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Karl Rove On Medical Device Tax, and 2014 Senate Strategy

Wednesday, March 27, 2013

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HH: At the beginning of this hour, I’m so pleased to welcome back Karl Rove, the Architect. For all things going on, on Planet Rove, go to www.rove.com. Karl, Happy Easter to you.

KR: Same to you, buddy.

HH: I want to begin by talking about the medical device tax. Now on Monday on this show, I had on Tom Loarie, who’s a serial start-up entrepreneur, and Robert Grant, who’s an investor, and my law partner, Gary Wolensky, who has been defending medical device companies for decades, and Mitch McConnell. And Mitch McConnell said the House needs to get me a repeal of the medical device tax right away so I can make the senators live with that. Do you think that can happen?

KR: Sure, absolutely. The House has previously voted to pass such legislation. It’s unclear, this was last year, I think it was 270-146 was the vote last year. So with what the Senate did in a non-binding vote last weekend, 79-20 calling for its repeal, this measure has some oomph behind it. The question is whether, you know, it’s one thing for 79 Democrats and Republicans to vote for this, I guess it was 34 Democrats that joined with Republicans on this, when it’s non-binding. But if it’s binding, the question is do the Democrats suddenly say you’ve got to find us the $30 billion dollars that was going to go from this tax for Obamacare? You need to find it in higher taxes on somebody else.

HH: Now Marco Rubio said in the same interview with Leader McConnell and my guests that no, we don’t need to do that with this, we’re killing jobs. And I’m appealing to you, Karl, to help educate. You know, Chairman Brady is going to be on in a little bit, Kevin Brady from Texas, down your way, that they’ve got to tell the story of why this matters.

KR: Yeah.

HH: Do Republicans do that very well?

KR: Well, they do and they don’t. We need to do more of it. I mean, look. Think about this, that look, you know, you mentioned Kevin Brady, who’s a wonderful friend of mine. John Cornyn, another Texan, was in a hearing with Douglas Elmendorf last year, and he asked Elmendorf a pretty simple question. We’re simple people down in Texas. So Cornyn says to him, let me ask you something. This medical device tax paid by medical device manufacturers, 2.3% excise tax, going to be a similar tax on drug companies, going to be a similar tax on hospitals. Who’s going to pay those taxes – the hospitals, the drug companies and the medical device companies? Or are those costs going to be passed onto their consumers? And Elmendorf, the head of the Congressional Budget Office, pretty straightforward, says well of course they’re going to be passed on to their consumers. So think about this. The medical device tax is going to be paid for by sick people in higher prices. You know, Uncle Harry who gets the hip replacement is going to pay a higher cost. Aunt Martha, who gets a heart pacemaker, is going to pay a higher cost. Anybody who has a medical device that plays part of rehabilitating them, making them well, healing them, is going to pay a higher price for that procedure because of this tax. And as you say, it’s, I think the original estimate was $40 billion dollars over ten years. But I mean, that’s bigger than the research and development budgets for the entire industry combined.

HH: And I’ve got to tell you, Karl, one of the things that frustrates me is that the GOP is not so nimble. When you get a vote like 79-20 in the Senate, I look for the Speaker or Leader Cantor, or Whip McCarthy, or Chairman Camp to be out there saying hey, we’ll see and raise you. We’ve got to do this, because there are 8,000 medical device companies. And as our VC said, it’s harder to raise money for them. The CEO said it’s harder to get them approved, and the lawyer said and then you have to defend these products in court. I just don’t think the Republicans think about selling this the way they need to.

KR: Yeah, well, and there’s another thing, which is remember, we have, this is a gigantic economic driver for the United States. These devices are created in the United States, the incubator of innovation, and then sold around the world. And you know, we don’t just use them here at home. We export them around the world. And what’s happening is that when you start saying to these companies that you’re now going to lose a significant amount of the money that you would otherwise pump into R&D, it causes that pipeline to slow up. So it’s not only going to affect people’s jobs today, but it’s going to mean a less prosperous country in the years ahead. Things like, you know, when Boeing succeeds in coming up with a new airplane design and selling it around the world, it makes America more prosperous. When Apple comes up with the iPhone or the iPad, it has a big impact. We see those things, because they’re consumer items. But we forget that things like medical devices, these have implications for health care all around the world, and are similar drivers of our economy.

HH: It is astonishing. Erik Paulsen from Minnesota told me he had 200 start-up medical device companies in his district. One district, 200 companies. That’s incredible.

KR: Yeah. For some reason or another, Minnesota is a big incubator of it, which is why Al Franken and Amy Klobuchar, the Democrat senators, have been long-time advocates of repealing this tax, which is easy to do after you voted for Obamacare that created it.

HH: Now I’ve got to ask you about the debate within the Republican caucus. Some people want comprehensive tax reform, and don’t want to take any elements off the table that make it harder to get to the big jigsaw puzzle. And others say they’ve got to have a pay for. I think this is a special case. I think this is a moment to demonstrate what the Republicans are trying to argue to the country. What do you think, Karl Rove?

