Tax Reform, What Does it Mean for the Bio/Medtech Community

AP_obama_amazon_nt_130730_16x9_608Yesterday President Obama came to a Amazon distribution center and backed a cut in corporate tax rates in return for a pledge from Republicans to invest in more programs to generate middle-class jobs.

The overhaul, administration officials said, would generate new revenue that could be used to pay for Obama’s priorities, including hiring workers to build roads, bridges and other infrastructure.

The proposal, an effort to break a stalemate with Republicans over budget policy, comes as Mr. Obama and his Congressional opposition are headed toward a showdown in the fall over taxes and spending. But the idea quickly devolved into the type of partisan finger-pointing that shows why any agreement will be so difficult.

But how does opening up the negotiations on Tax Reform impact our community? Here are two things to watch out for:

1. Orphan drug tax credit: Financial Times Article

The credit is intended as incentive for companies to create drugs for a small population where research and development would otherwise be too costly. The term orphan in the US refers to rare diseases that affect fewer than 200,000 people at any point in time.

The orphan provision is a federal tax credit of 50% on clinical drug testing costs for therapies being evaluated under section 505(i) of the Food, Drug and Cosmetic Act. Orphan drug laws passed in the 1980s established the credit.

The sentiment among companies, Burke noted, is that if the credit is discarded, companies like Shire and smaller drugmakers may shelve orphan drugs in development. Read more here.

2. Medical Device Tax

First: Don’t miss Advamed’s Webinar on this tomorrow featuring Rep. Erik Paulsen (R-MN). Click Here to Register.

The medical-device industry is being ravaged by unwise public policy, including a devastating 2.3 percent excise tax took effect on Jan. 1 as part of Obamacare. This tax, which has already required the payment of more than $1 billion by device manufacturers, is especially pernicious because it is assessed on gross sales, not profits. To put this in perspective, imagine that you’re a manufacturer of medical devices and had a profit of $100,000 on sales of $1 million after all your costs and expenses — everything from materials and labor to research. The excise tax would be $23,000, wiping out almost a quarter of your profits. Read more about the Medical Device Tax here.

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