US Senate Proposes 25% Tax Credit for Semiconductor Manufacturing

US Senate Proposes 25% Tax Credit for Semiconductor Manufacturing

Global chip shortage has added to the existing need for the United States to up its semiconductor production. China has become a chipmaking rivalry in recent years, which the US has tried to contain through trade agreements with China, designed among other things, to protect its intellectual properties.

COVID-19 outbreak ushered in a new normal that revved up chip demand, as the whole world relied more on technology and artificial intelligence to carry out tasks. Against this backdrop, from smartphone to auto production has been seriously impacted, and the US government knows it needs to do more to ameliorate the growing chip scarcity.

Thus, a bipartisan group of U.S. senators on Thursday proposed a 25% tax credit for investments in semiconductor manufacturing as Congress works to increase U.S. chip production. Reuters has the report.

The proposal sponsored by Senate Finance Committee Chairman Ron Wyden and the top Republican on the panel, Senator Mike Crapo, along with Senators Mark Warner, Debbie Stabenow, John Cornyn and Steve Daines, would provide “reasonable, targeted incentives for domestic semiconductor manufacturing,” they said in a statement.

The group did not immediately provide a cost estimate for the measure, which is on top of recent proposed semiconductor funding. Last week, the Senate approved $52 billion for production and research on semiconductors and telecommunications equipment. That included $2 billion dedicated to chips used by automakers, which have seen massive shortages and made significant production cuts. The House of Representatives must still act on the measure.

Supporters of funding note the U.S. share of semiconductors and microelectronics production has fallen to 12% from 37% in 1990.

The senators said up to 70% of the cost difference for producing semiconductors overseas results from foreign subsidies.

“The United States can’t allow foreign governments to continue to lure companies’ manufacturing overseas, increasing risks to our economy and costing American workers good-paying jobs,” Wyden said.

U.S. Commerce Secretary Gina Raimondo said last month the funding could result in seven to 10 new U.S. semiconductor plants.

Raimondo anticipates government funding would generate “$150 billion-plus” in investment in chip production and research – including contributions from state and federal governments and private-sector firms.

The tax credit could benefit Taiwan Semiconductor Manufacturing Co (TSMC) 2330.TW, which is building a $12 billion semiconductor factory in Arizona, and Dutch chipmaker NXP Semiconductors NV as well as U.S. firms such as Intel Corp and Micron Technology Inc.

The Semiconductor Industry Association praised the proposal, saying it would “strengthen domestic chip production and research, which are critical to U.S. job creation, national defense, infrastructure, and semiconductor supply chains.”

There have been moves by semiconductor manufacturers to increase production by building new factories in the US. Intel announced plan in March to build $20 billion factories in Arizona, a project that will see the US increase its volume of chip production significantly. That would be an immense addition to TSMC’s proposed $12 billion chip plant in Arizona. But it falls short of the growing demand that has seen auto companies shutting down production.

China is yet to announce a new plan to counter the global chip shortage. This means, if the US implements the 25% tax credit proposal for investments in semiconductor manufacturing, it will help it close the 25% production gap that started after 1990.

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