H. Rept. 112-514 - 112th Congress (2011-2012)
June 05, 2012, As Reported by the Ways and Means Committee

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House Report 112-514 - PROTECT MEDICAL INNOVATION ACT OF 2012




[House Report 112-514]
[From the U.S. Government Printing Office]


112th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     112-514

======================================================================



 
                 PROTECT MEDICAL INNOVATION ACT OF 2012

                                _______
                                

  June 5, 2012.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

            Mr. Camp, from the Committee on Ways and Means, 
                        submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 436]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 436) to amend the Internal Revenue Code of 1986 to 
repeal the excise tax on medical devices, having considered the 
same, report favorably thereon with an amendment and recommend 
that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. Summary and Background...........................................2
 II. Explanation of the Bill..........................................3
          A. Repeal of Medical Device Excise Tax.................     3
III.  Votes of the Committee..........................................5
 IV. Budget Effects of the Bill.......................................5
  V. Other Matters To Be Discussed Under the Rules of the House.......8
 VI.  Changes in Existing Law Made by the Bill, as Reported...........9
VII.  Dissenting Views...............................................12

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Protect Medical Innovation Act of 
2012''.

SEC. 2. REPEAL OF MEDICAL DEVICE EXCISE TAX.

  (a) In General.--Chapter 32 of the Internal Revenue Code of 1986 is 
amended by striking subchapter E.
  (b) Conforming Amendments.--
          (1) Subsection (a) of section 4221 of such Code is amended by 
        striking the last sentence.
          (2) Paragraph (2) of section 6416(b) of such Code is amended 
        by striking the last sentence.
  (c) Clerical Amendment.--The table of subchapters for chapter 32 of 
such Code is amended by striking the item relating to subchapter E.

                       I. Summary and Background


                         A. PURPOSE AND SUMMARY

    The bill, H.R. 436, as reported by the Committee on Ways 
and Means, repeals the medical device excise tax.

                 B. BACKGROUND AND NEED FOR LEGISLATION

    As a result of the Patient Protection and Affordable Care 
Act (Pub. L. No. 111-148), as modified by the Health Care and 
Education Reconciliation Act (Pub. L. No. 111-152), beginning 
in 2013, a 2.3 percent tax will be imposed on the manufacture 
and importation of medical devices.
    The medical device industry employs more than 400,000 
workers nationwide and invests nearly $10 billion in research 
and development (``R&D'') annually. The tax is expected to 
stifle innovation, increase health care costs, and cost 
thousands of high-paying jobs. One study concluded the tax 
could result in job losses in excess of 43,000 and employment 
compensation losses in excess of $3.5 billion. The study also 
demonstrated that the tax would ``roughly double the device 
industry's total tax bill and raise the average effective 
corporate income tax rate to one of the highest effective tax 
rates faced by any industry in the world.''
    The new tax will increase costs for patients. In April 
2010, the CMS Office of the Chief Actuary explained how various 
taxes and fees, including the medical device excise tax, would 
be passed onto patients in the form of higher prices. The Chief 
Actuary wrote: ``We anticipate that these fees and the excise 
tax [emphasis added] would generally be passed through to 
health consumers in the form of higher drug and device prices 
[emphasis added] and higher insurance premiums, with an 
associated increase in overall national health expenditures 
ranging from $2.1 billion in 2011 to $18.2 billion in 2018 and 
$17.8 billion in 2019.''
    The excise tax will increase the effective tax rate for 
many medical technology companies, thereby reducing financial 
resources that should be used for R&D, clinical trials and 
investments in manufacturing.
    During a period of persistently high rates of unemployment, 
the Committee believes that allowing the medical device tax to 
go into effect, as scheduled, in 2013 would exacerbate job 
losses. Additionally, the Committee believes that slowing the 
rise in health costs is an urgent priority, and this new tax 
would instead increase such costs.

                         C. LEGISLATIVE HISTORY

Background

    H.R. 436 was introduced on January 25, 2011, and was 
referred to the Committee on Ways and Means.

Committee action

    The Committee on Ways and Means marked up H.R. 436 on May 
31, 2012, and ordered the bill, as amended, favorably reported 
(with a quorum being present).

