According to the World Bank, which records global GDP data annually, the United States led the world in 2012 with a GDP totaling just shy of $15.7 trillion. Growth in U.S. GDP hinges on a couple of factors, including an increase in exports, strength in U.S. small businesses domestically, and, most importantly, strong consumer spending, since it accounts for around 70% of GDP.
But, despite being the largest country in the world, our Congressional representatives have pushed us into a government shutdown over a disagreement of what amounts to fractions of a penny. In spite of Congress' begrudging passing of a federal budget that contained roughly $3.8 trillion in spending last year, we're currently mired in a government shutdown over what appears to be $29 billion in revenue collection over the course of the next 10 years!
We at The Motley Fool would just rather keep our nose out of politics altogether if we could, as it rarely has a meaningful impact on our investments. However, sometimes delving into the possible outcomes of political gridlock is unavoidable, as is the case here. So rather than pointing the finger at either political party, let's have a closer look at what I think is the primary reason for this governmental gridlock, what the potential outcomes could be, and what you need to know as an investor.
What's the cause for the gridlock? My contention is that the greatest sticking point between the Republicans and Democrats has to do with the provision in the Patient Protection and Affordable Care Act, which you'll likely know better by its shorthand, Obamacare, which requires medical-device companies to pay 2.3% of their top-line revenue as a tax to the U.S. government. This tax, known as the medical-device excise tax, has been projected by the Congressional Budget Office to bring in $29 billion in total revenue between 2013 and 2022. It taxes everything from sophisticated robotic surgery machinery such as that made by Intuitive Surgical, Inc. (NASDAQ:ISRG) all the way down to everyday hospital supplies like IVs.
Why is the medical-device excise tax even in the PPACA? Obamacare is a complex law, but its primary purpose is to expand medical coverage to as many non-insured individuals as possible. Clearly, even with subsidies in place, many non-insured families still couldn't afford health insurance on their own. Therefore, to expand health-care options to these lower-income individuals and families, the PPACA added taxes on certain individuals and businesses to help pay for these subsidies and the upcoming Medicaid expansion, as outlined under the law.
One way of doing that is through a surtax on investment income of 3.8% for individuals making more than $200,000 annually, or couples earning more than $250,000 per year. Similarly, the PPACA also instituted a 0.9% Medicare tax boost on individuals and couples earning $200,000 or $250,000 annually. Keep in mind that these taxes kick in once you cross these thresholds and not up to it, but they are expected to bring in $318 billion, according to estimates by the CBO, over the next decade.
Another revenue-generating method of Obamacare is the medical-device excise tax, or MDET. By having medical-device companies pay a 2.3% tax off their top lines, $29 billion would be raised over a 10-year period, which can be used to offset subsidies and expand Medicaid.