Background: The Affordable Health Care act will place a 2.3% excise tax on all medical device sales. Since this tax is on revenue it will can typically represent between 15% and 30% reduction of a company’s bottom line. The tax is scheduled to go into effect on January 1st, and many companies throughout the U.S. have already indicated that they will have to compensate by laying off staff. Indeed, Welch Allyn in Skaneatles already announced 120 local layoffs and will likely close their Portland Oregon plant, moving the work to Mexico.
It was suggested that New York consider a tax credit equal to the federal tax so that it becomes revenue neutral to New York companies. This could be rationalized if the loss of state revenues (due to loss of state income taxes on lost salaries) is greater than the cost of the state tax credit.
Hypothesis: 1) That a state tax credit that offsets the 2.3% federal excise tax on medical device sales is at least value-neutral and possibly value-positive; 2) and that this tax credit has the potential to lure medical device businesses to New York State resulting in significantly greater tax revenue for the state.
Assignment: Get a list of the major medical device companies in New York (Welch-Allyn, Ortho-Clinical Diagnostics, GE Healthcare, Greatbatch to name just a few). Alternatively, get a list of a few companies’ shareholder reports (Annual reports or 10-Ks, probably) and extrapolate based on the total number of people employed in this market sector in NY. This needs to include large and small companies, public and private. I think the extrapolation from large public companies to *all others* should be okay.
Find out the typical ratio of labor costs to sales in medical device manufacturing. You may be able to find these values within the 10-k reports of companies.
Aggregate the typical labor cost to sales ratio and determine how much labor must be lost to neutralize lost profits, and then determine the lost labor effect on the reduction of state income tax. The current rate is 6.85%, this will change to 6.45% on January 1st.
For example, if there is $1B in total medical device sales in NY the aggregate would lose $23M and state income tax lost would be $[url removed, login to view] if all of this were converted to lost jobs. There is a force multiplier of some amount since the lost labor affects other jobs in the state but I don’t know what that effect would be. I also am unsure if there are other losses but I have a feeling that the state loses more than just $1.57M.
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Excerpt from a previous research on fund management industry Australia attached for your ready reference. PMP, MBA and professional market researcher here.