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89–554 2016

TAX-RELATED PROVISIONS IN 

THE PRESIDENT’S HEALTH CARE LAW 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

MARCH 5, 2013

Serial No. 113–OS1 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

TIM GRIFFIN, Arkansas 

JIM RENACCI, Ohio 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

ALLYSON SCHWARTZ, Pennsylvania 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

JENNIFER M. SAFAVIAN, Staff Director and General Counsel 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON HUMAN RESOURCES 

CHARLES W. BOUSTANY, JR., Louisiana, Chairman 

DIANE BLACK, Tennessee 

LYNN JENKINS, Kansas 

KENNY MARCHANT, Texas 

TOM REED, New York 

ERIK PAULSEN, Minnesota 

MIKE KELLY, Pennsylvania 

JOHN LEWIS, Georgia 

JOSEPH CROWLEY, New York 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 


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C O N T E N T S 

Page 

Advisory of March 5, 2013 announcing the hearing ............................................. 2 

WITNESSES 

Douglas Holtz-Eakin, Ph.D., President, American Action Forum, Testimony ... 6 

Dan Moore, President & CEO, Cyberonics; Chairman, Medical Device Manufacturers Association, Testimony ........................................................................ 18 

Walt Humann, President & CEO, OsteoMed, Testimony .................................... 27 

David Kautter, Managing Director of the Kogod Tax Center, American University; Executive-in-residence, Department of Accounting and Taxation, 

Testimony ............................................................................................................. 34 

Shelly Sun, CEO and Co-Founder of BrightStar Care, Testimony ..................... 46 

Hugh Joyce, James River Heating and Air Conditioning Company, Testimony 55 

Paul N. Van de Water, Ph.D., Senior Fellow, Center on Budget and Policy 

Priorities, Testimony ............................................................................................ 60 

SUBMISSIONS FOR THE RECORD 

American Farm Bureau Federation ....................................................................... 83 

California Healthcare Institute .............................................................................. 87 

Cook Group ............................................................................................................... 89 

Dental Trade Alliance ............................................................................................. 98 

Kenneth H. Ryesky .................................................................................................. 100 

Medicaid Health Plans of America ......................................................................... 108 

National Association for the Self-Employed .......................................................... 110 

The Brinks Company ............................................................................................... 112 

The Center for Fiscal Equity .................................................................................. 115 

MATERIAL SUBMITTED FOR THE RECORD 

Questions for the Record ......................................................................................... 119 


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TAX-RELATED PROVISIONS IN THE 

PRESIDENT’S HEALTH CARE LAW 

TUESDAY, MARCH 5, 2013 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON OVERSIGHT, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 11:12 a.m., in 

room 1100, Longworth House Office Building, the Honorable 

Charles Boustany [Chairman of the Subcommittee] presiding. 

[The advisory of the hearing follows:] 


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HEARING ADVISORY 

Boustany Announces Hearing on the Tax-Related 

Provisions in the President’s Health Care Law 

1100 Longworth House Office Building at 11:00 AM 

Washington, February 26, 2013 

Congressman Charles W. Boustany, Jr. M.D. (R–LA), Chairman of the Subcommittee on Oversight of the Committee on Ways and Means, today announced the 

Subcommittee will hold a hearing on the tax provisions contained in the Patient 

Protection and Affordable Care Act and Health Care and Education Reconciliation 

Act of 2010 (‘‘President’s Health Care Law’’). The hearing will take place immediately following the Subcommittee organizational meeting that begins at 

11:00 a.m. on Tuesday, March 5, 2013, in Room 1100 of the Longworth House 

Office Building. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. However, any individual or organization 

not scheduled for an oral appearance may submit a written statement for consideration by the Subcommittee and for inclusion in the printed record of the hearing. 

A list of invited witnesses will follow. 

BACKGROUND: 

According to the Government Accountability Office (GAO), the President’s health 

care law contains 47 tax or tax-related provisions. Estimates by the Congressional 

Budget Office (CBO) and the Joint Committee on Taxation (JCT) confirm that tax 

increases associated with the law total more than $1 trillion over the next ten years. 

Many of these provisions are already in effect, and others will become effective in 

2014. Key provisions include: a tax on medical device and drug manufacturers, and 

health insurers; a tax on individuals and families who do not purchase governmentmandated health insurance, a tax on employers that do not offer government-mandated health insurance, additional Medicare taxes and taxes on investment income. 

In its review of the tax provisions of the President’s health care law, the Subcommittee will consider the: (1) status of implementation of key tax provisions; (2) 

compliance issues associated with the tax provisions and accompanying regulations; 

and (3) economic effects of the provisions. 

In announcing the hearing, Chairman Boustany said, ‘‘The President’s health 

care law imposes a number of new taxes and reporting requirements on individuals and various industries—and many of those tax hikes hit the middle class. We are starting to see that these provisions make it harder for 

businesses to create good paying jobs and may adversely affect the quality 

and accessibility of health care. As the Committee moves forward with 

comprehensive tax reform, it is imperative that we examine the law’s tax 

provisions and consider their impact on the administration of the Tax Code 

as well as on individuals, families, and employers.’’ 

FOCUS OF THE HEARING: 

The hearing will focus on implementation of the tax and tax-related provisions 

contained in the President’s health care law. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘Hearings.’’ Select the hearing for which you 

would like to submit, and click on the link entitled, ‘‘Click here to provide a submisVerDate Mar 15 2010 03:34 Jul 02, 2016 Jkt 089554 PO 00000 Frm 00006 Fmt 6633 Sfmt 6621 I:\WAYS\OUT\89554.XXX 89554

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sion for the record.’’ Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word document, in compliance 

with the formatting requirements listed below, by the close of business on Tuesday, March 19, 2013. Finally, please note that due to the change in House mail 

policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House Office Buildings. For questions, or if you encounter technical problems, please call 

(202) 225–1721 or (202) 225–3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any supplementary materials submitted for 

the printed record, and any written comments in response to a request for written 

comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will 

be maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word format and MUST 

NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised 

that the Committee relies on electronic submissions for printing the official hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://www.waysandmeans.house.gov

f 

/. 

Chairman BOUSTANY. We will now begin our hearing on the 

tax-related provisions in the President’s health care law. 

Three months ago President Obama signed into law the Patient 

Protection and Affordable Care Act and the Health Care and Education Reconciliation Act. For individuals, families, and small businesses struggling to pay for health care, this milestone is no cause 

for celebration. Today we will examine the impact of key tax provisions of that law. 

The health care law contains over a trillion dollars in new taxes 

on employers, medical device makers, families buying health insurance, and others. These unprecedented new taxes could hardly 

come at a worse time as our economy continues to struggle through 

the slowest recovery on record. 

With the Congressional Budget Office predicting that unemployment will remain above 7 percent, the law’s new taxes make it 

more costly for employers to hire, more expensive for families to 

purchase health insurance, and more difficult for the health care 

industry to innovate. 


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And it is getting worse every month. Federal agencies are busy 

issuing new regulations to implement the law, adding over 150 million new compliance burden hours a year and billions of dollars in 

cost that will be borne largely by employers. These are time and 

red tape costs on top of the taxes. This is not a recipe for economic 

growth and job creation. 

Today’s hearing will explore these new taxes and their economic 

effects. The new medical device tax is particularly destructive, as 

it targets one of the few remaining industries in which America 

continues to lead the world in innovation. This is an industry in 

which companies often go years without making a profit, hoping to 

survive long enough to reach profitability and introduce innovative, 

life-saving medical products. 

But the new tax hits employers regardless of profitability, and 

has already resulted in layoffs and additional delays in new products reaching the market. 

The new insurance tax and employer mandate threaten to stifle 

small business growth across all industries. Beginning next year, 

job creators will be saddled with burdensome new rules and taxes 

that disincentivize hiring new employees and provide economic incentives to reduce employees’ hours and drop health insurance coverage altogether. 

Before knowing whether the IRS will deem job creators a large 

employer and thus subject to the tax, employers will have to work 

out a complicated algorithm, aggregating the hours of all part-time 

workers and adding in the number of full-time workers. With the 

new law, Washington is effectively telling many Main Street businesses to cut their workforce and stop growing, hardly the incentives we need to be giving employers in our current economic climate. 

Today’s hearing is especially important because we will be hearing not only from economic and tax experts, but also job creators 

from across the country. These are individuals who spend their 

days trying to grow their businesses and expand economic opportunity, but are forced to do so against prevailing headwinds of new 

taxes and regulations from Washington. They know the effects of 

the new law firsthand because they live with these effects. 

I was also hoping to welcome a witness who runs a small business in my district, but unfortunately, he had to cancel after his 

business partner had a medical emergency. I certainly wish his 

partner a speedy recovery, but this goes to show how unpredictable 

and how vulnerable a lot of our small business operations truly are. 

Washington should be making their jobs easier, not more difficult. 

Last year the Subcommittee held hearings on a provision in the 

health care law that requires holders of FSAs and HSAs to get a 

prescription in order to use accounts to buy over-the-counter medicine. The House subsequently passed legislation, authored by Congresswoman Jenkins, repealing this provision, as well as a medical 

device tax repeal, which was authored by Congressman Paulsen. 

I have introduced legislation repealing both the employer mandate tax and health insurance tax. These issues all reinforce the 

fact that the health care law was not simply a health care law. It 

was an enormous tax change, and as such, it is proper for the SubVerDate Mar 15 2010 03:34 Jul 02, 2016 Jkt 089554 PO 00000 Frm 00008 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\89554.XXX 89554

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committee to examine these laws, which are within the scope of tax 

reform. 

Now I’m happy to yield to the distinguished Ranking Member, 

my friend Mr. Lewis from Georgia. 

Mr. LEWIS. Thank you, Mr. Chairman. I thank the Chairman 

for holding this hearing on the Affordable Care Act. We are always 

pleased to discuss our landmark health care reform law, which will 

expand health coverage to 27 million Americans. 

The last time the Oversight Subcommittee reviewed the tax provisions of this law was in September 2012. Since enacted, the Affordable Care Act has helped millions of Americans. For example, 

the Affordable Care Act has protected over 17 million children with 

preexisting conditions who can no longer be denied health coverage, 

and more than 6 million young adults who have health insurance 

through their parents’ health plan until age 26. 

As another example, the health care law requires insurance companies to spend a certain amount of the premiums they collect on 

medical care. As a result, about 13 million Americans received 

more than $1 billion in rebate payments last year from insurance 

plans that failed to spend enough on benefits. 

Because of positive reforms like these, we are moving forward. 

