The medical device tax was one of a number of additional revenues proposed to offset the cost of the Affordable Care Act (ACA; P.L. 111-148 ). This excise tax is projected to raise $30.6 billion of excise tax collections over the next 10 fiscal years (FY2016-FY2025). After offsets due to the deductibility of excise taxes from income and payroll taxes, the medical device tax is estimated to raise net revenues of $24.4 billion, according to official revenue estimates from the Joint Committee on Taxation (JCT). Although some wish to preserve this revenue source, others have proposed repealing the tax. The industry and some policy institutes have commissioned studies claiming the excise tax will have significant negative consequences for jobs and innovation in the medical devices industry. Repeal of the tax has become a priority for some Members of Congress. In the 113 th Congress, the Senate voted 79-20 to include repeal of the tax as an amendment to S.Con.Res. 8 , the Senate Budget Resolution, on March 21, 2013. Bills ( H.R. 523 , H.R. 1295 , and S. 232 ) were introduced to repeal the tax. A number of Senators proposed amending H.R. 3474 (the vehicle for extending several expired and expiring tax provisions, called "extenders") to repeal the tax. The bill did not advance in the Senate, as a motion to end debate was voted down on May 15, 2014, due to restrictions on amendments. The Jobs for America Act ( H.R. 4 ), passed in the House on September 18, 2014, included a repeal of the tax along with the permanent extension of a number of expiring provisions. In the 114 th Congress, the Medical Device Access and Innovation Protection Act ( S. 149 ) would repeal the medical device tax retroactively to the first year of implementation in 2013 and provide refunds for past tax payments. On June 18, 2015, the House passed the Protect Medical Innovation Act of 2015 ( H.R. 160 ), which would repeal the tax in quarters after the date of the bill's enactment. This report reviews the issues surrounding the medical devices tax within the framework of basic principles surrounding the choice of commodities to tax under excise taxes. The next section describes the tax and its legislative origins. After that, the report analyzes the arguments for retaining and repealing the tax. Since January 1, 2013, manufacturers and importers of final medical devices for sale in the U.S. market have been subject to an excise tax equal to 2.3% of the manufacturer's price. For the purposes of the tax, a "medical device" is defined by the Federal Food, Drug, and Cosmetic Act (21 U.S.C. §321(h)) and pertains to devices "intended for humans." Congress exempted eyeglasses, contact lenses, and hearing aids from the tax and any other medical device determined by the Secretary of the Treasury to be of the type which is "generally purchased by the general public at retail for individual use." The internal revenue code prohibits a tax from being imposed on the sale by a manufacturer of an article for export, or for resale by the purchaser to a second purchaser for export. Thus, medical devices manufactured in the United States and exported abroad are also exempted from tax. The excise tax is deductible as an ordinary cost of business for firms subject to income tax. If the tax falls on profits this effect reduces the tax, for profitable firms, to about 1.4%. If the tax is passed forward, raising prices, the deduction would offset the firm's revenue gain from the price increase, leaving income tax revenues unchanged (absent effects on quantity) because the tax reduces the amount of income subject to federal income taxes. The medical device tax was enacted by the Health Care and Education Reconciliation Act of 2010 (HCERA; P.L. 111-152 ), which modified the Patient Protection and Affordable Care Act of 2010 (ACA; P.L. 111-148 ). Like other revenue-raising measures enacted in ACA, the excise tax on medical devices was meant to help offset the expenditures associated with health care reform (e.g., subsidies for low-income households and small businesses to purchase health care, and funding for programs to promote efficiencies in the market for health care). Additionally, the medical device industry was one of the commercial interests (as well as health insurance providers and pharmaceutical firms) that stood to benefit from unanticipated profits as more people enrolled in health care, post-ACA. These industries are subject to fees that were estimated to raise $165.0 million over 10 years. This objective of the tax can be inferred from the original Senate proposal. During the early stages of the health care reform debate in 2009, the House and the Senate had different proposals to raise revenue from the medical device industry. The Senate proposed an industry-wide fee based on a firm's gross receipts, similar to the fees that were eventually imposed on drug