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Taxes likes these usually apply to cigarettes, where discouraging people from consuming them and thus companies from producing them is the goal. But the government isn’t benefitting anyone with this tax – these are surgical or medical devices which prolong the lives of ordinary Americans.

Because of the taxation of these companies, profits fall and the money budgeted for research, development, and innovation falls by the wayside. Medical device manufacturers can no longer afford to create new products while making a loss because of the taxes. This has a snowball effect on how their companies operate. Higher taxes, means higher manufacturing costs. They should make up the shortfall somehow, either by decreasing pay to their employees and losing them, or increasing the cost of their products.

Instead, a lot of these companies have chosen (and will choose as of 2018) to move their factories overseas, and countries such as China or Canada benefit as a result. Losing these companies is a huge blow to the American economy and its healthcare system.

And to compound matters, it’s true to say that the device tax has to be accounted for by these companies somehow.

A Severe Lack of Investors in R&D Thanks to Taxation

To make matters even worse, the U.S. currently spends less than five cents of each health dollar on Research and Development. This means that funding is at an all-time low, and the brand name pharma companies – who receive a tax on their drugs – and medical device manufacturers who are already struggling with the 2.3 percent tax don’t have sufficient government funding to innovate.

Why is this important? Because these are the companies who are researching treatment for illnesses and diseases like Alzheimer’s or Diabetes. They’re the ones who are helping save the lives of American citizens. Private funding alone isn’t enough to help these companies develop the products required to deal with outbreaks of Zika, and the lack of funding has discouraged major pharma companies like from actively researching a vaccine.

With low confidence in the medical sphere thanks to the lack of funding by the government, and the higher taxes on manufacturers, potential investors who stand to profit from the production of drugs are discouraged from putting their money into companies who research – as the companies producing drugs lose money or are unfairly taxed, market confidence drops significantly. After all, research is costly and time-consuming, and the pay-off is long-term.