We must ensure that we act with all deliberate speed to implement 

the Affordable Care Act. I know that this hearing focuses on provisions that impose taxes on industries that benefit from the law and 

wealthy Americans. This one-sided view does not examine other 

provisions in the law that deliver hundreds of billions of dollars of 

Federal tax credits to millions of American families and small businesses. 

These tax credit and cost-sharing subsidies will make health insurance affordable for middle-class Americans and families. Countless others now have peace of mind, knowing they are not just one 

step away from losing their health insurance, when it is needed the 

most. 

Mr. Chairman, I am confident that the tax provisions of the Affordable Care Act will be carried out on schedule. Today I look forward to hearing where we are in the process, and the issues that 

remain. I want to thank all of the witnesses for their testimony 

and recommendations. 

Thank you very much, Mr. Chairman. 

Chairman BOUSTANY. Thank you, Mr. Lewis. 

Now it’s my pleasure to welcome the panel of seven witnesses we 

have before us today. Our witnesses today run the gamut from academics to budget experts to business owners. I’m delighted to have 

all of you here with us today. I think this will be a very enlightening hearing. 

First we will hear from Douglas Holtz-Eakin, President of the 

America Action Forum here in Washington, D.C. Dr. Holtz-Eakin 

has been Chief Economist with the President’s Council of Economic 

Advisors, Director of the Congressional Budget Office, and fellow at 

various think tanks. We’re pleased to have his expertise today. 

Next we have Dan Moore, President and CEO of Cyberonics, a 

global medical device manufacturer. Mr. Moore also serves as 

Chairman of the Medical Device Manufacturers Association, a 


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trade association composed of smaller medical device companies. 

Thank you, Mr. Moore, for joining us today. 

Third, we will hear from Walter Humann, President and CEO of 

OsteoMed, a surgical device manufacturing company based in Dallas. Mr. Humann joined OsteoMed in 2001, growing the company 

into a variety of surgical device markets. Mr. Humann, thank you 

for joining us. 

Fourth we will have David Kautter, Managing Director of the 

Kogod Tax Center and Executive-in-Residence in the Department 

of Accounting and Taxation at American University. Mr. Kautter 

had a distinguished career at Ernst & Young, where he recently 

served as Director of National Tax. Mr. Kautter also served on 

Capitol Hill as a legislative counsel to Senator John Danforth. 

Thank you for bringing your expertise to us today, Mr. Kautter. 

Next we will hear from Shelly Sun, CEO and Co-Founder of 

BrightStar Care, a premium health care staffing company. 

BrightStar has 250 locations nationwide, providing the full continuum of care, from home care to supplemental staffing for corporate clients like nursing homes and physicians. Ms. Sun just finished writing her first book, and was named International Franchise Association Entrepreneur of the Year in 2009. Ms. Sun, thank 

you for joining us today. 

Sixth we will hear from Hugh Joyce, President of the James 

River Air Conditioning Company in Richmond, Virginia. Mr. Joyce 

has been president of James River Air Conditioning for 19 years. 

He is here to speak from his experience as a small business owner, 

as well as on behalf of the National Federation of Independent 

Businesses. Mr. Joyce, thank you for joining us today. 

And finally, we’ll hear from Mr. Paul Van De Water, Senior Fellow with the Center on Budget and Policy Priorities. Dr. Van de 

Water, we appreciate you being here, as well. 

We welcome all the witnesses. We received your written statements, and they will be made part of the formal hearing record. 

You will each have five minutes for your oral remarks, and I will 

start with you, Dr. Holtz-Eakin. 

STATEMENT OF DOUGLAS HOLTZ-EAKIN, PH.D., PRESIDENT, 

AMERICAN ACTION FORUM 

Mr. HOLTZ-EAKIN. Chairman Boustany, Ranking Member 

Lewis, and Members of the Committee, I thank you for the privilege of appearing today. My written testimony contains a more detailed analysis of some of the major taxes imposed in the Affordable Care Act. Let me make four brief points as an overview. 

Point number one is simply the scale of taxation is very large— 

easily over 800 billion, reaching nearly a trillion, and larger than 

the, I think, much more ballyhooed fiscal cliff deal that was 

reached earlier this year. Any law that imposes that scale of taxation ought to be looked at very carefully by the conventional 

metrics of tax policy. 

And those would be how distortionary are the taxes which are 

imposed? What is the incidence of those taxes—that is, who will actually bear the burden, and are they fairly distributed? And then 

third, what will be the macroeconomic effects of those taxes? 


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Let me touch briefly on each. The ACA taxes are highly 

distortionary. If you take the benchmark that non-distortionary 

taxes will have a broad base and equal treatment of equals, the 

ACA taxes look very different than that. 

The device tax and the health insurers tax are sector-specific 

taxes that will impact the ability to attract labor and capital to 

those sectors. As I detail in the written statement, each also has 

flaws in its design within that sector, the device tax discriminating 

against relatively small medical device manufacturers, and health 

insurers tax having a whole set of what I view as very problematic 

provisions, treating differently for-profit and not-for-profit insurers, 

treating even more differently those who have extensive lines of 

business in elderly and low income products. 

It’s a very distortionary tax, and is the only one that I’ve ever 

seen that actually demands that you raise a fixed amount of revenue, regardless of what it does to the industry, beginning with 8 

billion next year. And so it’s a very distortionary tax. 

As you know, the so-called Medicare taxes, surtaxes on payroll 

income and on net investment income, draw sharp lines in the Tax 

Code. And even more troubling to me, those lines are not indexed 

for inflation; indexing the Tax Code for inflation has been a principle adopted by the United States since the early 1980s, and 

doesn’t represent good tax policy. 

So as a whole, I think of these as not-particularly-well-designed 

taxes, given the level of revenue they will raise. 

They are also not especially progressive taxes. The taxes that are 

levied on device manufacturers are going to end up in health insurance costs, which will be then in turn shifted into premiums. 

Health insurance is a broadly consumed product, with the largest 

burden on the middle class in America. 

Certainly the health insurance tax is going to show up very directly in premiums, and given some of its peculiarities in design— 

the inability to deduct this tax for the purposes of corporation income tax—there will be even greater upward pressures on premiums as a result. 

And the so-called Cadillac tax on high-cost plans, despite its 

name, is a tax that’s going to hit the middle class. And taken as 

a whole, these impacts are going to fall on the middle class and exacerbate other premium pressures that are already present in the 

ACA from benefit mandates and other regulations that have been 

imposed. 

And the final point is that the ACA taxes suffer from very poor 

macroeconomic timing. As this Committee well knows, we are 

struggling to recover from a financial crisis and very deep recession. It is hardly a benchmark of great policy to levy hundreds of 

billions of dollars in new taxes, which are poorly designed, and to 

accompany them with a very heavy regulatory load, and an expansion of entitlement programs at a time when the U.S. debt exceeds 

the size of its economy and is being driven by the existing entitlement programs. 

So I think that probably the greatest lesson that can be taken 

away from look at these taxes carefully is that even if you wanted 

to raise this revenue, you could do it better, and that thinking hard 


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about this in the context of tax reform, which I know the Ways and 

Means Committee is deeply interested in, is probably a good idea. 

[The prepared statement of Mr. Holtz-Eakin follows:] 


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Chairman BOUSTANY. Thank you, Dr. Holtz-Eakin. 

Mr. Moore, you are recognized for 5 minutes. 

STATEMENT OF DAN MOORE, PRESIDENT AND CEO, 

CYBERONICS; CHAIRMAN, MEDICAL DEVICE MANUFACTURERS ASSOCIATION 

Mr. MOORE. Thank you, Chairman Boustany and Ranking 

Member Lewis, for the opportunity to testify here today. As mentioned, my name is Dan Moore, and I am CEO of Cyberonics, a 

Texas-based medical device company that focuses on epilepsy and 

other neurological conditions. I am also the chairman of the board 


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for the Medical Device Manufacturers Association, and I’m pleased 

to be testifying today in that capacity. 

The medical device technology industry is one of America’s great 

success stories. We contribute to Americans living longer, healthier, 

and more productive lives. We play an important role in driving 

economic growth by employing high-skilled manufacturing workers, 

who contribute to our industry’s trade surplus. We are the envy of 

countries around the globe. 

However, I have real concerns about the future of America’s global leadership in medical devices. These concerns stem in part from 

personal experiences as the son of a steelworker, and I’m hoping 

that as a country we do not lose leadership in yet another industry. 

I was born in Gary, Indiana, which at one time was one of two 

big American steel towns. My family, friends, and neighbors were 

all employed in the steel industry. These hardworking Americans 

had opportunities for advancement when the industry was thriving. 

I’m extremely proud of my father, who went from being a laborer 

to having responsibility for maintenance in three mills that were 

part of the Gary Works Corporation. He worked hard and was able 

to provide for my mom and our family of eight children. The United 

States was the global leader in steel production and manufacturing, and the byproduct of this leadership was great jobs that 

built communities and sustained families for decades. 

Sadly, we all know what happened to this chapter of American 

manufacturing. I am here today to tell you today that the global 

leadership position of the medical device industry is at a crossroads, and not unlike what faced America’s steel industry years 

ago. 

If we lose this leadership and the great jobs and all the benefits 

that come with it, we will never get it back. And countless communities, again, will never look the same. The good news is that there 

is legislation to fix this problem, and bipartisan momentum continues to build in support of it. 

Beginning on January 1st, medical device innovators began paying a 2.3 percent excise tax to the Government. I’m often asked, a 

2.3 percent tax, how could it be so damaging to innovation, jobs, 

and patient care? After all, it’s only 2.3 percent. Right? It’s important to remember that this is a tax on medical device company revenues, not profits. One study estimated the tax will increase a company’s effective tax rate by an average of 29 percent. 

Many companies are having their entire profits wiped away because of the medical device tax. Others aren’t even profitable yet, 

but find themselves still having to pay a tax that is destroying 

their ability to invest in research and development to fund future 

medical breakthroughs. A study showed that this onerous policy 

would lead to the loss of 43,000 good-paying jobs. 

Regardless of company size, success, or stage of development of 

medical technologies, a 2.3 percent excise tax will have a significant impact, and at the end of the day a negative impact on providers and patients, the people we intend to help. 

We all love the stories of innovators and entrepreneurs coming 

up with ideas in their garages or spare bedrooms and building 

American dreams into proud organizations. As I speak before you 

today, physicians and engineers are working on new technologies 


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like an artificial pancreas that will allow diabetes to control blood 

glucose levels automatically. Just weeks ago, the FDA approved a 

new product that literally allows the blind to see. 

Do we really want to risk the loss of these amazing new devices 

by imposing an additional tax on medical device companies? Medical technology innovators are pushing the boundaries of science, 

all driven by American ingenuity and American manufacturing. 

The medical device tax is putting an end to some of these dreams 

and aspirations before they ever get out of the lab, or perhaps one’s 

garage. 