Committee hearings

    The economic and health policy issues surrounding the 
medical device tax were discussed at four Committee hearings 
during the 112th Congress:
          
 Full Committee Hearing on the Health Care 
        Law's Impact on Jobs, Employers, and the Economy 
        (January 26, 2011)
          
 Subcommittee on Health Hearing on Health 
        Care Law's Impact on the Medicare Program and its 
        Beneficiaries (February 10, 2011)
          
 Full Committee Hearing on the President's 
        Fiscal Year 2012 Budget Proposal with U.S. Department 
        of Health and Human Services Secretary Kathleen 
        Sebelius (February 16, 2011)
          
 Full Committee Hearing on the Need for 
        Comprehensive Tax Reform to Help American Companies 
        Compete in the Global Market and Create Jobs for 
        American Workers (May 12, 2011)

                      II. Explanation of the Bill


                 A. REPEAL OF MEDICAL DEVICE EXCISE TAX

Present law

    Effective for sales after December 31, 2012, a tax equal to 
2.3 percent of the sale price is imposed on the sale of any 
taxable medical device by the manufacturer, producer, or 
importer of such device.\1\ A taxable medical device is any 
device, as defined in section 201(h) of the Federal Food, Drug, 
and Cosmetic Act,\2\ intended for humans. Proposed regulations 
further define a medical device as one that is listed by the 
Food and Drug Administration (``FDA'') under section 510(j) of 
the Federal Food, Drug, and Cosmetic Act and 21 C.F.R. Part 
807, pursuant to FDA requirements.\3\
---------------------------------------------------------------------------
    \1\Sec. 4191.
    \2\21 U.S.C. sec. 321. Section 201(h) defines device as an 
instrument, apparatus, implement, machine, contrivance, implant, in 
vitro reagent, or other similar or related article, including any 
component, part, or accessory, which is (1) recognized in the official 
National Formulary, or the United States Pharmacopeia, or any 
supplement to them, (2) intended for use in the diagnosis of disease or 
other conditions, or in the cure, mitigation, treatment, or prevention 
of disease, in man or other animals, or (3) intended to affect the 
structure or any function of the body of man or other animals, and 
which does not achieve its primary intended purposes through chemical 
action within or on the body of man or other animals and which is not 
dependent upon being metabolized for the achievement of its primary 
intended purposes.
    \3\Prop. Treas. Reg. sec. 48.4191-2(a). The proposed regulations 
also include devices that should have been listed as a device with the 
FDA as of the date the FDA notifies the manufacturer or importer that 
corrective action with respect to listing is required.
---------------------------------------------------------------------------
    The excise tax does not apply to eyeglasses, contact 
lenses, hearing aids, and any other medical device determined 
by the Secretary to be of a type that is generally purchased by 
the general public at retail for individual use (``retail 
exemption''). Proposed regulations provide guidance on the 
types of devices that are exempt under the retail exemption. A 
device is exempt under these provisions if: (1) it is regularly 
available for purchase and use by individual consumers who are 
not medical professionals; and (2) the design of the device 
demonstrates that it is not primarily intended for use in a 
medical institution or office or by a medical professional.\4\ 
Additionally, the proposed regulations provide certain safe 
harbors for devices eligible for the retail exemption.\5\
---------------------------------------------------------------------------
    \4\Prop. Treas. Reg. sec. 48.4191-2(b)(2).
    \5\Prop. Treas. Reg. sec. 48.4191-2(b)(2)(iii). The safe harbor 
includes devices that are described as over-the-counter devices in 
relevant FDA classification headings as well as certain FDA device 
classifications listed in the proposed regulations.
---------------------------------------------------------------------------
    The medical device excise tax is generally subject to the 
rules applicable to other manufacturers excise taxes. These 
rules include certain general manufacturers excise tax 
exemptions including the exemption for sales for use by the 
purchaser for further manufacture (or for resale to a second 
purchaser in further manufacture) or for export (or for resale 
to a second purchaser for export).\6\ If a medical device is 
sold free of tax for resale to a second purchaser for further 
manufacture or for export, the exemption does not apply unless, 
within the six-month period beginning on the date of sale by 
the manufacturer, the manufacturer receives proof that the 
medical device has been exported or resold for use in further 
manufacturing.\7\ In general, the exemption does not apply 
unless the manufacturer, the first purchaser, and the second 
purchaser are registered with the Secretary of the Treasury. 
Foreign purchasers of articles sold or resold for export are 
exempt from the registration requirement.
---------------------------------------------------------------------------
    \6\Sec. 4221(a). Other general manufacturers excise tax exemptions 
(i.e., the exemption for sales to vessels or aircraft, to a State or 
local government, to a nonprofit educational organization, or to a 
qualified blood collector organization) do not apply to the medical 
device excise tax.
    \7\Sec. 4221(b).
---------------------------------------------------------------------------
    Proposed regulations provide guidance related to the sale 
of medical devices for use in kits. Under the proposed 
regulations, the kit itself is a taxable medical device if the 
kit is listed as a device with the FDA pursuant to FDA 
requirements.\8\ The process of producing or assembling a kit 
that is a taxable device constitutes further manufacture under 
the proposed regulations.
---------------------------------------------------------------------------
    \8\Prop. Treas. Reg. sec. 48.4221-2(b)(3).
---------------------------------------------------------------------------
    The lease of a medical device is generally considered to be 
a sale of such device.\9\ Special rules apply for the 
imposition of tax to each lease payment. The use of a medical 
device subject to tax by manufacturers, producers, or importers 
of such device, is treated as a sale for the purpose of 
imposition of excise taxes.\10\
---------------------------------------------------------------------------
    \9\Sec. 4217(a).
    \10\Sec. 4218.
---------------------------------------------------------------------------
    There are also rules for determining the price of a medical 
device on which the excise tax is imposed.\11\ These rules 
provide for (1) the inclusion of containers, packaging, and 
certain transportation charges in the price, (2) determining a 
constructive sales price if a medical device is sold for less 
than the fair market price, and (3) determining the tax due in 
the case of partial payments or installment sales.
---------------------------------------------------------------------------
    \11\Sec. 4216.
---------------------------------------------------------------------------

