One Pager: CHIPS Subsidy Plan Fails to Address Broader Challenge of Competition with China
July 19, 2022 - Blog - One Pagers - Press Releases - Select Revenue Measures - Tax Cuts & Jobs Act - The Tax Tracker - The Trade Report - Trade
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
** Aerospace
** 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
Company
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.