I respectfully urge all of you to continue working together to provide an environment where tomorrow’s technologies and devices 

will not be sacrificed as a result of misguided policies today. None 

of us want to have to explain to our children one day why they 

don’t have the opportunity to work in the same dynamic industry 

as their parents, focused on improving the human condition. 

I pledge to all of you that I will do everything I can to help Congress and policy-makers ensure the 21st century is as bright for 

medical technology innovation as was the last. I urge you to support the repeal of this onerous medical device tax, a tax on innovation, jobs, and most important, a tax on patient care. Thank you 

for the opportunity to share my concerns today. 

[The prepared statement of Mr. Moore follows:] 


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f 

Chairman BOUSTANY. Thank you, Mr. Moore. 

Mr. Humann, you are recognized for 5 minutes. 

STATEMENT OF WALT HUMANN, PRESIDENT AND CEO, 

OSTEOMED 

Mr. HUMANN. Chairman Boustany, Ranking Member Lewis, 

Members of the Subcommittee, thank you all for the opportunity to 

testify before you today. Again, my name is Walt Humann. I’m 

president and CEO of OsteoMed, a medical device company located 

in Dallas, Texas. I am also on the board of the Medical Device 

Manufacturers Association. 


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On any Tuesday like today, I would normally be at OsteoMed’s 

facilities, ensuring that our company continues to develop and 

produce innovative medical technologies that improve patient outcomes, lower health care costs, and provide well-paying jobs to 

hardworking Americans. 

Instead, I am before you now to sound the alarm bell on the devastating excise tax that is already having a negative impact on 

thousands of medical device companies. Unfortunately, these negative consequences of the excise tax have already been felt at 

OsteoMed. 

Like the majority of medical device companies, we have humble 

beginnings as a startup company. OsteoMed was founded in 1991 

in Glendale, California. We started supplying proprietary patented 

instruments for the orthopedic industry, and quickly expanded to 

design, manufacture, and produce various small bone fixation devices, surgical implants, and surgical systems. I want to highlight 

for you a few of our products that have dramatic impacts on patient care. 

One of our systems are used for children born with severe head 

and facial deformities. Our product allows surgeons to reconstruct 

very young babies for normal function and appearance, and in 

many cases avoid the feeding problems, the tracheotomies, and the 

other feeding and treatment problems that would hinder normal 

childhood development. 

Another system we produce focuses on repairing and reconstructing the feet and ankles. OsteoMed recently was fortunate to 

support a mission trip to Mexico, where these products were used 

by surgeons to allow very young children to walk normally for the 

very first time. However, our ability to innovative and improve 

upon these projects is now threatened by the medical device tax. 

When Congress passed the Affordable Care Act in 2002, it unfortunately also included this devastating tax on innovation. In particular, the ACA includes a 2.3 percent excise tax on the sales of 

most medical devices in the U.S. Again, this tax applies to the total 

revenue of a company, not to profit. 

In many cases, companies will end up paying more in taxes than 

they actually generate in profits. As an example, two years ago we 

started a project within OsteoMed that greatly simplifies back surgery and reduces a two-hour operation to just 30 minutes. This 

project is now producing revenues, but is not yet profitable. 

Unfortunately, the tax is clearly impacting the way that 

OsteoMed and countless other companies select future R&D 

projects. For some companies, the device tax has already led to significantly reduced spending on research and development. For others, it has led to a freeze on hiring and expansion projects. Finally, 

many companies have made the painful decision to let employees 

go. Unfortunately, at OsteoMed we have done all three. 

Supporters of the medical device excise tax claim that the nearly 

30 million new covered beneficiaries will use more medical devices, 

and tax will be offset. This is simply not the case. Many medical 

devices are products that are used on a variety of patients. 

For example, automated external defibrillators are found in public places like airports, shopping malls, and here in the halls of 


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Congress. If a person goes into cardiac arrest today, he or she will 

receive the treatment regardless of their insurance status. 

At OsteoMed, our products are used in trauma and reconstructive procedures. We are fortunate to live in a great country. People 

with injuries to the head, face, and extremities are able to receive 

our products. Sadly, our ability to continue to innovative on these 

products is threatened. 

There are numerous published reports regarding the impact of 

the medical device excise tax. One report suggests that nearly 

45,000 jobs will be lost as a result of the tax. I am here because 

I am concerned over 40 jobs in particular. 

These are the 25 members of the OsteoMed family that had to 

be let go because of the medical device tax. In addition, there are 

more than a dozen future planned positions that now will not be 

pursued at OsteoMed. In the 22-year history of our company, we 

have never had to lay off an employee, much less for a governmentrelated tax. Therefore, Congress must do everything it can to eliminate this devastating tax. Tens of thousands of patients who use 

our devices are relying on your leadership. 

Nearly 300 employees and their families at OsteoMed are ready 

for this barrier to be removed in order for us to continue to improve 

health care. We must do everything in our power to ensure that 

this great American industry remains a truly global leader. 

Thank you again for this opportunity to testify before you, and 

I’m happy to answer any questions later. 

[The prepared statement of Mr. Humann follows:] 


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Chairman BOUSTANY. Thank you, Mr. Humann. 

Mr. Kautter, you are recognized for 5 minutes. 

STATEMENT OF DAVID J. KAUTTER, MANAGING DIRECTOR, 

KOGOD TAX CENTER, AMERICAN UNIVERSITY, EXECUTIVEIN-RESIDENCE, DEPARTMENT OF ACCOUNTING AND TAXATION 

Mr. KAUTTER. Chairman Boustany, Ranking Member Lewis, 

and Members of the Subcommittee, thank you for the opportunity 

to testify today. 

My name is David Kautter. I am Managing Director of the Kogod 

Tax Center located at American University. 


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The Kogod Tax Center is a tax research institute focused on promoting balanced, non-partisan research on tax matters, including 

complexity. 

Primarily, we focus on middle income taxpayers, small businesses, and entrepreneurs. 

I have been a tax practitioner for over 40 years, and prior to joining the Kogod Tax Center, I was the Director of Tax at Ernst & 

Young. 

Over the course of my career, I have watched the Internal Revenue Code grow increasingly complex in its structure, incomprehensible in its nature, and pervasive in its effect on economic decisions. 

It is estimated that the Internal Revenue Code and regulations 

are over nine million words in length, and Americans spend more 

than 6.1 billion hours a year filing Federal tax forms. 

The more than 45 tax related provisions in the Affordable Care 

Act will not make things any easier. 

I will focus my testimony today on two particular provisions, the 

new tax on net investment income, and the new Medicare tax on 

wages. 

The statute proposed regulations and preambles for just these 

two provisions are over 48,000 words in length, take up over 85 

pages in the Federal Register, and are estimated to increase the 

time taxpayers will spend on compliance by well over two million 

hours. 

The tax on net investment income constitutes a new third tax 

system within the Internal Revenue Code. It is its own self contained tax system which sits along side the regular income tax and 

the alternative minimum tax. 

Like the regular tax and the alternative minimum tax, this new 

tax system comes complete with its own unique set of definitions, 

rules for computing the tax, and a threshold that is not indexed for 

inflation. 

This new parallel universe also comes complete with its own set 

of new compliance obligations, additional tax forms, new tax calculations, and new estimated tax requirements. 

Compliance with these rules will not be a task for the faint 

hearted. 

From a tax planning point of view, taxpayers are already focused 

on simultaneously managing two entirely new calculations, modified adjusted gross income and net investment income. 

This is just the beginning. Make no mistake about it. Planning 

to minimize and comply with the tax on net investment income will 

consume tens of thousands if not hundreds of thousands of hours 

every year for the foreseeable future. 

That would be in addition to the two million hours of compliance 

time, and that will be in addition to the 6.1 billion hours already 

being spent complying with the Federal tax laws. 

The additional tax on Medicare wages increases tax complexity 

in three ways, and they are all first’s. It is the first time the Medicare tax is computed on an individual’s personal tax return. It is 

the first time the Medicare tax is imposed solely on employees 

without a matching employer payment, and it is the first time that 


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the amount of the Medicare tax will vary with the taxpayer’s marital status. 

These are by no means trivial changes. They bring with them 

new rules for computing and paying Medicare tax, new withholding 

rules, and plenty of opportunities from mistakes and penalties. 

The areas of complexity that concern me the most with respect 

to the new Medicare tax are the rules relating to withholding and 

the potential for the imposition of penalties. 

The rules are just too complicated. Mistakes are going to be 

made, and substantial penalties are going to be imposed. 

I am also deeply concerned about the complexity and burden this 

new law creates for small employers. Just like the tax on net investment income, it is already clear that employees and their employers are seeking to alter the behavior in response to this tax. 

I will conclude my remarks by saying a few words about a common feature of both these taxes, and that is their imposition on income in excess of a threshold. 

A taxpayer’s income can increase substantially in one year due 

to an once in a lifetime event, such as the sale of a long held asset 

or the payment of a bonus that took several years to earn. 

In situations such as these, taxpayers are taxed at higher rates 

on income that accrued over a lengthy period of time, and may 

never occur again in the taxpayer’s lifetime. 

Taxing such one time gains at higher rates contributes to a perception of unfairness and tends to increase cynicism on the part of 

taxpayers. 

Not only that, in addition to the new thresholds for these two 

provisions, two other new thresholds come into effect this year, the 

so-called ‘‘PEP and Pease threshold,’’ and the threshold for the top 

individual tax rate of 39.6 percent. 

With three new thresholds, complexity is not arithmetically increased by a factor of three, it is increased exponentially because 

all three thresholds interact with each other. 

The problem is made even more challenging because each of the 

thresholds that come into effect this year start at different levels 

of income and penalize married taxpayers compared to single taxpayers. 

That concludes my prepared remarks, Mr. Chairman. Thank you 

very much. 

[The information follows: Mr. Kautter] 


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Chairman BOUSTANY. Thank you, Mr. Kautter. 

Ms. Sun, you are recognized for 5 minutes. 

STATEMENT OF SHELLY SUN, CEO AND CO-FOUNDER, 

BRIGHTSTAR CARE 

Ms. SUN. Thank you, Mr. Chairman, Members of the Committee, for this opportunity. 

My name is Shelly Sun. I am the Co-Founder and CEO of 

BrightStar Franchising. I am a member of the Board of Directors 

of the International Franchise Association. 

BrightStar Care is a franchise system of more than 250 independently owned and operated agencies that provide home care for 


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over 10,000 families in 38 states, 160 franchisees employ more 

than 15,000 nurses and care givers. 

My husband and I founded BrightStar over ten years ago with 

$100,000 of our own money, and by guaranteeing $100,000 line of 

credit with our bank with the equity in our home. 