KR: Yeah, look, I’m generally in favor of the comprehensive approach, and I think we need to pursue that. But look, this is one that seems to me to be easy. Pass the measure they passed last year, send it to the Senate, and one of three things is going to happen. It’s going to die, in which case it’s going to be clear the Democrats didn’t really mean it. They’re going to take it up and insist on a pay for. Okay, fine. A pay for. For example, one thing is to say okay, we’re going to sweep the unpaid, the unspent balances. We have these giant slush funds in most of the agencies called the unspent balances. Go sweep those, and take that money. I bet it’s in excess of $30 billion dollars. And use it as the pay for. Or thirdly, you know, just pass it and reduce it, and further undermine Obamacare. But one of three things is going to happen, and two out of the three are good, particularly if you’re smart about the pay fors, if they insist on a pay for.

HH: Now I also think it’s going to play into the Senate elections of 2014, and here is where I want to turn with you next, Karl Rove. We’ve got lots of good news. Tom Harkin is out in Iowa, and Jay Rockefeller is quitting West Virginia, and Tim Johnson’s not running in South Dakota, and two of those look easy with Shelley Moore Capito and Mike Rounds. And I know less about Iowa. How do you feel about the opportunity if we do this right not to go 0-3 on Senate elections?

KR: Yeah, look, we had a good election in 2010. We had a bad election in 2012. We’d better have a good election in 2014, and take advantage of the opportunities being presented to us. Arkansas is another one. Louisiana is another one, both incumbent senators, but both of them vulnerable having voted for Obamacare, having voted for the stimulus, having supported Obama in a state that the President lost by more than ten points. So I think we’ve got a couple of other options, and you know, you’ve got Montana and Alaska, which ought to fall our way. Begich is going out of his way to do everything he can to now demonstrate his independence from President Obama, but that wasn’t the way he was in 2011 and 2012 in a state where the President ran very poorly. So I think we can do some pick-ups, but we’d better be careful and make certain we have really good candidates, and not do what we did to ourselves last time around by letting Harry Reid participate in the Republican primary. You and I know…

HH: Yup.

KR: We talked about this. I mean, he played a big role in nominating Todd Akin by attacking him as a conservative with $2 million dollars of television advertising during the Republican primary.

HH: Now I also want to talk about the RNC’s overhaul. 35 years ago, you taught me field work when you were doing that for the CRs. I mean, that’s a long time ago, and we’re older now.

KR: Don’t say that. Don’t say that. Don’t tell people.

HH: Well, I go back to that, because I read the RNC report, and if I were king of the forest, not queen, not duke, not earl, I’d be sending out teams to Ohio, Colorado, Florida and Virginia right now to get embedded and do what Team Obama did. Do you think there’s enough emphasis of that in the RNC rewrite?  I have heard you say we’ve got to get away from paying for consultants to buy TV ads. We’ve got to get back to basics. But did you see enough?

KR: Yeah, I did. Look, it was written by a committee, so you can quibble with it, but yeah, I think they put the right emphasis there. I think it needs a little bit more clarity, which is to say that we ought to recognize that outside groups like American Crossroads that I’m associated with, or these other superPACs, don’t have the ability to do the ground game, but they do have the ability to free up resources for the ground game. That is to say you get a hint in the report that they want groups like Crossroads to go out and pay for things like absentee ballot requests and early vote information, and get out the vote information, and be sent to Republican households. And groups like Crossroads ought to do that, because those things are expensive. And by taking on the cost of those, it frees up the party organizations to plough their money into more field staff, more headquarters, more volunteer-intensive activities, which is where we’ve got to go. And we’ve also got to close that data gap, because data helps volunteers communicate in a more powerful fashion.

HH: Last question with a minute. We also need to be able to score the outside groups. You don’t take a nickel from Crossroads, Karl. I know that. But there are a lot of 527’s out there that are just money making machines for the people who run them.

KR: Look, we’ve got a lot of bottom feeders on our side. Let’s be honest about that.

HH: Yup.

KR: That’s why donors are really concerned about these outside groups, because they’re sick and tired of having their money siphoned off into somebody’s pocket.

HH: So how does a big donor decide? Obviously, they can go to Crossroads if they want, but is there an independent scorekeeper that you would trust for them to read and evaluate from?

KR: No, but these organizations need to be transparent, they need to have independent boards, they need to have boards that set their compensation and set the policies. They need to have anti-conflict of interest statutes. I think the RNC report did a really good thing of saying compensation inside these groups should not be tied to any particular activity. And in Crossroads, everybody’s on a salary who gets it. I’m a volunteer. But the staff is on salary, and so their compensation is not tied to doing more TV, or doing more web advertising, or doing more mail or more phones. They get to make an independent decision as to what they think the most effective channel of communication is.

HH: Karl Rove, great to talk to you as always. Have a Happy Easter.

End of interview.

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