‘Numbers Don’t Lie’: To the Employed Practitioner … What is your ‘Ready Cash’? You have heard it thousands of times, right? Well we can go much further with it and say that ‘numbers cannot lie’. No matter how long you attempt to deflect reality or adjust your columns with creative accounting, the one aspect that will always bulls eye back to absolute truth, is the coherency of numbers or better said, the absolute truth of 1 + 1 = 2. So far, starting in January 2013 more than $1 billion has been directed out from medical device companies into federal coffers, ostensibly to pay for about 3% of the total cost of the Affordable Care Act (ACA) but this drain of resources is crippling for R&D, job growth and U.S.-based pure play device companies. How? Read on. It is referred to as the ACA’s 2.3% Medical Device Excise Tax which passed and went into effect since January. For some firms, this 2.3% tax is a haircut. But for most firms it’s a scalping. Giant companies will end up paying about 5% of their earnings from this tax. Smaller companies with tight margins, on the other hand, will end up paying on average 29% more federal taxes this year and their cumulative tax rate will be approaching 50% of every dollar earned. Please understand that these are not small swings, either. Not blips of 5 or 6% points from one quarter to the next, not some seasonal flattening of investment, not some tweakish 2 or 3% decline. When framed as a trend over several years, ever since the 2.3% Medical Device Tax on revenues was dreamed up behind closed Senate doors, the catastrophic numbers represent a seismic shift of wealth redistribution. The ACA’s 2.3% Medical Excise Tax measures mean sick patients and their families, who’s’ hope for novel treatments and breakthroughs for cancer, diabetes, orthopedics, and coronary disease, are vanishing because, as you may know, there’s no bucket of ready cash at device companies to pay this tax, so firms have no choice but to raid R&D, cut capital expenditures or lay-off workers and shift jobs to low-tax locales. … Most of whom employ fewer than 80 and cannot afford the dues of an AdvaMed or an MDMA. To the young practitioner clinically swamped by patient care obligations and institutional quotas, how would you personally account for a 33% decline in dollars in the biotechnology industry investment sector? A 30% decline in deals? A 20% decline in devices and equipment? A 28% decline in Life Sciences? What does this have to do with the ‘numbers can’t lie’ absolute and the ACA (Obamacare)? Read on. Resent scandals involving the IRS and the NSA have made it overtly obvious what centralized government can do and is indelibly becoming in the US. It is apparent that the US federal government has become the foe against the greatness of small business and the principles of PRIVATE profit building. Federal and state government has convinced young professionals that politicians, government leadership, must possess the moral compass to regulate and hold PRIVATE and public corporations accountable, presuming that corporations large and small are all solely built upon profit and greed, without the moral leadership to self-govern. But to believe this, one must first assume that government has what has clearly been exposed it NO LONGER possess at all. Today the ACA’s 2.3% Medical Device Excise Tax is already clearly crushing innovation, start-up companies and, ultimately, patients. Yes, the people that come to you for treatment. Can we have any expectation in the future that young practitioners will get it? Now let’s look at the numbers. Remember, numbers cannot lie. The ACA 2.3 % Medical Device Excise Tax (within ‘Obamacare’) takes the total tax rate paid by most US medical device companies to about 60% of revenues!! How? Here are THE NUMBERS: 35% existing U.S. corporate tax, 15-20% equivalence when a 2.3% tax is applied down the income statement to earnings + 5% to 8% local taxes = 55 to 60% tax rate. ‘So what’, right? Is this coincidental or by DESIGN? What has caused venture deals and dollars in the medical sector to collapse to all-time lows not seen in nearly two decades? Is this coincidental or by DESIGN? The ACA 2.3% tax is being applied to companies whether they have profits or not. That, in and of itself, is sobering for an investor. Is this coincidental or by DESIGN? Another chilling aspect of this 2.3% tax is that it has to be paid every two weeks from the date of billing (not the date companies receive the revenues from a sale). So here is the DESIGN that is consequential against corporations (public or private). Say you plan on billing out $12 million in sales in the first year because you have a new and better orthopedic implant. That means you have to pay a 2.3 percent tax on the $1 million in sales projection for January. So, the tax, then, after two weeks is $11,500 and at the end of the month it’s $23,000. However, companies don’t get paid on that produce billing for 60 or maybe 90 days after the sale is booked. So Mr. Start-up must pay taxes on money he hasn’t received yet! No bucket of ready cash!! Think of it – funding for a $100K private sector job disappears every three days at a majority of US based companies because of this tax. That’s on top of the highest tax rate on the planet !! Sick patients and their families, who’s’ hope for novel treatments and breakthroughs for cancer, diabetes, orthopedics, and coronary disease, are vanishing because, as mentioned above, there’s no bucket of ready cash at device companies to pay this tax, so firms have no choice but to raid R&D, cut capital expenditures or lay-off workers and shift jobs to low-tax locales. ‘So what’ if Tiger Wood’s selfish lack of concern for the educate of his sport as he eructates the ‘F-bomb’ for all to hear at the British Open. And ‘so what’ if central government punitively prosecutes the wealth building enterprises of US medical device companies. And ‘so what’ if US companies have to compete with companies that manufacture in Ireland, Costa Rica and Mexico and while those products will be subjected to the device tax when they are sold in the U.S., those products also come from nation’s where the tax rate is close to Zero. ‘So what’, It doesn’t affect me.
Posted on: Sat, 20 Jul 2013 16:59:51 +0000
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