A Republican controlled Congress could push through a bill to repeal a medical devices tax, potentially strengthening medical equipment companies and sector-related exchange traded funds.
Year-to-date, the iShares U.S. Medical Devices ETF (NYSEArca: IHI) increased 6.3% and the SPDR S&P Health Care Equipment ETF (NYSEArca: XHE), an equal-weight rival to the cap-weighted IHI, rose 7.6%. [Medical Devices ETFs to Capture Emerging Market Growth]
Representative Erik Paulsen, R-Minnesota, is pushing a bill to repeal the 2.3% excise tax on sales of devices, such as pacemakers and stents, reports Robert Shroeder for MarketWatch.
“I feel real good [about]moving it through the House, and the fact that there’s new Senate leadership that is interested in bringing the bill forward, at some point – I feel good about actually clearing the hurdles to move this bad policy to the president’s desk,” Paulsen said in the article.
Republicans have argued that the medical devices industry has contributed to cutting costs and made healthcare more efficient for patients, so the industry does not need to deal with higher taxes to impede progress, Washington Times reports.
The bill has passed the scrutiny of the Ways and Means Committee and moves to the House floor next. A repeal of the tax has passed the House three times already, and the Senate passed a nonbinding repeal in 2013. [Medical Device ETFs in Modest Post-Election Bounce]
Paulsen’s home state of Minnesota is is home to device-maker St. Jude Medical (NYSE: STJ) and Medtronic (NYSE: MDT). IHI includes a 13.9% tilt toward MDT and 4.1% in STJ. XHE holds 1.9% in STJ and 1.7% in MDT.
The bill, though, does not include a way to make up for the lost tax revenue of $26.5 billion from 2016 through 2025. However, Paulsen argued that the measure’s lack of a budget offset is not without precedent, and Republican leadership may include an offset.
President Barack Obama has not openly stated he would veto the bill if passed through both the House and Senate. Additionally, Paulsen believed that “many in his own party are supportive of the repeal” – the bill has 281 co-sponsors, including 40 Democrats.
Nevertheless, many Democrats are loath to play around with components of the Affordable Care Act since they argue it could open the flood gates for total reforms. Additionally, Democrats contend that devices manufacturers are enjoying a larger customer base due to Obamacare, so they can afford the extra taxes.
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Max Chen contributed to this article.