manufacturers and health insurance providers. In contrast, the House proposed a flat excise tax across all medical device manufacturers; this framework eventually was adopted during the reconciliation process for HCERA/ACA. Even though the intent of the Senate bill might have been to impose the tax on profits, a fixed dollar fee allocated by market share closely approaches an excise tax. According to the Joint Committee on Taxation (JCT), the medical device tax has been estimated to raise $24.4 billion in revenue over the FY2016 to FY2025 budget window. JCT estimates that the tax will raise $1.8 billion in FY2016 which would amount to approximately 1.4% of the projected sales of medical devices in the United States. This number is for a fiscal year, with the last quarter of calendar year 2016 appearing in FY2017 receipts. The 2016 calendar year liability is estimated at $1.85 billion. The excise tax collections are larger than JCT's net revenue estimates for budgetary purposes. Overall, excise taxes enter as a wedge between aggregate output and income. Because these taxes reduce income, they also reduce income and payroll taxes. JCT uses an offset to estimate net collections, the offset being 25.7% for FY2016. Consequently, the actual collections from the excise tax are estimated at $32.8 billion over the 10-year budget window and $2.4 billion in FY2016. Based on these figures, CRS calculates that JCT's revenue estimate projects a taxable base of $108.3 billion of manufacturers' sales in FY2016. As noted subsequently, in the " Concerns About the Tax " section of this report, data in a Treasury Inspector General for Tax Administration (TIGTA) report indicate that initial receipts were below expectations, most likely due to compliance issues. In general, tax policy is considered more efficient when differential excise taxes are not imposed. It is generally more efficient to raise revenue from a broad tax base. Therefore excise taxes are usually justified on specific grounds. Before discussing these justifications, it should be noted that the medical device tax tends to be a small share of the price of the taxed product, relative to other excise taxes. Most federal excise taxes are levied on a per unit basis, although a few are ad valorem (based on value, not quantity). Fishing and hunting equipment is taxed at either 10% or 11% (except for tackle boxes taxed at 3%), transportation by air is taxed at 7.5% for persons and 6.5% for property. Large cigars are taxed at 52.75% (with a maximum of slightly over 40 cents). The unit taxes as an estimated share of value vary. Federal cigarette taxes are estimated to be around 16% of the retail price, but if measured on the same basis as the medical device and other taxes (before state and local taxes and on price net of the tax) the tax is more than 36%. Although federal alcohol taxes vary considerably across brands, they are about 4% for wine and beer, and 8% for distilled spirits as a percent of retail price and would be higher on a comparable (net of tax and markups by distributors and retailers) basis. A relatively small tax on medical devices means that economic effects are likely to be small, but also that administration costs relative to revenue are larger. Taxes, among other justifications, are primarily for the purpose of raising revenues. One issue with respect to the medical device tax, and considerations of its repeal, is how the revenue loss might be offset, given current concerns about the deficit. The tax is relatively small, but, for political reasons, it may be difficult to find an alternative revenue source. Perhaps more importantly, the medical device tax is one of a suite of taxes on particular industries adopted to finance the Affordable Care Act including fees on drug manufacturers and importers, and fees on providers of health insurance. These fees tend to have similar effects as excise taxes. The "Cadillac" tax on insurers of high cost policies is also in the form of an excise tax. The Cadillac tax becomes even more important in the future as it was delayed in taking effect. If there are justifications for eliminating the medical device tax, there may be arguments for eliminating these remaining taxes and fees. Those losses would present a more significant challenge in finding alternative revenue sources. A second argument offered for this tax (as well as the fees on other industries) is that the industry will benefit from the increased demand for their product due to the expansion of health insurance coverage in the health reform legislation. The tax might be seen as a way of reducing profits to the industry, as well as offsetting any negative effects of the tax on demand. The estimates of the economic effects of the tax, presented further in the report, suggest that the tax will probably not reduce profits, but will likely be passed on in price.