[WASHINGTON] The Senate’s draft tax bill calls for increasing an investment credit for semiconductor manufacturers, a potential boon for chipmakers that the Trump administration is urging to increase the size of their US projects.
The measure would increase the tax credit to 30 per cent of investments in plants, up from 25 per cent, giving chipmakers further incentive to break ground on new facilities before an existing 2026 deadline.
Companies that start projects by the end of next year can continue to claim credits for continuous construction after that date – a policy that’s designed to get sites up and running while recognising that chip factories take years to build.
The tax credit is one of the key incentives on offer from the 2022 Chips and Science Act, a bipartisan law that was a pillar of president Joe Biden’s domestic policy. The programme also includes US$39 billion in grants and up to US$75 billion in loans for manufacturing projects, designed to boost the American semiconductor industry after decades of production shifting to Asia.
The tax credit, which is not capped, was already likely to be costlier than those other forms of subsidies – a function of how much investment the Chips Act has spurred. In almost every case, it will account for the greatest share of Chips Act incentives going to any one company, including those that did not win grant awards.
Major beneficiaries of the grant programme include Intel, Taiwan Semiconductor Manufacturing Company (TSMC), Samsung Electronics and Micron Technology.
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US President Donald Trump earlier this year called for repealing the Chips Act, but lawmakers in both parties have shown little desire to eliminate subsidies that provide high-paying jobs in their districts, in a sector seen as critical to national security.
The Commerce Department, meanwhile, has continued to implement the grant programme – while urging larger investments and reworking terms of awards that took months to negotiate. “We are getting more value for the same US dollars,” Commerce Secretary Howard Lutnick said this month.
Bloomberg reported in March that Lutnick’s team had signalled to chipmakers that it could withhold promised grants if companies do not boost the size of their projects. At the same time, Lutnick had expressed interest in expanding the size of the Chips Act tax credit, sources familiar with the matter had said, though it was unclear by how much.
So far, the Trump administration has secured increases in promised investment from TSMC, Micron and GlobalFoundries – which the White House has touted as evidence that Trump’s policies are working. None of those included additional Chips Act grants beyond what had already been finalised or proposed. Still, more company spending on projects very likely means more foregone government revenue in the form of tax credits – a number that would grow if the Senate bill becomes law.
The tax credit is “where the money is”, Haviv Ilan – the chief executive officer of Texas Instruments, which won a US$1.6 billion Chips Act grant under the Biden administration – said last month. Trump’s team has shown an “openness” to tax credits, Haviv said: “I don’t like subsidies as well. I think it’s a discretionary decision of someone, and they pull in all kinds of other stuff to it. So, there is a lot of bad connotation to it, rightfully so.”
Senators are hoping to send the tax bill – which calls for trillions of US dollars’ worth of tax cuts for households and businesses – to Trump’s desk by the Jul 4 holiday. The bill is likely to undergo revisions in the Senate before it receives a floor vote. The House will also have to approve the final version before it can become law. BLOOMBERG