Reasons for change

    The U.S. medical device industry is a leader in medical 
technology innovation. The industry is an important contributor 
to the nation's economy, employing over 400,000 people and 
manufacturing devices both for the U.S. and foreign markets. 
The United States is a net exporter of medical devices. The 
Committee believes that the excise tax on medical devices, 
scheduled to take effect on January 1, 2013, will adversely 
impact the industry. The Committee believes that the tax will 
increase the cost of healthcare, slow medical innovation, and 
lead to loss of jobs in the industry.

Explanation of provision

    The provision repeals the medical device excise tax.

Effective date

    The provision is effective on the date of enactment.

                      III. Votes of the Committee

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the votes of the Committee on Ways and Means during 
the markup consideration of H.R. 436.

                    MOTION TO REPORT RECOMMENDATIONS

    The bill, H.R. 436 was ordered favorably reported as 
amended by a roll call vote of 23 yeas and 11 nays (with a 
quorum being present). The vote was as follows:


----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Camp.......................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. Rangel.......  ........  ........  .........
Mr. Johnson....................  ........  ........  .........  Mr. Stark........  ........        X   .........
Mr. Brady......................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. Ryan.......................        X   ........  .........  Mr. Lewis........  ........        X   .........
Mr. Nunes......................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Tiberi.....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. Davis......................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Reichert...................        X   ........  .........  Mr. Thompson.....  ........        X   .........
Mr. Boustany...................        X   ........  .........  Mr. Larson.......  ........        X   .........
Mr. Roskam.....................        X   ........  .........  Mr. Blumenauer...  ........        X   .........
Mr. Gerlach....................        X   ........  .........  Mr. Kind.........        X   ........  .........
Mr. Price......................        X   ........  .........  Mr. Pascrell.....  ........  ........  .........
Mr. Buchanan...................        X   ........  .........  Ms. Berkley......        X   ........  .........
Mr. Smith......................        X   ........  .........  Mr. Crowley......  ........        X   .........
Mr. Schock.....................        X   ........  .........
Ms. Jenkins....................        X   ........  .........
Mr. Paulsen....................        X   ........  .........
Mr. Marchant...................        X   ........  .........
Mr. Berg.......................        X   ........  .........
Ms. Black......................        X   ........  .........
Mr. Reed.......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                     IV. Budget Effects of the Bill


