Broad-based tax incentives will better address our global competitiveness
- The Chinese Communist Party’s “Made in China 2025” plan seeks global dominance in 10 separate industries, which reach far beyond semiconductors:
- Advanced information technology
- Automation & robotics
- Ocean engineering & shipping
- Rail transport
- Energy efficiency & electric vehicles
- Power equipment
- Advanced materials
- Medicine & medical devices
- Agricultural equipment
- For about the same cost as CHIPS subsidies ($52 billion in grants + $24 billion tax credit), we could enact a powerful set of incentives to allow all American companies to compete and win in the global economy:
- Double research and development (R&D) tax credit through 2025 ($69 billion).
- 100 percent expensing through 2025 ($5 billion).
- Allow R&D costs to be deducted immediately through 2025 ($4 billion).
U.S. is already on track to ramp up production with new semiconductor facilities
|Location||Announced||Project Cost||Completed||Chip Type|
|TSMC||Arizona||Nov. 2020||$12 billion||Early 2024||5nm / 4nm|
|Intel||Arizona||Mar. 2021||$20 billion||Early 2024||7nm / 5nm|
|Samsung||Texas||Nov. 2021||$17 billion||Late 2024||3nm|
|Intel||Ohio||Jan. 2022||$20 billion||Late 2025||3nm|
CHIPS tax credit—via government checks—is an excessive industry handout
- The 25 percent refundable tax credit would provide large government checks to a limited group of hand-picked companies.
- Also creates an unjustified windfall for companies with projects already underway.
CHIPS tax credit lacks any guardrails to prevent investment shifting to China
- Added to the $52 billion in grant money, the tax credit provides semiconductor companies with an unprecedented stack of benefits, all paid for by taxpayers.
- Unlike the grant money, the CHIPS tax credit does not include protection against companies using the money previously earmarked for U.S. investment to increase their China footprint.
- Without guardrails, Americans could be subsidizing expansion of the size and capabilities of semiconductor facilities in China.
Semiconductor companies already enjoy significant tax advantages
- Semiconductor companies pay low corporate tax rates:
- S. companies: Broadcom – 1.8 percent, Micron – 7.6 percent, Intel – 9.3 percent, Texas Instruments – 12.8 percent, Qualcomm – 13.6 percent.
- Others: TSMC – 10.4 percent, SK Hyinx – 23.7 percent, Samsung – 24.9 percent.
- Industry is using COVID-era supply chain problems to seek taxpayer-funded handouts.
- These CHIPS subsidies will not alleviate existing semiconductor supply constraints because it takes years for facilities to ramp up and begin production.
- Economists expect the market to rebalance before any new facilities come online.
U.S. is already a hub for tech investment, including semiconductors
- TCJA was a boon for U.S. R&D investment—25 percent higher than in the years prior, reaching an all-time-high in 2019 ($584 billion and 3.06 percent of GDP).
- U.S. semiconductor exports totaled $49 billion in 2020, behind only three other industries (aircraft, refined oil, and crude oil).
- U.S. semiconductor companies remain the clear global leaders, with 47 percent of global semiconductor sales in 2020 (South Korea was second with 20 percent).
- U.S. companies produce 44 percent of their semiconductors domestically, producing more here than anywhere else.
- While the U.S. share of global semiconductor production has shrunk in recent decades, domestic semiconductor capital investment and output are increasing: U.S. capacity grew from under 2 million units per month in 2000 to more than 3 million units in 2018.