Minn. Democrats torn over medical device tax

A bill sponsored by Republican U.S. Rep. Erik Paulsen to eliminate a planned tax on medical devices like those made by Medtronic and other Minnesota companies has put Democrats on the state's congressional delegation in a bind.

At issue for the Democrats is whether to support a key state industry or support the federal health care overhaul. The 2.3 percent device tax provides $29 billion in funding for the health care law over the next decade -- a vital stream of money.

Paulsen, who represents Minnesota's 3rd District, introduced his first bill to repeal the tax on pacemakers, stents and other medical devices in 2010, not long after Congress -- with the House and Senate under Democratic control -- passed the health care bill. He introduced the Protect Medical Innovation Act not long after Republicans took control of the House in 2011.

In about a year and a half since then, Paulsen has tried to persuade members on both sides of the aisle about the tax. He calls it a job killer that will endanger 35,000 jobs in Minnesota and thousands more elsewhere.

That point is contested by economists, but Paulsen's argument appears to have convinced plenty of people in Congress. His medical device tax repeal bill has 240 co-sponsors, including 11 Democrats.

"Well, I think a lot of Democrats, they're fearful to acknowledge that the new health care law has a lot of imperfections, and privately they'll tell you there's a lot of problems with it," Paulsen said.

Five of Minnesota's six Democrats in the House and Senate voted for the health care bill in 2010, even though some of them weren't pleased with the tax on a local industry. Former U.S. Rep. Jim Oberstar, who lost a re-election bid to Republican Chip Cravaack, also voted for the bill.

U.S. Rep. Collin Peterson of Minnesota's 7th District was the only Democrat to vote no. Republicans have vowed to dismantle the health care overhaul any way they can. Meanwhile, the Supreme Court could decide the bill's constitutionality by the end of the month.

Still, both Democratic U.S. Sens. Amy Klobuchar and Al Franken support repealing the tax.

"I realize that cutting the tax would mean less money for the health care bill," Klobuchar told attendees at a medical industry event last week. "But I think that the way this came about, unlike the pharmaceutical one that was negotiated, this thing was put on at the last minute."

That's not quite what happened in 2010, said Paul Van de Water, a fellow at the liberal-leaning Center for Budget and Policy Priorities. "The industry was negotiating for a form of the tax which they thought was better, and they in fact got one," Van de Water said. "Now they're coming back and saying it's not really the right way to do it."

But with a changed political environment after Republicans took the House, Van de Water said the industry now wants a better deal -- namely, no tax at all.

Democrats justify the tax on the grounds that the health care law expands insurance coverage to 30 million people who were previously uninsured. With all those new patients, they say the already profitable device industry is likely to see demand for its products expand.

U.S. Rep. Tim Walz, a Democrat who represents Minnesota's 1st District, said he's sensitive to the industry's opposition to the tax, but he considers it a key funding mechanism.

"My concern on this is, OK, so you repeal this, but no one has health care -- who's going to buy the devices?" Walz said. "How are you going to make any money if no one has health care or can afford them? It doesn't make any sense."

Democratic U.S. Rep. Betty McCollum of the 4th District opposed the device tax before the health care bill passed. But she wants to know how Republicans will pay for the $29 billion cost of repealing it.

McCollum said he would support repealing the tax if Republicans offered an offsetting budget cut she found palatable, one that would not hurt her constituents.

Late last week, Republican leaders in the House announced that they'll pay for the tax cut by trimming some of the law's subsidies designed to make health insurance affordable for the middle class.

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