Small business owners take on this type of risk to start their 

businesses, create jobs, and help the American economy every day. 

This is supposed to be the American dream as a small business 

owner. Invest money, take a risk, work hard, build a business, and 

pay back what you invested and earn a profit. 

Part of what makes entrepreneurs so special is their passion for 

creating and providing opportunity for others. This law jeopardizes 

the ability of small business owners to create more jobs and reinvest profits back into their businesses. 

Small business owners must make difficult decisions every day 

to protect their personal investments and their American dream, 

and this law will compel entrepreneurs to do what it takes, including reducing hours of their employees to keep their business and 

their dream alive. 

One of the biggest challenges we have with the law is how it redefines ‘‘full time employees.’’ Business owners in every sector of 

the American economy have for decades managed their workforce 

to the current standard of 40 hours per week. 

When Congress set the definition as 30 hours per week, it forced 

employers to manage their workers to fewer hours. Thus, reducing 

the earnings potential of hundreds of thousands of employees. 

Because the law requires everyone to have insurance, part time 

workers will have to buy insurance on their own or through an exchange. That expense will impact their personal family budget as 

well as demands on Medicaid. 

Clearly, these are unintended and significant consequences of a 

law that was supposed to expand opportunities for health coverage 

to all. 

Simplifying the definition of ‘‘full time’’ would provide small businesses with more certainty, allowing them to better control costs, 

and make long term business plans for future growth. 

Fifty-five of my BrightStar franchisees are considered large employers under the Affordable Care Act. The rest are on pace to 

grow to that level in the next two to five years. 

Thus, our franchisees, like many other successful small business 

owners across the country, find themselves in a Catch-22. They 

want to expand but if they do, they get hit with significant new 

health care and compliance costs that impede growth. 

In this context, it is absolutely staggering to think that as defined by the Affordable Care Act, an employer with 50 full time employees is in the same category as an employer with 5,000 full time 

employees. We can absolutely do better. 

If the 55 BrightStar franchisees who qualify under the current 

definition of ‘‘large employer’’ maintain their current scheduling 

level and all eligible employees enroll for this affordable coverage, 

the average franchisee will spend $127,000 providing this coverage. 

This wipes out 50 to 100 percent of the franchisees’ profit. 


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How can we ask small business to risk more, work harder, and 

invest further with administratively complex and expensive legislation like the Affordable Care Act? 

We cannot. We must remove obstacles, and we must understand 

small business owners will find a way so they remain in business 

and protect the jobs they can offer. What choice do entrepreneurs 

have if they want to remain in business? 

My two requests today on behalf of my business, on behalf of the 

160 BrightStar franchisees and their 15,000 employees across the 

country, and on behalf of the franchising community and small 

businesses everywhere, first, change the definition of ‘‘full time employee’’ to more closely align with the current standard of 40 hours 

per week, setting the definition as 30 hours per week simply forces 

employers to manage their workers to fewer hours. 

Second, define ‘‘large employer’’ as one with at least 50 full time 

employees instead of full time equivalents. 

This simplifies the complexity of the law and a huge administrative burden. 

Specifically, this change reduces the 55 BrightStar franchisees 

impacted by the unintended consequences of the Affordable Care 

Act down to eight. 

Thank you again for the opportunity to be here with you today 

to work together to prevent the devastating, unintended consequences the Affordable Care Act will have on small businesses, 

employees, and the American economy. 

Thank you. 

[The information follows: Ms. Sun] 


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Chairman BOUSTANY. Thank you, Ms. Sun. 

Mr. Joyce, you are now recognized for 5 minutes. 

STATEMENT OF HUGH JOYCE, JAMES RIVER HEATING AND 

AIR CONDITIONING COMPANY 

Mr. JOYCE. Mr. Chairman, Ranking Member Lewis, and members of the Oversight Subcommittee, thank you for having me here 

today. 

I am Hugh Joyce, and I own and operate a heating and cooling 

business with approximately 152 employees in the Richmond, Virginia area. 

I come before you today to express my continued concerns regarding the new health care law, specifically the negative impact 


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and the overwhelming confusion regarding the 47 tax provisions in 

the law and their implementation. 

In the spirit of full disclosure, I personally lobbied heavily 

against this bill. Not because I did not want to pay for insurance, 

because I was already doing that, but because I felt the bill lacked 

provisions to drive down true costs. 

There are lots of lines of code that are spread around who is paying for the insurance. There is this Government kind of thing, but 

there is little that addresses insurance pooling, personal incentives 

to maintain health, standard insurance plan design, hospital costs 

and competition, market transparency, doctor monopolies on care, 

individual purchase models, and strategies. 

There are 47 tax related provisions that hurt businesses, families 

and workers. Keeping up with the implementation of the regulations will be costly, time consuming, and difficult. 

Employers like me must track and monitor employee hours, report, verify insurance coverage, all diverting valuable resources 

from productivity. 

Key areas of concern are the mandated coverage’s in indirect 

taxes that are driving costs up and affordability down. The significant new taxes on investment and pass through income reduce capital and limit the ability to expand and create jobs. 

Reporting, tracking, and paperwork is daunting, especially for 

smaller businesses, and confusion. 

Finally, the lack of simplicity. Look at our greatest new world 

companies, Apple, Google, Geico, JetBlue. They are all successful 

because they keep it simple. 

I have great concerns that this health care plan and this health 

care act are so complicated. 

Since 2009 and its enactment, our insurance premiums have 

risen from $664,000 to $924,000, with a flat head count. We are 

projecting our renewal premium for this year to be $1.9 million, an 

18 percent increase, which includes a two percent premium tax on 

our fully insured product. 

These numbers are not sustainable over time. Our entire discretionary net profit will be absorbed by health insurance costs in 5 

years, if the current premium trajectory continues. 

Fear is the most crippling emotion. I am convinced that fear coupled with the uncertainty of new costs and frustration regarding 

the health care law is a key reason we are not seeing robust hiring 

and job creation today. 

As I look across my competitive landscape, I see major disparities. My average competitor is less than five employees, if they provide insurance, they get a subsidy. My competitors with less than 

15 employees do not have to do anything. 

I am over 100. I am required to provide insurance and pay for 

it or I face penalties. Should not everyone be subject to the same 

rules? 

If we want to lead in a global competitive platform and keep insurance affordable, we must revisit this health care law and the 

tax provisions. 

This can be done. I think we can provide health care without 

major new tax increases and burdensome compliance measures. 


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Let’s look at strategies for a simplified plan that reduces costs, 

opens up market competition and transparency, and provides every 

American with great benefits that they can buy on their own. 

These strategies will provide certainty for the private sector and 

help us grow our economy. 

[The information follows: Mr. Joyce.] 


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Chairman BOUSTANY. Thank you, Mr. Joyce. 

Dr. Van de Water, you are recognized for 5 minutes. 

STATEMENT OF PAUL N. VAN DE WATER, PH.D., SENIOR 

FELLOW, CENTER ON BUDGET AND POLICY PRIORITIES 

Mr. VAN DE WATER. Mr. Chairman, Ranking Member Lewis, 

and Members of the Subcommittee, I appreciate the opportunity to 

appear before you this morning. 

The Affordable Care Act will extend health insurance coverage to 

27 million people and help assure that Americans have access to 

affordable coverage, and it will do so in a fiscally responsible way. 


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In fact, the Congressional Budget Office has estimated that the 

Affordable Care Act will reduce the deficit modestly in its first ten 

years, but substantially in the following decade. 

The tax provisions of the Affordable Care Act not only raise revenue but are also sound health and tax policy. Some provisions will 

encourage consumers to be more cost sensitive in purchasing 

health insurance and health care services. 

Among these provisions are the inclusion of the cost of employer 

sponsored health coverage and on W–2 forms, the excise tax on 

high cost employer sponsored coverage, and limitations on the use 

of tax advantaged accounts to pay for health related expenses. 

The Affordable Care Act also levies taxes or reduces Medicare 

payments to businesses in industries that will directly benefit from 

health reform. The taxes on drug manufacturers and importers, 

medical device manufacturers, and health insurance providers fall 

into this category. 

Two other new taxes will affect only the wealthiest Americans 

who have the greatest ability to pay: the additional hospital insurance tax on high earners, and the new 3.8 percent Medicare tax on 

unearned income. 

Finally, health reform makes health insurance coverage a shared 

responsibility for individuals and employers. Individuals who do 

not obtain coverage for themselves and their families and large employers who do not offer affordable coverage to their workers will 

be subject to a tax penalty. 

This structure follows the Massachusetts model of health reform, 

which relies primarily on private health insurance plans to provide 

coverage. 

Taken as a whole, the Affordable Care Act will significantly 

strengthen our nation’s economy. CBO estimates that health reform will slightly reduce premiums for employer sponsored health 

insurance in the near term. 

For employers with more than 50 workers who account for 70 

percent of the insurance market, CBO estimates the law will reduce average premiums by up to three percent in 2016. 

For small employers, the estimated change in premiums ranges 

from an increase of one percent to a reduction of two percent. 

All and all, the short term economic effects of health reform will 

be small. Moody’s Analytics terms the law’s economic impact 

‘‘minor,’’ and says any disincentives from higher taxes and fees will 

‘‘hardly make a difference.’’ 

The Congressional Budget Office foresees a small net reduction 

in labor supply, because some people who now work mainly to obtain health insurance will choose to retire earlier or work somewhat less, not because employers will eliminate jobs. 

Even that effect could be partly offset by increased incentives to 

work for people who now face losing Medicaid coverage if they work 

more. 

Over the long run, health reform will have many positive impacts 

on the economy. The lower budget deficits stemming from health 

reform will hold down interest rates and free up capital for private 

investment. 

Health reform will increase labor market flexibility since workers 

will no longer be locked into a job by the need for health coverage. 


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Expanding coverage will also improve health outcomes by helping people obtain preventive and other health services and improving the continuity of care. 

Most important, the Affordable Care Act includes a wide array 

of policies to improve health care quality and reduce costs. 

All these factors should enhance the nation’s economic productivity. 

In conclusion, the tax related provisions of the Affordable Care 

Act form part of a carefully thought out structure to expand health 

insurance coverage and slow the growth of health care costs without adding to the budget deficit. 

Any effort to change these provisions must not be allowed to undercut any of these critical objectives. 

Thank you, Mr. Chairman. 

[The information follows: Dr. Van de Water] 


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Chairman BOUSTANY. Thank you, Dr. Van de Water. We will 

now proceed with questioning of the witnesses. 

Dr. Holtz-Eakin, we have quite often heard ad nauseam that the 

health care law, ACA, reduces the deficit. Is that true? 

