocks in general are doing 3 times better than S&P. Another thing to note is PKW is buying back all the time unlike individual stocks exaggerating the buyback effect. Clearly buybacks alone doesn’t explain doing 3 times better than S&P. Besides, I don’t think the decision to buy back is made randomly. They probably see that their stocks are undervalued knowing what’s in store in the future. My guess would be they are buying back knowing their stocks will appreciate. Buyback may speed it up but I doubt it is necessarily the cause.</p>
<p>The point you make why UNH is doing as well as any other is valid. I don’t know the answer to it. It could be a spillover effect.</p>
<p>We are making too much sciece out of all this tho. My main interest in all this is where the new government money is going. We already enriched the richest with the financial bail out. I am afraid this may repeat that. Health care is a sizable portion of GDP and not a marginal industry. It doesn’t affect me personally. I happen to have a retiree’s health insurance and will be getting a medicare when time comes.</p>