Blogger “Tigerhawk” is reporting on a proposal by Senate Democrats to raise taxes on medical devices to pay for their healthcare reform plans (h/t Instapundit)…

Senate Democrats are proposing [to levy] a “value added tax” on medical device companies according to their proportion of U.S. sales. This tax would be without regard to profitability, so it would amount to a capital tax on start-ups and a massive income tax surcharge on profitable companies, varying as net margins do.

Tigerhawk ultimately describes the plan as an excise tax. The New York Times’ Prescriptions blog, on the other hand, refers to “fees” and “givebacks” in its description of the the plan…

The future of Senator Max Baucus’s compromise health care proposal is far from certain, but one industry group was quick to fire back on Tuesday. The protest came from makers of medical devices like heart pacemakers and artificialhips – companies that would have to pay hefty new fees under the Baucus plan.
In an interview, Stephen J. Ubl, the president and chief executive of the Advanced Medical Technology Association, a trade group, said the organization opposed the proposal’s call for annual givebacks from device makers. The fees, which the proposal says would be allocated on the basis of each company’s market share, would total $4 billion a year.
“We do strongly oppose the $4 billion tax, which we believe is a tax on medical progress,” Mr. Ubl said.

And, by the way, it’s the Times article that’s the source of the title of this post, for anyone who thinks it’s unfair.
One question brought to mind by the Times‘ reporting is if this actually is a “giveback”, then what have medical device makers been taking that they’re being asked to give back? The answer, also from the Times article, doesn’t seem to be anything more than payment for their products; the government wants the manufacturers to give some of that money back, because some of their customers are hospitals, and hospitals are reimbursed by Medicare…

For lawmakers, some form of tax-like fees might be the only way to extract givebacks from device makers because of the way such companies are reimbursed. Government-financed programs like Medicare do not pay directly for medical devices, but instead reimburse hospitals and other providers for the procedures in which they are used.

So, if you deal with someone who takes money from the government, anything the government wants to take from you is now a “giveback”, and raising taxes on someone can be justified by the fact that they don’t take subsidies!
Based upon what the Times has presented (I leave it to the reader to determine the reliability of the source), the Democrats’ reasoning is that because a big government program reimburses hospitals, taxes have to be raised on non-hospitals, so the government can take back part of what’s been given to hospitals, so the government will be able via new subsidies to give more money to hospitals. But it is a bit difficult to see how raising taxes on medical devices, including things like pacemakers and artificial hips, will contribute to either lowering healthcare costs or raising the quality of medical care.
Call me a cynic, but I think that this scheme pretty well represents the quality of economic thought that’s going into Democratic health reform plans.