Mr. HOLTZ-EAKIN. I think the original cost estimate suffered 

from what are now widely recognized as a lot of budget gimmicks, 

things like the CLASS Act, which has met its demise since the initial passage, front loaded premium receipts and back loaded spending. 

There were a number of double uses of money like the Medicare 

reductions being used to fund the insurance expansion. 


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I think the answer would be no. The most important thing is 

that our current deficits and the projections are driven by the 

health entitlement programs and their rapid rate of growth, and 

there has yet to be an objective and non-partisan assessment of the 

law that says it will actually bend the cost curve. 

Chairman BOUSTANY. Part of that calculation by CBO with regard to the effect on the deficit was largely because ACA raises 

taxes significantly, as you stated in your testimony. 

Mr. HOLTZ-EAKIN. Sure. 

Chairman BOUSTANY. Let’s assume for a moment, for the sake 

of argument, that the underlying policy for health care is correct. 

As a physician, I happen to believe to the contrary, but let’s assume for a moment it is correct. 

Let’s also take it one step further. Let’s assume that it is reason- able or wise or good policy to extract $1 trillion from the U.S. economy to pay for this. 

Dr. Holtz-Eakin, I want you to comment, and Mr. Kautter, looking solely at the methods by which this law raises taxes, and I 

think you both talked a little bit about this in your testimony, it 

raises these new taxes on innovation, innovative companies, small 

businesses, many that are trying to make a profit. 

It raises taxes by taxing health insurance premiums, which will 

be passed onto the purchasers of those premiums, raising premium 

costs. 

Employer mandate. 

Are these rational ways to extract $1 trillion out of the U.S. economy given we have very sluggish economic growth, unemployment 

that is projected to remain above seven percent through 2015, and 

maybe beyond. 

We are also looking at tax reform. It is no secret that this Committee has set a goal to fundamentally rewrite the Tax Code to 

simplify it and lower rates, all to promote competitiveness for 

American companies. 

Is this a smart way to raise taxes? It seems to me ACA is a very 

complex tax bill. We saw added complexity with the Fiscal Cliff tax 

package. We are going in the wrong direction. 

I would like both of you to comment on that. 

Mr. HOLTZ-EAKIN. I certainly would agree, Mr. Chairman. This 

is going in the wrong direction. This is not good tax policy. If you 

look at this by the standard metrics of efficiency and equity, these 

are bad taxes. 

I know Mr. Kautter does not love the excise taxes on payroll and 

net investment income, and I share his concern with the complexity 

and having a third Tax Code. 

I think the health insurer’s tax is the worse designed tax I have 

ever looked at. If the Committee wants to raise $8 billion next year 

in some way for the insurance industry, you could do a lot better 

than that, and more generally, I think we should recognize the importance of broad-based taxes that are less discriminatory and less 

interfering with the economy. 

I want to comment just on this notion of somehow these are benefit taxes. Benefit taxation is a well established principle in tax 

policy. Benefits accrue to individuals and taxes are paid by individuals in the end, and it is difficult to imagine the ACA being a benVerDate Mar 15 2010 03:34 Jul 02, 2016 Jkt 089554 PO 00000 Frm 00068 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\89554.XXX 89554

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efit tax because the idea was in fact to give low income Americans 

a benefit, which was insurance, very costly, and if we make them 

pay for that benefit, we will un-do the redistribution, which is at 

the heart of the law. 

In the end, it is not the medical device manufacturers or the insurer’s who benefit from this tax. It is workers, shareholders, and 

customers that ultimately should be looked at. 

You cannot defend this on the basis of benefit taxation. 

Chairman BOUSTANY. Thank you. Mr. Kautter. 

Mr. KAUTTER. Mr. Chairman, I am very concerned about complexity, and having spent 40 years in the trenches helping all sorts 

of taxpayers comply with the tax law, I understand the complexity 

matters. 

This bill has got enormous complexity in it with respect to the 

tax provisions. It is sort of like embarking on a great archeological 

dig as you work your way through the pages of the bill and now 

the regulations. 

The tax on net investment income is a brand new third tax system. This Committee and other committees have wrestled with the 

alternative minimum tax and indexing the alternative minimum 

tax. 

The net investment income tax is similar to the AMT. It has its 

own separate definition of income, its own method of allocating expenses to that income, its own method of calculating the tax. It determines which other taxes are creditable against that tax. It is a 

free standing separately contained system in the Internal Revenue 

Code. 

I guess folks can discount it by saying well, only the top four percent or so of all taxpayers will pay the tax, a lot of those folks invest and innovate, and from a complexity point of view, it is a large 

step backwards. 

Chairman BOUSTANY. This Subcommittee is deeply concerned 

about the ever rising level of complexity in the Tax Code, both from 

the standpoint of those who are taxed, but also from the standpoint 

of an IRS that keeps coming before us asking for more resources 

to deal with this ever growing complexity in the Code. 

Mr. KAUTTER. I think the IRS has done as good a job as can 

be done in trying to implement the tax on net investment income. 

They have largely referred to existing provisions and standards. 

Unfortunately, the existing provisions and standards are not 

very simple. You now have this new system that refers to old principles which were controversial to begin with, and these are just 

two of the taxes. 

The Medicare tax, if someone knows they will be subject to the 

Medicare tax because they and their spouse will earn more than 

$250,000, and they individually earn less than 200, they cannot 

ask to have the Medicare tax withheld from their wages. They have 

to ask to have additional income tax withheld. 

What sense does that make to most people who are trying to fill 

out what is called the ‘‘W–4’’ for withholding. It is one of the most 

misunderstood forms and the potential for complexity and misunderstanding and penalties is rife. 

Chairman BOUSTANY. Thank you. You pointed this out, I 

think, in your testimony. The net investment tax is referred to in 


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the law as ‘‘unearned income and Medicare contribution,’’ yet the 

revenue goes in the General Fund. It does not do anything to help 

Medicare, does it? 

Mr. KAUTTER. It does not. It goes right into the General Fund. 

Chairman BOUSTANY. The new law gives the impression that 

there are provisions to help finance Medicare and improve Medicare, but are there other examples of that, Dr. Holtz-Eakin, in this 

law? 

Mr. HOLTZ-EAKIN. In the end, this law has the flaws of many 

laws that rely on these accounting gimmicks. Money flows into the 

Federal Treasury. Money flows out of the Federal Treasury. 

Any labels attached to them are strictly accounting fiction because the money is gone and never saved in any meaningful way. 

Medicare right now, the gap between payroll taxes and premiums coming in, spending going out, is about $300 billion, with 

10,000 new seniors every day. That is the true state of Medicare’s 

financial condition. 

Any accounting ledger to suggest there is money in a trust fund 

for anything or somehow the Medicare tax will be deposited in it 

is in defiance of economic reality. 

Chairman BOUSTANY. Thank you. That is all I have. Mr. 

Lewis. 

Mr. LEWIS. Thank you, Mr. Chairman. Dr. Van de Water, the 

Affordable Care Act is a landmark law that helped millions of 

Americans. 

For example, 86 million Americans have received one or more 

free check-ups or screenings to prevent and detect illness. 

The Affordable Care Act delivered hundreds of billions of dollars 

of Federal tax credits to many American families and small businesses. 

Some have suggested that the ACA is a massive tax increase on 

the middle class. Others have argued the opposite, that the ACA 

is a middle class tax cut. 

The Washington Post did a fact check on the claim that the ACA 

was a middle class tax cut and found the claim to be true. 

Mr. Chairman, I ask unanimous consent to place this article in 

the record. 

Chairman BOUSTANY. Without objection. 

[The information follows: The Hon. Mr. Lewis] 


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Mr. LEWIS. Dr. Van de Water, what is your opinion of whether 

the ACA is a middle class tax cut or tax increase, and please explain your opinion. 

Mr. VAN DE WATER. Thank you for asking that question, Mr. 

Lewis. I think it is an excellent one. It illustrates the importance 

of looking at the Affordable Care Act as a whole. 

We have heard a lot of discussion about individual taxes, but as 

I mentioned in my prepared statement, one of the important things 

to remember is the taxes in the Affordable Care Act were not levied 

for the sake of imposing taxes, but for the sake of financing the 

coverage expansions in the law. 

Those are primarily of two sorts: first, the expansion of Medicaid 

for people with incomes below 138 percent of poverty, and second, 

financing the premium tax credits for people between 138 percent 

and 400 percent of poverty. Those premium tax credits, by their 

very nature, go to folks who are middle class, defined as having income of no more than 400 percent of poverty. And, as I recall, what 

that Washington Post fact check, to which you referred, did was to 

take a look at was all of these provisions together, not just the 

taxes, such as the medical device tax and so forth, but also the effects of the premium tax credits that will be provided to help people obtain health coverage. And when you look at all of those tax 

provisions together, I think what the Post concluded, and what I 

think is in fact correct, is that that the law does provide a net tax 

reduction for what we might consider to be middle class folk. 

Mr. LEWIS. Thank you very much. Thank you. I yield back. 

Chairman BOUSTANY. Ms. Black. 

Mrs. BLACK. Thank you, Mr. Chairman. And I want to go back 

to the issue of complexity that the chairman has talked about and 

several of the witnesses have as well. Under the President’s health 

care law’s employer mandate tax, which I think is a very creative 

title that they give it, a Shared Responsibility for Employer’s provision, we know that there is going to be a fairly complicated regulatory analysis to determine what tax you are going to be hit with. 

And I think Ms. Sun mentioned this when she talked about deciding the definition of what full time is. So, you are going to have 

to consider in that what employees count as full time, what counts 

as part time, how many hours they worked, whether the insurance 

they provide to employees meets Washington’s requirements and 

other sundry of complicated questions that will have to be answered. And, of course, we all know this starts at the end of the 

year. 

Now, the answer to many of these questions of course is going 

to be by the rules that are written by the Treasury. And I hold in 

my hand here a temporary set of rules. We do not know whether 

these rules are actually going into effect or not. There are 144 

pages that I hold here in my hand. These are the drafts of the latest version. I think it is also interesting that the Treasury Department admitted last week that the health care law was, and I quote 

this, ‘‘Not as artfully drafted as it could have been.’’ And that the 

Treasury Department is working on fixing those flaws that may be 

in this new regulation. 

So, my question, and probably the best one to start with, would 

be, Ms. Sun and Mr. Joyce, since you are employers who are going 


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to have to implement whatever comes out in these rules, and my 

question to you is do you feel that given the fact that we just right 

now have temporary rules that you do not even see, not knowing 

what time line is going to be when these rules are going to be final, 

that you will have enough time as an employer to be able to implement these provisions as you are working within your business and 

looking at your own budget and what you need to do for the year? 

Ms. Sun? 

