Monday, July 4, 2011

San Diego's Economic Future May be One of ObamaCare's Hidden Costs

Affiliates of Amazon and Overstock will surely sympathize with an editorial in yesterday's San Diego Union-Tribune, written by the CFO of Poway-based K-Tube Technologies: as of 2013, medical device firms will be required to pay a new 2.3% tax on gross sales, so that the bureaucratic monstrosity known as the Patient Protection and Affordable Care Act can go forward. Given that such firms have continued to grow rapidly in San Diego even through the recession, those hoping that biotechnology can prevent areas like San Diego and Silicon Valley from sinking into the economic morass afflicting the rest of the state can't be happy.

The biotech sector in San Diego is nothing to sneeze at: in 2009, when everyone was struggling, these firms added over 24,000 jobs, about 10% of all the life-sciences jobs in the state. And the tax is also nothing to sneeze at: it applies to top-line revenue regardless of a company's financial position, so a company with 20% operating income would face a 12% tax hike from this bill. Not to mention the 35% corporate tax that they already pay the federal government and the 8.84% they pay in state and local taxes; that company with 20% income would be paying 56 cents of every dollar in taxes. In an industry that relies on research and development for continued growth, critics of the tax worry that it will reduce the competitiveness of American biotechnology firms.

Fortunately, the problem here is obvious enough that dozens of members of Congress are sponsoring a bill, HB 436, to repeal the tax. We sincerely hope they're successful. But in a state where the repercussions of the Amazon tax are fresh in many people's minds, the medical devices tax can't help looking like another shortsighted effort to seize private wealth at all costs, even if it destroys the source of that wealth in the process.

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