               A. COMMITTEE ESTIMATE OF BUDGETARY EFFECTS

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the revenue provisions 
of the bill, H.R. 436, as reported.
    The bill is estimated to have the following effects on 
Federal budget receipts for fiscal years 2013-2022:

                                                                                          FISCAL YEARS
                                                                                      [Millions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                           Item                                2013       2014       2015       2016       2017       2018       2019       2020       2021       2022      2013-17     2013-22
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Repeal the 2.3 percent excise tax on medical devices......     -1,742     -2,562     -2,668     -2,771     -2,889     -3,012     -3,143     -3,280     -3,428     -3,582     -12,631     -29,076
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE: Details may not add to totals due to rounding.

B. STATEMENT REGARDING NEW BUDGET AUTHORITY AND TAX EXPENDITURES BUDGET 
                               AUTHORITY

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee states further that the bill involves no new or 
increased tax expenditures.

      C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET OFFICE

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, June 4, 2012.
Hon. Dave Camp,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 436, the Protect 
Medical Innovation Act of 2012.
    If you wish further details on this estimate, we will be 
pleased to provide them. The staff contact is Kurt Seibert.
            Sincerely,
                                      Douglas W. Elmendorf,
                                                          Director.
    Enclosure.

H.R. 436--Protect Medical Innovation Act of 2012

    H.R. 436 would amend the Internal Revenue Code to repeal 
the medical device excise tax that is scheduled to go into 
effect on January 1, 2013. Under current law, a tax of 2.3 
percent will be imposed on the sale of medical devices by the 
manufacturer or importer. Medical devices that are regularly 
available at retail for individual use and not primarily 
intended for use by a medical professional are exempt from the 
tax. The staff of the Joint Committee on Taxation (JCT) 
estimates that enacting H.R. 436 would reduce revenues by $29.1 
billion over the 2012-2022 period. The entire revenue reduction 
would result from a reduction in on-budget revenues and thus 
pay-as-you-go procedures apply.
    The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting 
direct spending or revenues. Enacting H.R. 436 would result in 
revenue losses in each year from 2013 to 2022. The net increase 
in the deficit is shown in the following table.

             CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS OF H.R. 436, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON MAY 31, 2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              By fiscal year, in millions of dollars--
                                           -------------------------------------------------------------------------------------------------------------
                                             2012    2013    2014    2015    2016    2017    2018    2019    2020    2021    2022   2012-2017  2012-2022
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               NET INCREASE IN THE DEFICIT

Statutory Pay-As-You-Go Impact............       0   1,742   2,562   2,668   2,771   2,889   3,012   3,143   3,280   3,428   3,582    12,631    29,076
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Note: Components may not sum to totals because of rounding.

    H.R. 436 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Kurt Seibert. 
The estimate was approved by Frank Sammartino, Assistant 
Director for Tax Analysis.

                    D. MACROECONOMIC IMPACT ANALYSIS

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: the effects of the bill on economic activity are so small 
as to be incalculable within the context of a model of the 
aggregate economy.

     V. Other Matters To Be Discussed Under the Rules of the House


          A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was as a result of the 
Committee's review of the potential impact of the medical 
device tax and the provisions of H.R. 436 that the Committee 
concluded that it is appropriate to report the bill favorably 
to the House of Representatives with the recommendation that 
the bill do pass.

