	Introduction

The medical device tax was one of a number of additional revenues proposed to offset the cost of the Affordable Care Act (ACA; P.L. 111-148 ). This excise tax is projected to raise $30.6 billion of excise tax collections over the next 10 fiscal years (FY2016-FY2025). Repeal of the tax has become a priority for some Members of Congress. In the 114 th Congress, the Medical Device Access and Innovation Protection Act ( S. 149 ) would repeal the medical device tax retroactively to the first year of implementation in 2013 and provide refunds for past tax payments. On June 18, 2015, the House passed the Protect Medical Innovation Act of 2015 ( H.R. 160 ), which would repeal the tax in quarters after the date of the bill's enactment. Like other revenue-raising measures enacted in ACA, the excise tax on medical devices was meant to help offset the expenditures associated with health care reform (e.g., subsidies for low-income households and small businesses to purchase health care, and funding for programs to promote efficiencies in the market for health care). Additionally, the medical device industry was one of the commercial interests (as well as health insurance providers and pharmaceutical firms) that stood to benefit from unanticipated profits as more people enrolled in health care, post-ACA. Issues Surrounding the Medical Device Excise Tax

In general, tax policy is considered more efficient when differential excise taxes are not imposed. It is generally more efficient to raise revenue from a broad tax base. Therefore excise taxes are usually justified on specific grounds. Before discussing these justifications, it should be noted that the medical device tax tends to be a small share of the price of the taxed product, relative to other excise taxes. Federal cigarette taxes are estimated to be around 16% of the retail price, but if measured on the same basis as the medical device and other taxes (before state and local taxes and on price net of the tax) the tax is more than 36%. The tax is relatively small, but, for political reasons, it may be difficult to find an alternative revenue source. Administrative and Compliance Costs

One argument against the tax is that it imposes potentially significant administrative costs. These small effects occur in part because the tax is small, in part because demand is estimated to be relatively insensitive to price, and in part because approximately half of production is exempt from the tax. To the extent that the tax does fall on profits, economic theory indicates that there would be no effect on output or jobs. The Medical Device Industry

The medical device industry produces a wide range of products. Claims have also been made that the small firms in the medical device industry will be disproportionately affected by the excise tax. In summary, the analysis in this section suggests that the effects of the current tax on the medical device industry should be relatively small because of the inelastic demand, probably no more than 1,200 employees should lose their jobs in that industry, and industry output and employment should likely decline by no more than two-tenths of a percent. Some of this tax will fall on the federal government, which provides financing for some medical care.
The 2.3% medical device tax imposed by the Affordable Care Act (ACA; P.L. 111-148) in 2010 was one of a number of additional revenue-raising provisions to finance health reform. This tax, which took effect in January 2013, is projected to collect approximately $30.6 billion over the next 10 fiscal years (FY2016-FY2025), resulting in $24.4 billion of net revenue raised, after accounting for offsets from other taxes.
Some have called for a repeal of the medical device tax since enactment in 2010. Repeal of the tax has become such a high priority for some Members of Congress that it was one of the provisions discussed in the October 2013 negotiations over ending the federal government shutdown and increases in the federal debt ceiling. In the 114th Congress, the Medical Device Access and Innovation Protection Act (S. 149) would repeal the medical device tax retroactively to the first year of implementation in 2013. On June 18, 2015, the House passed the Protect Medical Innovation Act of 2015 (H.R. 160), which would repeal the tax in quarters after the date of the bill's enactment.
The major justification offered for the medical device tax is its revenue, which helps offset the cost of the ACA. Although the tax is relatively small, no revenue replacement has been proposed and it may be difficult to find. There is also a concern among some that eliminating the medical device tax would lead to proposals to eliminate similar fees and taxes on other industries, the sum of which, including the device tax, initially totaled $165 billion over 10 years. The tax was justified partly because the medical device industry was among the commercial interests that stood to benefit from unanticipated profits as more individuals enroll in health care insurance, post-ACA.
Viewed from the perspective of traditional economic and tax theory, however, the tax is challenging to justify. In general, tax policy is more efficient when differential excise taxes are not imposed. It is generally more efficient to raise revenue from a broad tax base. Therefore excise taxes are usually based on specific objectives such as discouraging undesirable activities (e.g., tobacco taxes) or funding closely related government spending (e.g., gasoline taxes to finance highway construction). These justifications do not apply, other than weakly, to the medical device case. The tax also imposes administrative and compliance costs that may be disproportionate to revenue.
Opponents of the tax claim that the medical device tax could have significant, negative consequences for the U.S. medical device industry and on jobs. The estimates in this report suggest fairly minor effects, with output and employment in the industry falling by no more than two-tenths of 1%. This limited effect is due to the small tax rate, the exemption of approximately half of output, and the relatively insensitive demand for health services.
The analysis suggests that most of the tax will fall on consumer prices, and not on profits of medical device companies. The effect on the price of health care, however, will most likely be negligible because of the small size of the tax and small share of health care spending attributable to medical devices.