ObamaCare Tax Leads to Pre-Emptive Lay Offs

Recent tax reports about the start of 2013 have focused largely on what has been called the “fiscal cliff”, when various spending measures and tax cuts expire on January 1.  If these changes are allowed to occur, many are concerned about the impact the changes have on the economy.

The reduced spending is expected to result in lost jobs, especially in the defense industry.  And the expiring tax cuts may mean families in every tax bracket will owe hundreds if not thousands more in taxes in 2013 than they had to pay in 2012.

However, there is also growing concern from big and small businesses about the impact on jobs the ObamaCare tax will have when it goes into effect on January 1.

ObamaCare, formally known as The Affordable Care Act, goes into effect on January 1.  The goal of ObamaCare is to generate roughly $30 billion in additional revenue for the government over the coming 10 years by placing a tax on medical devices.  ObamaCare will cost manufacturers of medical device 2.3 percent of gross sales.

Supporters of the measure say the impact will not be that bad, since it is only 2.3 percent of sales.  However, because ObamaCare is a tax on sales, it means a much larger impact on profit.

ASM Tronics is one such manufacturer.  Based in Bergen County, New Jersey, company leader Andre DiMino noted that in the 11 years he has been running the company he has never had to lay off anyone.  However, he called the effect of the tax “devastating” and that it will likely cost jobs.

“I think after all of these decades of not laying people off, I think we may have to face that,” noted DiMino.  DiMino noted it may result in at least 3 and possibly more of his 20 employees losing their job come the start of 2013.

Although ASM Tronics is waiting until the tax goes into effect to see if they must lay off employees, Another manufacturer of medical equipment, Uresil, LLC, based in Skokie, Illinois, has already laid off 6 of its 52 workers in anticipation of the tax.

Lev Melinyshyn, president of ASM Tronics, noted that “we had never laid off anybody.  We bought the company in 2004, never had a layoff.  In fact, even during the recession, we added jobs.  It wasn’t until this tax hit us that we had to do it.”

Melinyshyn noted that he believe his company will not have to lay off additional employees in 2013, but he will have to reduce the amount of money he invests in research and development on new products.

“A lot of patients, I think, are not going to benefit from new technologies,” Melinyshyn said.  “We’ve literally put all of our new product development on hold so we can afford to pay the stupid tax.”

Melinyshyn went on to note that the 2.3 percent tax on his company’s gross sales will result in tax on profits going from just over 40 percent in 2012 to somewhere in the mid-60 percent range in 2013.

These companies like many others across the country are asking lawmakers to delay when ObamaCare will go into effect.  As a result, earlier this week almost 20 Senate Democrats asked Senate Leader Harry Reid to push back implementation of the measure.

Senate Democrats noted the medical manufacturing industry employees over 400,000 people and is facing “significant uncertainty and confusion.”  The Advanced Medical Technology Association that ObamaCare could result in over 10 percent of those people losing their jobs.

While the Internal Revenue Service has noted they will not enforce payment of the tax until the last quarter of 2013, no other relief has been forthcoming.  To date President Obama has insisted the measure will help medical manufacturers, as the increased number of people with medical insurance will ultimately mean more people are able to afford to purchase medical equipment to address health needs.

For business leaders such as Melinyshyn, the uncertainty is providing little comfort.

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.