Senate approves CHIPS funding and tax credit bill to promote US semiconductor manufacturing – PwC
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July 2022
The Senate on July 27 voted 64 to 33 to approve legislation, the “Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act,” that would provide roughly $55 billion in grants, loan guarantees, and other support to increase US semiconductor production. The bill would create a new temporary 25% “advanced manufacturing investment credit” for investments in semiconductor manufacturing property, estimated to cost $24 billion over 10 years. The legislation also authorizes (but does not actually appropriate) more than $200 billion in future federal spending to promote US research programs.
The House could vote to approve the bill later this week prior to beginning its August recess. Assuming House passage of the Senate bill, President Biden has announced his intent to sign the legislation.
Observation: The CHIPS legislation seeks to promote increased US domestic manufacturing of semiconductors to address supply chain issues and national security concerns. Efforts were made by Senator Todd Young (R-IN) and a bipartisan group of Senators to add to the CHIPS Act a provision that would renew current expensing for Section 174 research expenditures, but this provision reportedly was not included in the Senate bill due to objections from House Democratic leaders. Efforts to renew Section 174 expensing currently are expected to focus on a year-end “tax extenders” bill that also could address temporary renewable energy tax incentives and other expired or expiring tax provisions.
On a separate track, the Senate during the week of August 1 could consider a ‘skinny’ reconciliation bill that includes prescription drug pricing reforms and a two-year extension of the expanded health insurance premium tax credit that was provided temporarily under the 2021 COVID-19 relief “American Rescue Act.” After weeks of negotiations with Senate Majority Leader Chuck Schumer (D-NY), Senator Joe Manchin (D-WV) — a critical 50th vote in the evenly divided Senate — recently announced that he could not support either tax increases or clean energy provisions in budget reconciliation legislation until possibly sometime after Congress returns in September from its August recess, due to his concerns about inflation. In response, President Biden and key Democratic Congressional leaders have called for the Senate to act on a healthcare-focused reconciliation bill before the start of its August recess.
Action item: The semiconductor industry and businesses that rely on the industry’s products will want to analyze the new federal funding and tax incentives being offered to promote increased US domestic semiconductor manufacturing. All business stakeholders should stay focused on what additional legislation may be enacted this year that could affect their employees, job creation, and investments in the United States.
The Senate-passed bill would provide roughly $55 billion in grants, loan guarantees, and other support to increase US semiconductor production. The legislation creates a new temporary 25% “advanced manufacturing investment credit” for investments in semiconductor manufacturing property, estimated to cost $24 billion. The legislation also authorizes (but does not actually appropriate) more than $200 billion in future federal spending to promote US research programs.
Observation: The CHIPS Act had been expected to be considered as part of broader US competitiveness legislation being negotiated in a formal conference to reconcile differences between the Senate-passed USICA and House-passed COMPETES bills. The compromise CHIPS bill approved by the Senate bypasses the challenge of resolving differences in those broader competitiveness bills, which also include significant trade provisions. The Senate-passed CHIPS Act appears to have sufficient support in the House to clear the way for an expected Presidential signature.
The CHIPS Act provides $52.7 billion in emergency supplemental appropriations over five years to implement a Commerce Department semiconductor initiative to develop domestic manufacturing capability and support research and development (R&D) and workforce development programs that were authorized by the FY 2021 National Defense Authorization Act (NDAA). Of this amount, $39 billion is appropriated over five years to provide financial assistance to build, expand, or modernize domestic manufacturing capabilities, with up to $6 billion of these funds to be used for the cost of direct loans and loan guarantees. An appropriation of $11 billion over five years is provided to support R&D and workforce development programs.
The legislation includes $2 billion for the Microelectronics Commons, a national network for onshore, university-based prototyping, lab-to-fab transition of semiconductor technologies and semiconductor workforce training. An additional $500 million is appropriated over five years for the purpose of coordinating with foreign government partners to support international information and communications technology security and semiconductor supply chain activities, and $200 million is provided over five years for the National Science Foundation to promote growth of the semiconductor workforce.
The CHIPS Act also would appropriate $1.5 billion for a Public Wireless Supply Chain Innovation Fund.
Note: The CHIPS Act includes language that would prohibit the recipients of Federal incentive funds from expanding or building new manufacturing capacity for certain advanced semiconductors in China or in any other specific countries that present a national security threat to the United States, as defined by current law. To ensure that these restrictions remain current with the status of semiconductor technology and with US export control regulation, the Secretary of Commerce, in coordination with the Secretary of Defense and the Director of National Intelligence, would be required to regularly reconsider, with industry input, which technologies are subject to this prohibition. The legislation also includes language that would prohibit the use of CHIPS funds (but not other funds) to repurchase stocks and pay dividends.
The CHIPS Act would create a new temporary 25% advanced manufacturing investment credit for investments in semiconductor manufacturing property. The credit would include incentives for the manufacturing of semiconductors and specialized tooling equipment required in the semiconductor manufacturing process. Eligible taxpayers could elect to treat the credit as a payment against tax (“direct pay”), and the credit provision includes various special rules. The credit would apply for property placed in service after December 31, 2022, for which construction begins before January 1, 2027.
The CHIPS Act would authorize roughly $200 billion in new funding to promote US research programs and R&D, and workforce development. This authorized new funding would require future action by Congress as part of annual appropriations bills. The House and Senate currently are considering appropriations measures for the federal government’s 2023 fiscal year, which begins on October 1, 2022.
Click here for a section-by-section summary of the CHIPS Act
Click here for statutory text of the CHIPS Act
Congressional Budget Office cost estimates.
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Senate approves CHIPS funding and tax credit bill to promote US semiconductor manufacturing
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