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Democrats seek delay in one Obamacare tax increase

Updated 5:35pm ET Even as President Barack Obama and House Speaker John Boehner struggle to find a way to avoid income tax increases in the New Year on almost all households, a separate set of tax increases which Obama signed into law as part of the 2010 Affordable Care Act (ACA) will begin to affect workers, investors and employers on Jan. 1.

Speaker of the House John Boehner provides an update on the fiscal cliff negotiations, placing pressure on the White House to reveal how they intend to compromise with House Republicans on spending cuts.

Even if Boehner and Obama reach a deal on the “fiscal cliff,” $24.6 billion in 2013 Obamacare tax increases must take effect on Jan. 1 in order for the carefully designed health care overhaul to function in budget terms as its supporters promised it would: not adding anything to future budget deficits, but, according to an estimate by the Congressional Budget Office (CBO), reducing cumulative deficits by $132 billion between 2010 and 2019.

The Obamacare tax increases which begin on New Year’s Day are:

  • A 2.3 percent tax on manufacturers and importers of medical devices.
  • A limit on the tax deductibility of medical expenses for people who pay some of their medical costs out of pocket.
  • A limit on tax-sheltered health flexible spending accounts.
  • An increase in the Medicare payroll tax on single earners making more than $200,000 and married couples making more than $250,000.

The delicate balance of tax increases and spending increases in Obamacare will work only if Congress allows the tax increases to take effect, so they can offset the cost of substantial new insurance subsidies and other Obamacare outlays.

But some Senate Democrats are trying to delay at least for one year the tax on medical device manufacturers, which will raise nearly $2 billion in new revenue in 2013 and $20 billion over the next seven years.

President Barack Obama has no public events planned for Tuesday and not many planned for the remainder of the week. Many at the White House and in Congress believe, the less anyone campaigns publicly, the better their chances at striking a deal. The Daily Rundown's Chuck Todd reports.

In a letter Monday, Sen. Amy Klobuchar, D-Minn., Sen. Kay Hagan, D-N.C. and others asked Senate Majority Leader Harry Reid to work to postpone the medical device tax.

Both Klobuchar and Hagan voted for the ACA and Minnesota is home to one of the biggest medical device makers, Medtronic.

A delay in the tax could be part of the year-end fiscal package. “My guess that it would be part of bigger deal before the end of the year,” Klobuchar told NBC News Tuesday.

The Democrats calling for delay are emphasizing the need for medical device industry jobs.

“We’re focused on this because there’s a number of small start-up companies (which would be affected by the tax),” Klobuchar said.  The medical device tax was set to raise $40 billion over 10 years “and then reduced in half without real negotiation about how it would affect jobs and the industry. So this one, above all to me, cries out for a change.”

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She said the IRS regulation spelling out exactly how the tax will be collected and enforced was issued last week toward the end of the year “without giving them (the medical device firms) time to figure out how to comply. So we’re simply at this point looking for a delay and if we can make some changes to reduce or repeal it, that would be the goal,” Klobuchar said.

Hagan said, “There’s so much innovation in this field right now and they do create so many good jobs in our country that we have the risk of losing these jobs to Ireland and to many other countries. And that’s the problem,” said Hagan, who is up for re-election in 2014.

When she added that the tax would have “an adverse effect on jobs throughout our country,” she was asked whether the tax – after the one-year delay that she and Klobuchar are requesting – would have an equally adverse effect on jobs in 2014. “We can certainly look at that over time,” she said. 

J.C. Scott, senior executive vice president of government affairs for the Advanced Medical Technology Association said, "We appreciate Sen. Klobuchar and Sen. Hagan's leadership on this issue and also appreciate the broad bipartisan support for preventing the implementation of the device tax which is slated to go into effect Jan. 1. Delay of the tax is an important step, but Congress must fully address the device tax as it works to develop a long-term solution to help our economy move forward, reduce our debt and reform our tax code."

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The industry group said that the U.S. medical technology industry supports nearly 2 million jobs and that nearly 43,000 jobs might be at risk if the tax takes effect.

But a Senate Finance Committee aide told NBC News Tuesday, "Medical device companies are expected to enjoy trillions of dollars in growing sales over the next decade, with profit margins that would make Warren Buffett blush. Health reform is providing the medical device industry with 30 million new customers and Medicare is the industry's largest paying customer. Particularly at a time when we're all working to cut our debt, there's no need to single out any industry for a special carve out."

If the call from Democrats such as Klobuchar for delay and “reduce or repeal” reflects a weakening of support for Obamacare’s revenue raisers, that could be worrisome for both deficit reduction and cost reduction since both of those were goals of Obama’s health care overhaul.

Even as they voted for the health care overhaul in 2010, some congressional Democrats said they thought that another one of the tax increases in the law, the tax on high-cost “Cadillac” health insurance plans would never fully take effect because Congress would water it down or repeal it before 2018 when it is set to effect.

Hannah Foslien / AP

Sen. Amy Klobuchar, D Minn., speaks at an election night event at the Crowne Plaza on Tuesday, Nov. 6, 2012 in St. Paul, Minn.

If Democrats delay, reduce or repeal the medical device tax, then the ACA will not cut costs as much as its proponents and the CBO predicted it would.

Senate Democratic Whip Dick Durbin of Illinois made exactly that point in comments to reporters Tuesday: “I’ve met with medical manufacturers in my state. And I think many of them are going to face some serious hardships when it comes to their competitive edge and research. But I’ve also told them quite frankly, ‘We’ve got to make up the revenue. If we’re going to walk away from any part of this revenue, we have to find another source.’”