        B. STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for any 
measure that authorizes funding is required.

              C. INFORMATION RELATING TO UNFUNDED MANDATES

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the reported bill does 
not contain any Federal private sector mandates within the 
meaning of Public Law No. 104-4, the Unfunded Mandates Reform 
Act of 1995. The Committee has determined that the revenue 
provisions of the bill do not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                D. APPLICABILITY OF HOUSE RULE XXI 5(B)

    Clause 5(b) of rule XXI of the Rules of the House of 
Representatives provides, in part, that ``A bill or joint 
resolution, amendment, or conference report carrying a Federal 
income tax rate increase may not be considered as passed or 
agreed to unless so determined by a vote of not less than 
three-fifths of the Members voting, a quorum being present.'' 
The Committee has carefully reviewed the provisions of the 
bill, and states that the provisions of the bill do not involve 
any Federal income tax rate increases within the meaning of the 
rule.

                       E. TAX COMPLEXITY ANALYSIS

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the Senate Committee on 
Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
and has widespread applicability to individuals or small 
businesses.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, the staff of the Joint Committee on 
Taxation has determined that a complexity analysis is not 
required under section 4022(b) of the IRS Reform Act because 
the bill contains no provisions that amend the Code and that 
have ``widespread applicability'' to individuals or small 
businesses within the meaning of the rule.

  F. CONGRESSIONAL EARMARKS, LIMITED TAX BENEFITS, AND LIMITED TARIFF 
                                BENEFITS

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill as reported contain no congressional earmarks, limited 
tax benefits, or limited tariff benefits within the meaning of 
that rule.

       VI. Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *



SUBTITLE D--MISCELLANEOUS EXCISE TAXES

           *       *       *       *       *       *       *


                 CHAPTER 32--MANUFACTURERS EXCISE TAXES


               SUBCHAPTER A--Automotive and Related Items

     * * * * * * *

[SUBCHAPTER E--Medical Devices]

           *       *       *       *       *       *       *


                     [SUBCHAPTER E--MEDICAL DEVICES

[Sec. 4191. Medical devices.

[SEC. 4191. MEDICAL DEVICES.

  [(a) In General.--There is hereby imposed on the sale of any 
taxable medical device by the manufacturer, producer, or 
importer a tax equal to 2.3 percent of the price for which so 
sold.
  [(b) Taxable Medical Device.--For purposes of this section--
          [(1) In general.--The term ``taxable medical device'' 
        means any device (as defined in section 201(h) of the 
        Federal Food, Drug, and Cosmetic Act) intended for 
        humans.
          [(2) Exemptions.--Such term shall not include--
                  [(A) eyeglasses,
                  [(B) contact lenses,
                  [(C) hearing aids, and
                  [(D) any other medical device determined by 
                the Secretary to be of a type which is 
                generally purchased by the general public at 
                retail for individual use.]

           *       *       *       *       *       *       *


SUBCHAPTER G--EXEMPTIONS, REGISTRATION, ETC

           *       *       *       *       *       *       *


SEC. 4221. CERTAIN TAX-FREE SALES.

  (a) General Rule.--Under regulations prescribed by the 
Secretary, no tax shall be imposed under this chapter (other 
than under section 4121 or 4081) on the sale by the 
manufacturer (or under subchapter A or C of chapter 31 on the 
first retail sale) of an article--
          (1) * * *

           *       *       *       *       *       *       *

but only if such exportation or use is to occur before any 
other use. Paragraphs (4), (5), and (6) shall not apply to the 
tax imposed by section 4064. In the case of taxes imposed by 
section 4051, or 4071, paragraphs (4) and (5) shall not apply 
on and after July 1, 2012. In the case of the tax imposed by 
section 4131, paragraphs (3), (4), and (5) shall not apply and 
paragraph (2) shall apply only if the use of the exported 
vaccine meets such requirements as the Secretary may by 
regulations prescribe. In the case of taxes imposed by 
subchapter A of chapter 31, paragraphs (1), (3), (4), and (5) 
shall not apply. In the case of taxes imposed by subchapter C 
or D, paragraph (6) shall not apply. [In the case of the tax 
imposed by section 4191, paragraphs (3), (4), (5), and (6) 
shall not apply.]

           *       *       *       *       *       *       *


SUBTITLE F--PROCEDURE AND ADMINISTRATION

           *       *       *       *       *       *       *


CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

           *       *       *       *       *       *       *


SUBCHAPTER B--RULES OF SPECIAL APPLICATION

           *       *       *       *       *       *       *


SEC. 6416. CERTAIN TAXES ON SALES AND SERVICES.