Ms. SUN. Thank you, Ms. Black. No, we absolutely do not. And 

we have even engaged through the International Franchise Association, bringing in Ernst & Young to try to help us and try to help 

educate our franchisees. But it is a five step calculation that I 

think you need to graduate degrees to try to figure out how to even 

calculate it. And our franchisees seem paralyzed to even to try to 

calculate it because they are afraid if they get it wrong, what is the 

impact going to be. 

So, we see hiring freezes at our franchisees level. We have seen 

an unprecedented level of franchisees turning back in territories 

where in prior years we have had most of our franchisees opening 

two and three locations and employing many more people in their 

local communities, turning those locations back in and saying, ‘‘You 

know what with the Affordable Care Act, we just do not want to 

take on that risk.’’ We do not want to take on the complexity. We 

would just potentially want to stay under 50 employees and leave 

the headaches until we can hope that we can get to 2014 and everyone realizes what they have done. And they see the impacts of 

what they have done. And this is repealed or replaced in some way, 

in form or in fashion, because right now we cannot figure it out. 

And we have the best and brightest of Ernst & Young, which my 

esteemed to my colleague to my right, used to work for, and we 

still have difficulty trying to figure it out and trying to help our 

franchisees figure it out. 

Mrs. BLACK. And, Mr. Joyce, before you answer let me just add 

one more question to Ms. Sun since she brought this up about hiring a firm to give you some advice. Have you any idea or calculation of what that might cost you in hiring this firm? 

Ms. SUN. We have estimated, and we have done a pretty thorough calculation, we have estimated it will cost each of our 160 

franchisees $8,455 for every single one of our franchisees just to 

comply with the law at their current stage and size of business 

without even looking at continued growth. 

Mrs. BLACK. And that is complying with the law, that is not 

what it is going to cost you—— 

Ms. SUN. So they could figure out how to comply with the law, 

that is what we estimate it would cost them. 

Mrs. BLACK. Okay. Mr. Joyce, same question for you? 

Mr. JOYCE. We agree with those—I agree with her comments. 

And I will just tell you, I was talking to my insurance agent last 

night working through my comp renewal, and I was just asking 

him—we were talking about the Act—and I guess the big concern 

is it is moving so fast there is a lack of information. Everyone is 

making decisions, do I hire, do I not hire? And, as I said in my 

comments, fear and frustration cripple business and markets. And 

the best thing that we can do for our country right now is excite 


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markets and not cripple markets. And I am telling you I believe 

with all my heart that the reason we are not seeing robust recovery 

right now is consternation over small and medium and big business 

with regard to these rules and regulations. It is a major concern. 

Mrs. BLACK. Paralysis from not knowing what to do, the uncertainty. Thank you, and I yield back the remainder of my time. 

Chairman BOUSTANY. Ms. Jenkins. 

Ms. JENKINS. Thank you, Mr. Chairman. Dr. Holtz-Eakin, this 

Subcommittee held a hearing last year that reviewed a provision 

within the ACA that requires a physician’s prescription in order to 

gain a reimbursement through tax preferred accounts like FSAs 

and HSAs for the purchase of over-the-counter medicines. And 

some of my colleagues across the aisle claim that only the wealthy 

use these accounts, but I know that over 19 million families alone 

use FSAs. What are your thoughts on this provision and the impact 

on families on a budget and the burden on physicians who are now 

seeing patients to prescribe something that can be bought over the 

counter? 

Mr. HOLTZ-EAKIN. Well, I think that it is pretty obvious and 

onerous compliance cost, just making the—getting prescriptions impose a big cost on everybody. Past that, when you think about the 

goals of this, if you want to make people more sensitive to the 

kinds of things that they do, it seems odd to single out these particular accounts as the way to do it. This is a law that has a nearly 

infinite scope. It touches every piece of an American economic life, 

and to target something that has been relatively successful and 

popular like the FSAs and the HSAs strikes me as a really narrow 

way to go at it. 

Ms. JENKINS. Would you consider this a tax on working families? 

Mr. HOLTZ-EAKIN. This is a repeal of a clear benefit that was 

in the Tax Code to reach a policy objective, and it is going to make 

their taxes higher. 

Ms. JENKINS. Do you feel that the provision provides in any 

way an efficiency for the health care system? 

Mr. HOLTZ-EAKIN. Again, I think if you want to get genuine efficiency you have to do broad-based things, not these rifle shots. 

And I think that would be the way to go. 

Ms. JENKINS. Okay, and on another note, several experts, as 

well as the Congressional Budget Office and the Joint Committee 

on Tax, have estimated that the health insurance tax will result in 

higher health insurance premiums for individuals and families. 

Could you please explain why the tax will lead to higher premiums 

and how the tax is at odds with the ACA’s stated goal of making 

coverage affordable? 

Mr. HOLTZ-EAKIN. The way the tax is designed, the fixed fee, 

$8 billion for example in 2014, is allocated among insurance companies on the basis of market shares. And what that means is that 

every time you sell another policy, you raise your share and thus 

raise the tax that you have to pay. That is just like putting a sales 

tax on insurance. And we know what happens with sale taxes. If 

at all possible, you try to shift that on to the customer. 

This is exacerbated in this case by the fact that for the for-profit 

insurers, those paying corporation income tax, they are not allowed 


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to deduct this tax. So if you have got a dollar of premium tax, you 

actually cannot just raise premiums by a dollar and come even because your tax liability is going to go up. So you have to actually 

raise it by $1.54 if you do the arithmetic. That is a real upward 

pressure on premiums that is built into this tax. 

And you might like to think maybe it will magically come out of 

profits, but these are insurers that operate in competitive capital 

markets. They do not have excess profits that you can identify. You 

might want health insurance workers to work for less, but I think 

we are trying to have workers have their incomes go up, not down 

and have more employment. So the net effect of this is by and large 

going to be higher premiums, and that is going to get shifted on 

to probably the middle class. 

Ms. JENKINS. Okay, thank you, I yield back. 

Chairman BOUSTANY. I thank the gentle woman. Before I yield 

to Mr. Davis, I want to mention that this Subcommittee did hear 

testimony last year with regard to the Small Business Health Insurance Tax Credit and the difficulties that small businesses were 

having in complying with it. In fact, by the IRS’s own estimation 

it consumes about 40 million man hours per year, which averages 

out to about 19 hours, man hours, to comply per small business. 

So I thought that was important to mention. And, secondly, the 

projection of the number of small businesses that are availing 

themselves of this tax credit, it has been way below what was originally anticipated. With that, I will yield to Mr. Davis. 

Mr. DAVIS. Thank you very much, Mr. Chairman. And I want 

to thank the witnesses. Especially, I want to thank you for calling 

this hearing because it gives us an opportunity to look at several 

dimensions of the Affordable Care Act. 

One of the things that I have noted is 105 million Americans 

have had a lifetime limit on their coverage eliminated, which I find 

to be quite commendable, 6.6 million young adults up to the age 

of 26 now have health insurance through their parent’s insurance, 

and 6.1 million seniors in the donut hole have received savings on 

their prescription drugs. These savings total $5.7 billion overall 

and averaged $706 per senior in 2012. And, of course, these savings 

will continue to grow as the donut hole becomes more fully closed. 

Mr. Van de Water, if I could ask you, I have noted that some 

commentators are concerned that the ACA will lead to a significant 

reduction in the labor market. And while CBO did state that the 

Affordable Care Act will reduce the labor supply, CBO believes that 

this would be due in significant part to the end of what is called 

‘‘job lock.’’ In other words, employees would choose to work less or 

perhaps work for themselves because the Affordable Care Act 

would allow them to obtain affordable health insurance from 

sources other than their employer. What is your opinion relative to 

the effect of the ACA on the labor supply? 

Mr. VAN DE WATER. Thank you, Mr. Davis. Yes, you are exactly correct in describing the Congressional Budget Office’s assessment of the effect of the Affordable Care Act on labor markets. 

CBO concluded that, as I think virtually all of our personal experience would attest, that there are people, particularly those who are 

approaching their retirement years, who may be sort of hanging on 

to a job, even one that they are finding very onerous, because that 


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is the only way that they can retain health insurance. In some 

cases, even at younger ages, people are not shifting to another job 

if the current job that they have has health insurance but the one 

that they prefer based on other factors does not. So the availability 

of heath care coverage through the exchanges on a guaranteed 

issue basis will eliminate that locking of people into a particular 

job. 

And in the case of some of the older workers, the Congressional 

Budget Office estimates they may decide that they will actually 

withdraw from the labor market a bit earlier, and obtain coverage 

through the exchange instead of through an employer. But even 

the extent to which that happens, CBO estimates will amount to 

a very small drop in employment. 

Mr. DAVIS. I have also heard people suggest that a medical device excise tax will shift jobs overseas and investment away from 

the medical device industry in this country. What is your opinion 

of these types of arguments? 

Mr. VAN DE WATER. Again, that is an excellent question. The 

assertion that you referred to is a common one, that the medical 

device excise tax will cause jobs to shift overseas. But it turns out 

that this tax is carefully structured so as to avoid that particular 

effect. And the reason is as follows, that the tax does apply to imported medical devices, as well as to devices produced domestically, 

but the tax does not apply to exported devices. So that means that 

if we are talking about devices that are going to be used in the 

U.S., the tax is paid whether the device is made domestically or 

abroad. But if we are talking about devices that are to be used 

overseas, the tax is not paid, whether the device is manufactured 

here or overseas. So in either case the playing field between American manufacturers and foreign manufacturers remains level. 

Mr. DAVIS. Thank you very much, and I yield back, Mr. Chairman. 

Chairman BOUSTANY. I thank the gentleman. Mr. Marchant. 

Mr. MARCHANT. Thank you, Mr. Chairman. It is an honor 

today for me to have a couple of Texans here on this panel. And, 

welcome, thank you for being here today. Mr. Joyce, thank you for 

your statement. I think your statement embodied exactly the feelings of every business in my district. I represent a district that has 

Addison, Las Colinas, all the DFW Airport and all of the surrounding areas. And throughout the district every single owner, 

every single CEO is sitting down with their accountant, sitting 

down with their insurance agent, and they are trying to figure out 

how they are going to do business next year. And that is creating 

uncertainty and, in your words, it is creating fear. And in a business environment of uncertainty and fear, you do not have hiring. 

In fact, you have exactly the opposite. So many of these fortunate 

individuals that will be able to stay on their parents’ insurance for 

another couple of years, because of the abysmal hiring atmosphere, 

it may be that those very individuals that have stayed on their parents’ insurance for an additional couple of years actually will not 

have anywhere to go to work after they get out of college because 

the hiring has been frozen, and there is such uncertainty. 

