Why the Device Tax Suspension Is Just the Tip of the Iceberg

Chris Newmarker

December 18, 2015

3 Min Read
Why the Device Tax Suspension Is Just the Tip of the Iceberg

The medical device industry is getting more than just a suspension of the device tax in the huge spending and tax cuts package that has passed Congress.

Chris Newmarker

The U.S. Congress on Friday provided final passage for a roughly $1 trillion spending measure and more than $600 billion in tax breaks that include a two-year suspension of the medical device tax--and much more.

The suspension of the 2.3% medical device excise tax, which President Barack Obama soon signed as part of the overall package, was hailed by a medical device industry that has described the tax as a jobs-killer since it went into effect at the start of 2013.

"Congress and the administration have demonstrated that they recognize the negative effects of this tax," AdvaMed board chairman Vincent Forlenza, who is CEO of BD, said in a news release.

Call it an early Christmas present for the medical device industry, because there are many things in the package that should bring some holiday cheer to medtech industry insiders. Other provisions worth noting include:

1. Expanding the R&D Tax Credit

Not only is the R&D credit here to stay, but the package also includes a special provision for startup companies, less than five years old and with less than $5 million in annual revenue. Such companies will now be able to count up to $250,000 in R&D expenses off their payroll taxes. This could be a big deal for young medical device companies, which often don't enjoy taxable profits as they seek FDA approval but are nevertheless spending hundreds of thousands if not millions of dollars on research and development.

2. More NIH Funding for Research

National Institutes of Health funding will rise $2 billion, to $32 billion, in fiscal year 2016. The additional $2 billion includes such items as $200 million for the new Precision Medicine Initiative; a $350 million increase for Alzheimer's disease research; $150 million, an $85 million increase, for the BRAIN Initiative to map the human brain; $461 million, an increase of $100 million, to combat antibiotic resistance; $320.8 million, an increase of $47.5 million, for the Institutional Development Award; and $12.6 million for the Gabriella Miller Kids First Research Act.

3. Other Items Worth Noting

The up to $500,000-a-year Section 179 deduction on business equipment purchases is also made permanent under the new package, which also provides an extension for bonus depreciation of business property purchases. The package also suspends the Obamacare "Cadillac Tax" on pricey employer-sponsored health plans, which could theoretically create more spending on medical devices. Watch out for news about more measures in this huge package. 

Chris Newmarker is senior editor of Qmed and MPMN. Follow him on Twitter at @newmarker.

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