  (a) * * *
  (b) Special Cases in Which Tax Payments Considered 
Overpayments.--Under regulations prescribed by the Secretary, 
credit or refund (without interest) shall be allowed or made in 
respect of the overpayments determined under the following 
paragraphs:
          (1) * * *
          (2) Specified uses and resales.--The tax paid under 
        chapter 32 (or under subsection (a) or (d) of section 
        4041 in respect of sales or under section 4051) in 
        respect of any article shall be deemed to be an 
        overpayment if such article was, by any person--
                  (A) * * *

           *       *       *       *       *       *       *

        Subparagraphs (C), (D), and (E) shall not apply in the 
        case of any tax paid under section 4064. In the case of 
        the tax imposed by section 4131, subparagraphs (B), 
        (C), (D), and (E) shall not apply and subparagraph (A) 
        shall apply only if the use of the exported vaccine 
        meets such requirements as the Secretary may by 
        regulations prescribe. This paragraph shall not apply 
        in the case of any tax imposed under section 4041(a)(1) 
        or 4081 on diesel fuel or kerosene and any tax paid 
        under section 4121. Subparagraphs (C) and (D) shall not 
        apply in the case of any tax imposed on gasoline under 
        section 4081 if the requirements of subsection (a)(4) 
        are not met. [In the case of taxes imposed by 
        subchapter C or D of chapter 32, subparagraph (E) shall 
        not apply.]

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    We voted against H.R. 436 for many reasons. First, the bill 
results in a revenue loss of $29 billion without any indication 
of how--or whether--it will be paid for. Claiming the need for 
fiscal austerity, the Majority is insisting on other spending 
and program cuts that will have devastating impacts on low- and 
middle-income people in our communities.
    In April, the Majority voted to end the Social Services 
Block Grant (SSBG) program; doing so would reduce protective 
services for abused children, assistance for people with 
disabilities, and home-based services for senior citizens--
including Meals on Wheels. They also voted to increase taxes on 
low- and middle-income families that receive health insurance 
assistance under the Affordable Care Act (ACA). Cutting funding 
for programs that serve the poor while protecting tax 
preferences for industry is not consistent with our values.
    This Committee has far more pressing issues than 
eliminating the contribution by the medical device industry to 
help finance affordable, quality health care for all Americans. 
There are much higher priorities that need to be addressed, 
including passing legislation that creates jobs and the pending 
27 percent cut to Medicare physician payments. If the Majority 
wants to increase spending or reduce revenue without paying for 
it, they should at least select a pressing issue that must be 
addressed before the end of the year--such as helping Medicare 
patients and military families maintain access to their 
physicians.
    This bill is the latest in a continued series of attacks by 
the Majority on the ACA. The medical device and other health 
sectors stood with the President in the late spring of 2009 and 
pledged to do their part to lower health spending by $2 
trillion, stating ``we, as stakeholder representatives, are 
committed to doing our part to make reform a reality. . . .'' 
The medical device excise tax that is the subject of H.R. 436 
represents the medical device sector's contribution to health 
care reform in light of the expanded market for their products 
that results from having more than 30 million newly insured 
patients. Virtually all sectors of the health and medical 
industry--including hospitals, pharmaceutical companies, 
insurance companies and others--made significant contributions 
to help finance health care reform. These contributions were 
appropriate because the coverage expansions of health care 
reform will result in tens of millions of additional health 
care customers for the health industry. H.R. 436 undermines the 
financing of the ACA--by eliminating the contribution of a key 
health industry sector.
    We are particularly concerned that the Majority continues 
its attack on the ACA without putting forward any comprehensive 
legislation to address the health insurance needs of the 
American people. In January of 2009, the Majority voted to 
fully repeal the ACA and separately for a resolution that 
contained ``principles'' that should guide legislation to 
``replace'' the ACA. Yet we haven't seen them bring forth any 
legislation to replace the ACA with proposals that guarantee 
access to quality, affordable health insurance. With H.R. 436, 
the Majority continues its repeal agenda and again offers 
nothing for replacement.
    We are also very concerned about a number of distortions 
surrounding the debate on the medical device excise tax, a 
number of which were dispelled during the markup of H.R. 436:
    
