Former House Members Say R&D Credit, Device Tax Likely to Be Addressed in 2015

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By Jeannie Baumann

Nov. 7 — Congress probably won't take up the research and development tax credit or the medical device tax in the lame duck session, but is likely to address both taxes in the next session as part of a larger discussion on corporate tax reform, former lawmakers said Nov. 6 during a post-election briefing.

“If you don't like the medical device tax, it's going to go away. The bad news is they're going to get the low hanging fruit to pay for it, which would probably take away money from other things that you would like,” Bart Gordon (D-Tenn.), former chairman of the House Committee on Science and Technology, said. The device tax established through the Affordable Care Act levies a 2.3 percent tax on the sale of certain medical devices paid by the manufacturer or importer of the device.

Gordon, now an attorney in K&L Gates's Washington office, made his remarks during an election briefing organized by Research!America. Along with former House members Michael N. Castle (R-Del.), Kweisi Mfume (D-Md.) and John Edward Porter (R-Ill.), Gordon was part of a panel called “The Way Forward.”

Porter, who is chairman of the Research!America board, said he expects a big push to see an omnibus appropriations bill to fund fiscal year 2015 passed in the lame duck session.

“You are exhausted. You want out of there,” Porter said about how lawmakers will feel when Congress reconvenes after campaigning. “There's a big push to get things moving quickly. Rep. Hal Rogers (R-Ky.), Sens. Barbara Mikulski (D-Md.), Mitch McConnell (R-Ky.)—all of them want to see an omnibus if they can get it,” he said, referring to the House and Senate appropriations committee chairmen, respectively, as well as the Senate minority leader, who is expected to become majority leader in January.

For that reason, Porter said, he doesn't think there will be any movement in the lame duck session to make the research and development tax credit permanent.

“I do not think they will get to the tax extenders in the lame duck. They will kick them over to next year. There's just too much effort to get the decks cleared and that's something they have—even though they expire—to kick over,” he said.

Tax Reform at Forefront

Mfume, now a principal investigator at the Health Research Policy Consortium, also said he doesn't think Congress will take up the R&D credit or the device tax then, but that these will be bargaining chips that will go back and forth in a larger discussion about tax reform. Even though there's a need for real tax reform, Mfume said, many lawmakers already are gearing up for the 2016 election.

“So this is going to be a year-to-year situation in my opinion. I just don't think there'll be a lot of permanency in terms of legislation. I do believe that Congress will elect to extend the tax extenders bill,” he said.

But Castle said there may be movement on the R&D tax credit this year.

“I'm not sure that they won't do it during the lame duck. There's a lot of fuel for it,” he said.

Castle, who was perhaps best known in medical research for his work on vetoed embryonic stem cell legislation in 2005 and 2007, said he believes the medical device tax will be rescinded next year “at some point.”

“There's support for that in both the Democrat and the Republican parties. So there's a reasonable chance that will happen,” he said. He noted, like Gordon, that rescinding the device tax would create offset issues that need to be addressed.

“I also believe we are going to see corporate tax reform next year,” he said. “The fact is corporations are fleeing America or leaving money overseas now and want to join up with some company over there that has lower taxes than America and it's a problem.”

ACA Repeal Unlikely

Now an attorney in DLA Piper's government affairs practice, Castle said he doesn't see the Affordable Care Act being repealed because even if such legislation passed the House and the Senate, President Barack Obama would veto it. Castle said he hopes there is better communication between the White House and Congress.

“It just hasn't been good,” he said. “Bottom line, they've just got to get into a room and sit down and work out some of these differences. It's in the interest of the president to move this country forward; it's in the interest of Republicans, and it's in the interest of Democrats. They saw this election; they saw what happened to incumbents.”

Gordon expressed similar thoughts.

“Mitch McConnell recognizes that in 2016 there will be 34 seats up for the Republicans. I think he's going to like being the majority leader. He's going to keep on being the majority leader,” he said to laughter. “So for the first few months, it is to the president's benefit to his legacy, and it's to Mitch McConnell's benefit to maintaining the majority in the Senate to try to work together.”

There has been legislation in both the House and the Senate to make the R&D tax credit permanent, and a top aide on the House Ways and Means Committee said Nov. 6 that permanently incorporating this tax credit might prompt lawmakers considering a one-year continuation of extenders to back off their position.

Making Case for Research

While there's a lot of goodwill for medical research funding, Porter said, the challenge will be the current budget caps and competing for funding in the discretionary pool.

“The Ebola scare has led people to begin to connect the dots a little bit and understand that if you don't invest in research, you don't have a way to handle things like that,” Porter said.

Gordon said the business community needs to get involved in making the business case for research.

‘We can't just let the same old universities, medical groups and folks that seem like they have a personal interest tell their story,” he said. “We've got to get the business community involved. They have to help tell the story that you have to invest in research and education to create innovation, which then results in new entities, which makes new jobs, which provides new taxes to invest more money into education and research.”

Lawmakers Urge NIH Funding Increase

In a related development, a group of more than 100 House lawmakers in a Nov. 10 letter urged the chamber's leaders to work to restore funding for the National Institutes of Health at least to pre-sequester levels, adjusted for inflation, in the FY 2015 appropriations measure.

The letter to House Speaker John Boehner (R-Ohio) and Minority Leader Nancy Pelosi (D-Calif.) said that Congress's failure to at least hold NIH funding even with inflation has caused the agency's purchasing power to drop 20 percent since 2003. “Irresponsible budget cuts” have decreased the NIH's purchasing power by another 5 percent in FY 2013, the letter said.

“If we are serious about breaking new ground in our understanding of complex diseases like Alzheimer's and cancer, and if we hope to accelerate the speed with which new cures, treatments and vaccines are developed—goals that are supported by Congressional leaders of both parties—then it's absolutely essential that we increase funding for medical research at NIH,” the letter said. “Given our constituents' renewed focus in recent months on developing vaccines and treatments for diseases like Ebola and amyotrophic lateral sclerosis (ALS), we feel strongly that now is the time to invest in our nation's long-term health and prosperity,” it said.

The letter was spearheaded by Reps. Suzan DelBene (D-Wash.) and Chris Van Hollen (D-Md.), who is the ranking member of the House Budget Committee.

To contact the reporter on this story: Jeannie Baumann in Washington at jbaumann@bna.com

To contact the editor responsible for this story: Randy Kubetin at rkubetin@bna.com

More information on the Research!America forum with an archived webcast is available at http://www.researchamerica.org/post-electionbriefing14.

The letter from House lawmakers is at http://delbene.house.gov/sites/delbene.house.gov/files/NIH_FINAL.pdf.