The enduring adage that we detest taxes but obligingly accept public benefits those taxes support is playing out in Minnesota by one of the state’s largest and most prosperous interest groups.
That’s hardly surprising, but eyebrows may wrinkle in this case, in which highly questionable “facts” are pushed to knock down a federal tax and, in St. Paul, to prop up a subsidy that some call a freebie handout to folks who often don’t need it.
Medical Alley Association represents hundreds of Minnesota-based medical-device makers who annually generate $24 billion in revenue and support 35,000 well-paying jobs. The industry’s impressive med-tech cluster helps shape Minnesota’s prized reputation as a place of high-tech innovation.
Still, there are those darned facts.
Last year, Medical Alley joined national industry groups in winning congressional suspension of a small tax on medical devices after months of intensive lobbying. At stake was a 2.3 percent tax on selected medical products sold, but as an excise tax that’s deductible on corporate taxes, the effective rate was closer to 1.5 percent.
The industry said the tax stifled research and development, a lifeblood for an industry in a competitive international market. Plus, the industry said the tax would cost 30,000 jobs nationally.
That was simply not true, according to every objective measure by the industry’s own analysts, by Bloomberg Government and by the nonpartisan Congressional Research Service. The Washington Post’s fact-checker awarded the job-loss claims three Pinocchios, one nose short of total baloney.
Recent industry reports show that since the tax was suspended a year ago, med-tech R & D investment nationally remained constant at 6.7 percent of total revenue over the past five years. In other words, the tax had zero effect on R & D, rendering that industry claim as bogus.
The tax suspension was led by Republican Rep. Erik Paulsen and the entire Minnesota congressional delegation, including Democratic Sens. Amy Klobuchar and Al Franken. The tax was part of the Affordable Care Act that sought support from the health care industry to raise funds to help subsidize health insurance for low-income folks. Klobuchar and Franken insisted they’d only support suspension if poor people were protected. That protection never came, but the senators voted for suspension anyway, attesting to the power of campaign contributions from Minnesota’s med-tech industry.
Back in St. Paul the other day, Medical Alley was at the Capitol lobbying for Minnesota’s angel investor tax credit subsidy, which was started in 1981 and is projected to cost the state $145 million in lost revenue in 2017 and 2018 alone.
The program allows a state corporate tax credit for investment in high-tech research. Medical Alley and others from high-tech want the program continued and even expanded, and they’re seeking a direct refund payment rather than a tax credit.
The argument is that the subsidy promotes high-tech R & D and the high-paying jobs that go with it, and without it Minnesota would lose out to neighboring states like Wisconsin and Illinois that have similar subsidies.
This is a stretch. In my own experience representing an investor group, the investment attraction is always the quality of the innovation and not where the start-up is headquartered. Our investors have collected the generous subsidy more than once, and because the group is out of state the payment was a direct payment.
The money was nice in our case, but the subsidy had no influence on whether an investment was made or how much.
It’s a closer call whether abolishing the angel investment program would steer investment dollars to other states. But experts from the Federal Reserve Bank say the subsidy amounts to states competing with other states for R & D investment. Nationally, the subsidy is a “zero sum” game that costs taxpayers hundreds of millions with no evidence that it broadly promotes investment in innovation.
Ron Way lives in Edina.
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