 Contrary to industry assertions, the device tax 
will not cause a contraction of the medical device industry or 
major job losses. Tom Barthold, Chief of Staff for the Joint 
Committee on Taxation (JCT), testified during the markup of 
H.R. 436 that the medical device industry will continue to grow 
even after the medical device excise tax is in effect. While 
one reason for projected growth is the aging of America's 
population (a demographic shift that favors the device industry 
as older patients tend to constitute a larger portion of the 
sector's total sales), Mr. Barthold also testified that a key 
reason for the industry's continued growth is the ACA's 
coverage expansion. JCT's revenue estimates regarding the 
excise tax highlight this second factor--revenue from the tax 
grows by more than $800 million in the first year that the 
coverage expansions of the ACA take effect when compared to the 
prior year's revenues from the tax. It should be noted that JCT 
is an impartial and nonpartisan expert on tax law and the 
economic implications of tax law. While studies paid for by the 
medical device industry predictably suggest the excise tax will 
result in a dramatic contraction of the industry, independent 
experts have criticized such studies for disregarding economic 
research on demand sensitivity to price fluctuations for 
medical products and services and for reaching conclusions that 
are not based on empirical evidence. For example, an 
independent analysis by Bloomberg Government found that 
industry-commissioned studies on job loss both fail to take 
into account the tens of millions of newly insured customers 
and make other unsubstantiated assumptions about consumer and 
industry behavioral responses to the tax.
    
 The device tax does not incentivize companies to 
ship jobs overseas. The tax applies to all products used in the 
United States. Thus, the tax applies to goods made abroad and 
imported into America. Further, the tax does not apply to 
products made in the United States and shipped abroad. Domestic 
and foreign manufacturers are on a level playing field. During 
the markup, Members knowledgeable about the negotiations during 
development of the ACA stated that one of the industry's 
primary concerns was that the tax needed to be applied fairly 
to both foreign and domestic manufactures. The medical device 
tax satisfied this concern.
    
 Industry burden. All companies are subject to the 
same tax and thus all are on a level playing field--large or 
small, foreign or domestic. Over the next ten years, the tax is 
predicted to raise less than $3.6 billion per year. According 
to the Congressional Research Service, the ten largest 
companies that manufacture devices had total, company-wide 
profits on all of their lines of business of $42 billion and 
$48 billion for 2010 and 2011, respectively, with gross device 
sales of $133 billion in 2010. Industry analysts predict that 
the largest device manufacturers will pay most of the excise 
tax. For example, industry analysts predict that the ten 
largest companies manufacturing non-diagnostic medical devices 
will pay 86 percent of the excise tax liability on those 
devices.
    
 The ACA lowers health insurance premiums. While 
the Congressional Budget Office (CBO) estimates that the device 
tax, along with the other industry contributions, may result in 
a slight increase to health insurance premiums when taken in 
isolation, CBO also estimates that the ACA will more than 
offset these slight increases with significant decreases in 
premium costs. For example, CBO estimates that the cost of 
policies available today in the individual insurance market 
will be seven to 10 percent lower after the ACA's coverage 
expansions and key market reforms take effect than those same 
policies cost today. These are critical reforms--provisions 
such as the creation of state exchanges to foster competition 
and transparency, reduced underwriting expenses because 
insurers cannot deny benefits or price policies based on pre-
existing conditions, and minimum loss ratio rules that require 
insurance companies to spend premiums on providing benefits and 
not on excessive insurance company profits.
    All of these reasons contributed to our vote against H.R. 
436 today. We hope the Committee will soon address more 
pressing issues facing our nation--in particular, legislation 
to create jobs and the pending 27 percent cut in physician 
payments that threatens the health of America's senior 
citizens, people with disabilities, and military personnel.
                                   Sander M. Levin.
                                   Charles B. Rangel.
                                   Fortney Pete Stark.
                                   Jim McDermott.
                                   John Lewis.
                                   Xavier Becerra.
                                   John B. Larson.
                                   Earl Blumenauer.