A few months back I gleefully reported what the voters of Massachusetts did for the medical device industry by electing Scott Brown as our new Senator. The US Senate had cobbled together a poor Health Care Bill in order to send it onto the House of Representatives assured that the Republicans would not win Kennedy’s seat and gain the blocking vote. It was, by admission of many Democratic Senators, a terrible bill – but that it would be cleaned up in a House-Senate conference. 

With Senator Brown finally seated it seemed to be a no-brainer that the Health Care Bill would have to be dropped or reconfigured as it would not stand a filibuster challenge.

I was one of those relieved given my concern for my beloved medical device industry which was going to be the scapegoat of the current administration and be severely taxed for no other reason than its name sounded a lot like the pharmaceutical industry. I felt that we had ducked a massive bullet.

The gross distortions in favor of forcing through the bill under Reconciliation were mind-numbing. How the public could be convinced that spending more than a trillion dollars would result in a “massive middle class tax reduction” and how could taking $500 billion out of Medicare “strengthen” it?

Here’s what has happened and what we might expect – how much more damage can Congress inflict before the November elections?

Companies small to larger have written down expected charges to their bottom lines in order to comply with Sarbanes Oxley accounting practices. Caterpillar has charged their books a billion dollars while AT&T and other companies have taken write-downs in the range of $30 – $500 million. Of course Congress wants to interrogate their executives whose crime seems to be that they are complying with the laws set forth by Congress itself. Company executives could go to jail if they failed to disclose to investors how their expenses might change.

So the country is beginning to see the financial impact of Obama Care.

Massachusetts medical device companies are threatening to move their manufacturing and development facilities out of the US entirely. This is interesting given that our governor is a pal of the president. Our governor is “shocked” that hundreds of Massachusetts based life sciences companies would leave or export much of their business out of the country.

Of course he should be concerned – the medical industry is one of the few segments of the Massachusetts economy creating jobs. Thousands of Massachusetts jobs are at risk – and our federal and state elected officials seemed surprised. Go figure.

With many embedded vendors targeting the medical devices industry to hedge against expected A&D cutbacks, the consequences of the Health Care legislation couldn’t have come at a worse time. The financial impact of this legislation requires massive tax increases to pay for it, so if one group is given a safe haven from this taxation then other segments will be harder hit in order to cover the revenue needs.

Also, should the Supreme Court find that the legislative requirement that all US citizens must purchase health care (how can interstate transport laws pertain to those that don’t chose to buy?) is unconstitutional, the current congressional membership will certainly impose additional taxes on those already hit hard – and that would mean we the members of the medical device industry. We can’t expect that the members of congress would change their minds regarding the legislation given the sleazy way they forced the legislation through.

Of course should the mid-term elections change the constituency of the House of Representatives, they could choose not to fund the Program.

What is happening here in Massachusetts is happening across America. And those of you either currently in the embedded medical device industry or hoping to find new markets herein should pay careful attention.

Notwithstanding our weak global economy, the mindless imposition of new taxes (and the anticipation of additional taxes that are unknown to us at this time) can not only set our economy back further, but is likely to gut the embedded market segment that has shown the greatest growth in revenue and employment year-over-year.

Massachusetts Senator Scott Brown, who has filed an amendment that would repeal the tax, wrote “with unemployment in my state near 10%, placing a tax on medical devices is the absolute last thing we should be doing right now”. Our governor responded by saying health care reform is “very good for the people of America and the people of the commonwealth.”

Good luck Scott – November is only 8 months away.

I wonder how Schwarzenegger in California (whose state is harder hit than Massachusetts) is taking all of this. He’s not a buddy of our prez which might be a good thing.

The State of Massachusetts had a special election to fill the seat held by the late Senator Ted Kennedy. Perhaps you heard of it.

Be warned – this is my first (and probably last) political blog. But I wanted to share with you what was the amazing response of our citizens – it wasn’t an election. It was a happening.

The Democratic primary was won in a landslide by Martha Coakley our Attorney General who promised, among other matters, to tax the medical devices industry (she didn’t say why – and didn’t think it was necessary to do so). In Massachusetts, Democratic registration is triple that of Republicans and our senators and representatives have all been Democrats for decades.

Notwithstanding my concern for my beloved medical device industry, it was going to be the scapegoat of the current administration and be severely taxed for no other reason than its name sounded a lot like the pharmaceutical industry. I was used to accepting the inevitable.

Confession is good for the soul – so let me share my long hidden shame. I have lived in Massachusetts 44 years. I came to work at MIT and attend medical school at Boston University. During that time I remained a fiscal conservative and registered Republican (who once had a Nixon sticker on my car) living in what we fondly call the People’s Republic of Massachusetts.

Moreover, I built 4 medical device companies (helping take two public) while living in Massachusetts rather than moving to tax-free New Hampshire and paid the confiscatory taxes. Somehow, for a guy with 5 college degrees, I just didn’t get it.

My experience in politics was minimal. I once (as a university professor) ran for the local school committee (as a Republican) and lost to a soda jerk (Democrat) working at a local luncheonette who admitted to being virtually illiterate. I lost by only 2000 votes (unfortunately out of 4000 cast). I voted in national elections only for the fact that I wanted to see my neighbors at the local high school.

There didn’t seem to be a reason to go out in the cold to vote against the political machine for a state senator who was one of only a few Republican members of the Massachusetts legislature.

But then I noticed that the polls that once gave Coakley a 31% lead showed that Brown had drawn within 2 percentage points – and an amazing thing happened. People everywhere were cautiously asking “what do you think of Scott Brown?” When I answered that we were going to vote for him, we experienced an unusual outpouring – like a confessional (being Jewish – but having a Catholic wife – I can only assume that it’s this way). Registered Democrats and Independents were confessing that they saw a way out of this mess. Some were engineers, others teachers, others just working folks but they each understood that we can’t tax innovation and small businesses out of existence. And they were encouraged to participate and help get out the vote (Brown won by 5 percentage points).

Americans are resourceful and the emergence of and growth in medical, computer and embedded businesses are what gave us the greatest standard of living the world has ever seen. Small businesses contribute 80% of job growth. We have been tracking local and out of state technology (and energy) companies to get the pulse of future employment. I have spoken with engineers that are getting a lot of interviews (for when the crunch comes) but no offers. I’m told that companies are waiting to understand the financial risks they will have for funding employee health care under the proposed Senate and House bills. Also there is a fear as to which markets will be arbitrarily taxed (currently banks and healthcare – but potentially telecom) that need to be resolved before small and medium sized businesses will increase hiring.

So, for my friends, colleagues and neighbors this was not merely an election – this was a happening! I have received emails from colleagues around the USA expressing their joy and relief.

Even though the Senate will only have 41 Republican members, what happened January 19, 2010 in Massachusetts (known as the Scott heard around the world) may well be the dynamite that opens up the logjam that will help embedded vendors and developers get the loans and financing that they need to support growth.

Dolores, a lifelong Democrat who is equally frustrated about state politics, is now changing her registration to Independent. It’s hard to break an addiction.

Post Script: The Power of a Single potential vote

 Today, one day after the Massachusetts election, President Obama requested that his healthcare legislation be significantly scaled back to a less comprehensive but more affordable bill. This will reduce the need to tax the medical devices industry to pay for the larger proposed program.

Thanks Scott