During the debate when we—when this Affordable Health Care 

Act was adopted, one of the major arguments the Administration 


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and supporters gave the companies, and the medical device companies specifically, would receive a windfall because there would be 

so many thousands and literally millions of people that didn’t have 

insurance, that would have insurance that would now begin to access the health care system. And because of that, your business, 

Mr. Humann, your business, Mr. Moore, would have so many new 

customers and would be able to sell so many more instruments 

that your profits would go up. And because of those profits, you 

should help pay for this system. So, I would like to give both of you 

the opportunity today to address that argument? 

Mr. HUMANN. Yes, thank you for the question. At OsteoMed, 

we just have not seen that and do not expect to see that. First of 

all, the products that we make patients are receiving regardless. 

There are products that are for trauma and for severe reconstruction issues. Secondarily, the majority of newly insured patients are 

younger—younger people, and they will likely not be utilizing the 

medical technologies that are out there. And then third, when we 

look at Massachusetts, which has had universal health coverage 

now for some time, we have seen no up-tick in our business in that 

state whatsoever. 

Mr. MARCHANT. So, basically, in your case, the Medical device 

tax is just a redistribution? It is basically going to your company 

and saying your company or your industry is going to pay for the 

Affordable Health Care Act? 

Mr. HUMANN. It is very simple. It is an extra cost on our business. It is one less dollar that we have to invest in innovation and 

new hires within OsteoMed. 

Mr. MARCHANT. Thank you. Mr. Moore. 

Mr. MOORE. And we ask that same question across many of our 

members: is there an expected windfall? And I think coming back 

to that Massachusetts experience, in our surveys 90 percent of companies who had been through the Massachusetts experiment of universal care did not see a windfall, did not see any growth, any 

greater growth in Massachusetts than they did in the rest of the 

country. So whether you are talking Cyberonics or the rest of the 

industry, we do not expect to see that windfall. 

Mr. MARCHANT. And do you—do either of you expect to be able 

to pass—fully pass on the expense of the tax to your customer? 

Mr. HUMANN. The competitive environment is incredibly tough. 

We have foreign manufacturers coming over. We have domestic 

companies that we compete against. We need to look at our costs 

first, and keep all of our options open and try and make the ends 

meet at the end of the day. This is a new cost on our business. 

Mr. MOORE. Right, and, as I said in my comments, we see our 

taxes going up with this 2.3 percent revenue tax. Across the industry we see our taxes going up 29 percent. We are not finding a way 

that we think we can recover the tax. Quite the contrary, we are 

saying where do we cut in order to find some cost savings to offset 

the tax increase? And those start hitting things that we least want 

to hit. They hit American people in the area of jobs. They affect 

projects, American projects, our research and development. And 

fewer people working on fewer R&D projects ultimately impacts in 

a very negative way, ultimately patient care. 

Mr. MARCHANT. Thank you, Mr. Chairman. 


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Chairman BOUSTANY. Mr. Paulsen. 

Mr. PAULSEN. Thank you, Mr. Chairman, and also for holding 

this hearing and for our witnesses for all being here today. I do 

share the deep concern that has been expressed by many of the 

members here as well as some of the folks that have testified here 

this morning about how the Affordable Health Care Act or the 

taxes that are in the bill, in the new law, have actually contributed 

to the rising cost of health care. And are putting now a heavy burden on some of our best job creators, which we just heard about. 

As co-chair of the Medical Technology Caucus and as the chief 

author of the bill to repeal the device tax, I have a particular interest in how this tax, this really destructive tax, has been harmful 

not only to American jobs but also innovation and also patient care. 

Now, already we have seen thousands of layoffs in this industry. 

I mean that is pure and simple. Thousands of layoffs in this very 

dynamic, very vital industry. It is in Minnesota. It is around the 

country. The President has repeatedly stated his objective to increase domestic manufacturing, American manufacturing. And I 

think the irony here is that this is a policy that is actually being 

very harmful to achieving this goal, as our witnesses have already 

pointed out. It is having the opposite effect primarily because this 

is a tax that applies to sales, not to profits. And it is going to raise 

the average tax bill by some companies by almost a third. And 

other countries are absolutely incentivizing these companies to 

makes these products overseas while we are taxing and regulating 

unfortunately our best companies out of existence. And so this 

American success story I think needs to be protected. We cannot 

take that leadership for granted. 

I want to ask this question though, Mr. Moore and Mr. Humann. 

I am so glad you are here to testify about the very real effects that 

the tax is having on your employees and on your company and on 

medical—on the quality of health care, but I am wondering whether there are other hidden costs that are there as part of this device 

tax if we dive a little deeper, beyond the tax itself? For instance, 

I know that due to the new tax, medical technology companies have 

to keep track now of which products are sold in the United States 

versus which are sold overseas, which products are ‘‘further manufactured,’’ which are subject to the retail exemption. And on top of 

that the tax is now paid every two weeks, every two weeks, this 

excise tax. And I know many companies have hired full time staff 

just to handle the device tax compliance. 

And I have spoken to some larger companies that sell thousands 

of unique products. Small companies have difficulty complying with 

the new rules. One company said they have 129,000 products that 

needed to be individually analyzed, which cost the company $10 

million on the compliance side, including two full time new tax employees, four to six dedicated brand new consultants on site for a 

year and two new IT people as well. So that is not on the research 

and development side. This is on the compliance side. I do not 

think those are the types of jobs we should be creating. 

So, Mr. Humann and Mr. Moore, in addition to the $30 billion 

in the new tax that you are going to have to deal with the next 

few years and the job loss and the innovation struggle, how is it 


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now—how is it for your companies now to calculate and pay the 

tax? 

Mr. HUMANN. Yes, without a doubt, the tax provides a complexity that has not been there before. OsteoMed’s whole mission 

in life is to improve patient outcomes. That is what we come to 

work every day to be able to do. And, again, anything that we have 

to spend non-value added time and resources on to administrate a 

tax, to figure out a tax, to pay a tax is one less dollar that we have 

to, again, continue to innovate and come up with great new products to help people reduce health care costs and ultimately help patients. 

Mr. PAULSEN. Mr. Moore, are there other costs? 

Mr. MOORE. Well, I have seen estimates across the industry 

that reach into the hundreds of millions of dollars, which sounds 

like a lot of money. However, what we know is this 2.3 percent revenue tax is going to cost our industry $29 billion. So hundreds of 

millions versus the $29 billion, the bigger issue is still the device 

tax. And I think Republican, Democrat, there is agreement among 

many, bipartisan support, that this device tax is bad policy, and 

that it needs to be reversed. 

So the implementation at this point is the least of my concerns. 

The bigger issue is we are losing jobs. We are losing the American 

manufacturing and the leadership that we have. It is like deja vu 

all over again, back to my childhood as a son of a steelworker. One 

of the most difficult decisions I have had to make is to begin setting up manufacturing for the first time in our 25 year history outside the United States. And, unfortunately, at this point we have 

broken ground. I hope to limit the number of jobs and get back to 

creating more jobs in America. 

Mr. PAULSEN. Thank you, Mr. Chairman. 

Chairman BOUSTANY. I thank the gentleman. I want to thank 

you for your leadership on that particular issue, but also for raising 

the question of the complexity in complying with that tax, especially for some of our larger companies with complex supply chains. 

It has gotten to be a nightmare. So, I deeply appreciate your raising that concern. 

Next, Mr. Kelly, you have got 5 minutes. 

Mr. KELLY. Thank you, Mr. Chairman. And thank you all for 

being here, especially small business owners. My whole life I have 

been involved in small business. My father started a business in 

1953 after being a parts picker in a General Motors warehouse, 

coming back from the war and starting a dealership, a very small 

store, one car showroom, about four service bays. So I know of 

what you talk. And one of the most fascinating things since I have 

been here is to listen to the opinions of those who are not on the 

field. I spent a little bit of time playing football in my life, and I 

always thought it was much more interesting to be up in the 

stands. I could really pick out what people were doing wrong as opposed to being six inches from somebody that is trying to take my 

head off. I watch you. 

And, Mr. Moore, the area I went to school and I would go by 

Gary, Indiana. What a great place it was at one time with all the 

steel mills, and the same in my town of Butler, Pennsylvania. We 


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had great steel mills. We had great railroad companies. We had a 

lot of great things that are no longer there. 

But I think the disconnect here is that people do not get it that 

there is a cost of operation that we keep messing with all the time 

by increasing their tax load. And for some reason, Mr. Paulsen just 

talked about medical devices. You cannot increase the cost of your 

product and hope to compete in a global competitiveness where 

people do not have to play by the same rules. It is fascinating to 

me. One of the biggest items we sell right now are cars or navigation systems because people do not know how to get from Point A 

to Point B or they want to find the fastest or the quickest or the 

most use of freeways. And I would just tell you that most times it 

gets a little bit confusing, and when it does, a little voice comes on 

that says, ‘‘Recalculating.’’ 

This Affordable Care Act, I mean I cannot imagine something 

being named worse in my life, ‘‘affordable’’? Heavens, no. Heavens, 

no. Try and work with it. I mean the people that actually have to 

work it. Get up out of bed in the morning, put their feet on the 

ground and go to work. They are the ones that have to struggle 

with it. And I am fascinated by folks who have never done it that 

can tell you how easy it is. All you need to do is get a laptop. I 

will put the program in for you. I will show you how it works. Tell 

me the struggles that you have just trying to maintain your competitive edge. 

And the other thing is one of the things says the employer mandate is called the ‘‘Shared Responsibility for Employers Regarding 

Health Coverage Payment,’’ which kind of suggests that me as an 

employer all my life, I did not really know how to take care of my 

employees. And that is kind of funny because I have been to baptisms. I have been to communions. I have been to weddings, and 

I have also been to funerals. So, I think I understand my people 

pretty well. Tell me some of the concerns you have? And I think 

this is absolutely insulting to tell people who have lived their whole 

life with associates that help make them successful that you did 

not know what you were doing, and we have got to tell you because 

this is an outfit that runs so well. We know how to do it. 

Ms. Sun, your business has become very complicated for your 

franchisees, has it not? 

Ms. SUN. Thank you, yes, it has become very complicated. And 

I think the biggest issue we have with having the health insurance 

cost being forced on our franchisees potentially before they are 

ready, we believe in providing health insurance for our employees 

and doing the right thing. We often go to the employee—our employees’ baptisms and birthdays and funerals and new births at the 

hospitals and when they are sick, but many of our franchisees have 

only been in business for two years, three years, four years. Many 

of them still do not have bank loans. And to put a mandate of additional cost on their business before they are out of debt and have 

paid back their small business loans to the SBA, I think that is improper. And it is not government’s place to be telling our small 

business owners how they should be interacting. That is a relationship between the employer and the employee. And that is what is 

scary for how the Affordable Care Act is being implemented. 


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Mr. KELLY. As I go back in the district, that relationship between the owner of the business and the associates that work together, as one of you talked about having to lay people off, there 

is nothing worst for an owner than to have to call somebody and 

tell them, ‘‘You know what, we are not going to be able to keep you 

on the payroll anymore.’’ 

I have got a friend in Erie, Pennsylvania who is in the fast food 

business. He is going to have to reduce his workload of people down 

from being fully employed to part time in order to meet this. These 

are the costs that people who have never done it do not get. They 

think they are so darn smart. What they have caused is us to lay 

off people that we know, that we have lived with, that we have suffered with, and that we have gotten through tough times with. 

One of you talked about it, 40, they talked about the 40, right? 

Mr. HUMANN. Yes. 

Mr. KELLY. That is what is so critical here. We are telling those 

people they cannot work full time anymore, not because we do not 

love them, not because we do not need them, but the government 

has made it impossible for us to keep them on the payroll. 

Mr. HUMANN. That is exactly right. They really are family 

members within the company, but the greater responsibility to the 

remaining almost 300 employees that are there. And the costs, as 

they continue to increase, have to be addressed. And the tax is a 

substantial cost. 

Mr. MOORE. Mr. Kelly, if I could, I heard earlier that this is not 

causing jobs to move overseas. Whether you are a company of my 

size, and after 25 years, we have set up our first outside United 

States manufacturing facility, or you listen to some of the larger 

companies, one whom more recently announced a $75 million new 

tax bill, job losses of a 1,000 in the U.S., while they are hiring more 

in China. I connect those two, increased taxes and moving jobs outside the U.S. As we get more tax burden, we have to find ways to 

make up for that tax. And one way is to move jobs offshore. And 

I do not like it. 

Mr. KELLY. No, nobody does. I have talked to more people, it 

is not that they are unpatriotic, it is just that they are not stupid. 

They cannot keep their companies open by trying to work under a 

definition, under rules that make no sense. I talked to our controller today at the dealership this morning. Our costs now, we just 

got the bids back, $500,000, which is nothing in Washington’s 

terms, but for my little dealership, that adds to our cost of operation which affects the cost of labor. It affects the cost of every 

product we sell. It affects the way we look into the future, and I 

think that is the real bad part of this thing. We do not understand 

how badly we have hurt people’s looks into the future with any 

type of confidence that they can survive in an area where the government should be your friend. They should be helping you get to 

a prosperous thing. And, you know what, we are just the opposite. 

Mr. MOORE. And we do hear from those governments in other 

countries. I get at least an e-mail a week from another country soliciting our jobs. 

Mr. KELLY. Well, thank you for staying the course, and do not 

give up faith. I think we can still get this thing fixed. I think we 


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have got some people thinking a lot more clearly about this, but 

thanks so much. 

Mr. Chairman, thank you so much for having this hearing. I 

think it is so critical that the folks that are actually on the ground 

that face these challenges every day get a chance to come before 

Congress and tell them exactly how hard it is to do what they do 

every single day. And you are the ones that fund the whole government. I mean we are killing the goose that laid the golden egg. So 

striking it and keep saying, ‘‘Lay hen, lay,’’ those days are gone. We 

better wake up and smell the coffee. Thank you so much. And 

thank you, Mr. Chairman. 

Chairman BOUSTANY. Thank you, Mr. Kelly. I would ask the 

panel to hang around for just a moment. We have two additional 

questioners, Mr. Davis and Mr. Marchant. So, Mr. Davis. 

Mr. DAVIS. Thank you very much, Mr. Chairman. Mr. Van de 

Water, let me ask you. There are those who argue that the health 

insurance industry fee in the ACA will be passed through to businesses and consumers in the form of significantly increased premiums. These commentators do not seem to acknowledge the downward pressure on premiums that the ACA will have. Could you 

please discuss these countervailing factors and include in your remarks what the CBO and the ACT believe would be the impact on 

premiums? 

Mr. VAN DE WATER. Yes, Mr. Davis, as you indicate, that if 

taken by itself, the tax on health insurance providers, with other 

things being equal, tends to increase the cost of health insurance, 

there is no question that there are other features of the Affordable 

Care Act, which are designed to increase competition and reduce 

costs. And taking all of those factors into account, the Congressional Budget Office has estimated that for large employers, those 

with more than 50 workers, the Affordable Care Act overall will reduce average premiums by up to 3 percent in 2016. 

For small employers, CBO has a range. They estimate that there 

possibly could be a small increase in premiums of as much as 1 

percent, but there could be a decrease of as much as 2 percent. So 

the middle of that range actually would be for a small decrease in 

premiums, illustrating once again that it is important to look at 

the total effect of the law, not just the effect of one particular provision. 

Mr. Davis, if I might, I would like to comment on something that 

was said a moment ago about the Medical Device Tax and the effect on jobs, following up with a question you asked previously. 

Clearly, there is no doubt that some medical device manufacturers, 

like firms in other industries, are opening up plants overseas, but 

it has been well documented and it is quite clear by the structure 

of the tax itself, since the tax does apply to imported devices that 

are manufactured overseas, the tax itself cannot possibly be a reason to move production overseas. There are indeed other cost reasons that apply in particular cases that lead manufacturers to 

make that decision, but the device tax itself does not change the 

balance of cost between producing domestically and producing 

abroad. 

Mr. DAVIS. Let me ask you—could labor supply and production 

costs have something to do with movement? 


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Mr. VAN DE WATER. Presumably, it does. The gentlemen here 

who actually run the companies can speak to that in a way that 

I cannot, but I would also note that there are other device manufacturers who take a contrary point of view. And if I might, I would 

just like to quote a couple of them. A fellow by the name of Martin 

Rothenberg, who heads a device manufacturer in upstate New 

York, says that the claims that the device tax will cause layoffs and 

outsourcing, his word, not mine, he calls these claims ‘‘nonsense.’’ 

The tax, he says, will add little to the price of a new device that 

his firm is developing. ‘‘If our new device proves effective, and we 

market it effectively, the small increase in cost will have zero effect 

on sales. It would surely not lead us to lay off employees or shift 

overseas production.’’ 

Another gentleman by the name of Michael Boyle, who founded 

a device firm in Massachusetts, says that the device tax is ‘‘not a 

job killer. It would never stop a responsible manager from hiring 

people when it is time to grow the business.’’ So, again, I just want 

to note that there are different views within the device industry 

itself about the effect of the tax. 

Mr. MOORE. You know, in my case I made that decision for our 

company, and I can tell you I made that decision based on interactions with the government, primarily driven by another tax. 

After going through the process of a startup company, in our first 

20 years, we only made a profit, a small profit, for one year, but 

cumulatively we had losses of over $250 million. Around year 20, 

we were not yet profitable and losing $50 million a year. We needed to do something. Now, five years later, we have some profitability, but we still have net operating losses in a successful business. 

When I look overseas, there is another reason beyond taxation 

for opening a plant overseas, there is something called country of 

origin, which says certain countries penalize me for being solely a 

U.S. manufacturer in that they will not allow me to go for a product approval in their country until I have approval in my home 

country, where we manufacture. So, yes, there are other reasons to 

set up manufacturing overseas, but in our case I can speak to the 

decision because I am the CEO who made that decision to set up 

in another country, to invest millions of dollars to set up a plant 

in another country, to hire our first OUS manufacturing employee 

who starts on Monday. I made that decision based on our situation 

and it is tied to the device tax. 

Mr. DAVIS. Thank you very much, Mr. Chairman. 

Mr. HUMANN. If I could add on that, the device tax in general 

has on average across the industry effectively increased the tax— 

the effective tax rate 29 percent. And so, again, every dollar that 

goes to Washington is one less that we can put into our development back in Dallas or throughout the industry. At the end of the 

day, if it makes economic sense for a company to look overseas to 

be able to reduce its overhead, they have got to, and this tax certainly does not help in that process. 

Chairman BOUSTANY. Thank you. Mr. Marchant. 

Mr. MARCHANT. Thank you, Mr. Chairman. Just a couple of 

comments. Mr. Kautter, your testimony I have read, and I think, 

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plete hearing just on the idea of this complexity of this law and the 

complexity of this tax changing the absolute behavior of investors. 

I think—I have read through it, and there is one page in here that 

just crystallizes it. And so if you are an investor, if you are somebody nearing retirement and you are trying to preserve your retirement, you are going to look at this, and you are going to change 

your behavior. 

And, Mr. Eakin, you know that American business and American 

investors will spend a lot of money on tax avoidance. And they will 

spend a lot of money on tax planning. And so I commend you for 

your testimony here. I have read it. It is very serious testimony, 

and I would like to thank Mr. Eakin, for you have been on TV a 

lot the last two weeks and thank you for your very commonsense 

comments. 

But, Mr. Chairman, I would commend you for bringing up this 

subject. This is the exact opposite of what our committee is working on. Our committee is working on simplifying the Tax Code and 

lowering tax rates. This does nothing to simplify the Tax Code. In 

fact, it makes it so complex. 

The most alarming figure that I read here today was the thresh- old for trusts and estates is $12,950. That will probably—that will 

completely alter the behavior of those trusts in the States, and I 

contend they will not pay that tax. Thank you. 

Chairman BOUSTANY. That figure was alarming when I read 

your testimony as well. And I have gotten a lot—Mr. Marchant, I 

have got a lot of questions about that tax and how it might apply, 

the 3.8 percent tax, net investment—new net investment tax. So a 

lot of my constituents were struggling for some of the answers 

based on the very specific questions they were asking me. And even 

their accountants were confused, but your testimony helped us sort 

of understand generally the level of complexity that this has added. 

And I do agree with you, we might need to investigate this further. 

So I appreciate your raising that concern and question, Mr. Marchant. 

With that, I want to thank all of you who have presented in front 

of the committee today and for being here and for your testimony. 

I will remind all the members that if you have additional questions, you can submit these, and they will be made part of the 

record. And to the witnesses, there may be additional questions 

that members may want to submit to you. So, we will be accepting 

submissions for the record, which is open for two weeks following 

the hearing. 

With that, this hearing is now adjourned. 

[Whereupon, at 12:50 p.m., the subcommittee adjourned.] 


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[Submissions for the Record follow:] 

American Farm Bureau Federation 


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California Healthcare Institute 


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Cook Group 


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Dental Trade Alliance 


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Kenneth H. Ryesky 


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Medicaid Health Plans of America 


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National Association for the Self-Employed 


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The Brinks Company 


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The Center for Fiscal Equity 


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MATERIAL SUBMITTED FOR THE RECORD 

Questions for the Record 


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Æ 


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