Why the House Needs to Pass the CHIPS and Science Act Today
The Creating Helpful Incentives to Produce Semiconductors for America (CHIPS) Act and sister Facilitating American-Built Semiconductors (FABS) Act have plowed a long and winding road over the past two years, but now stand at the precipice of passage with a House vote this afternoon on the amended CHIPS and Science Act of 2022. As ITIF has written, the legislation incorporates critical investments designed to restore a greater share of global semiconductor manufacturing to the United States and to keep U.S. enterprises at the forefront of semiconductor innovation through significantly expanded R&D investments.
Unfortunately, some policymakers remain opposed to the legislation, seeing it as merely corporate handouts to an already-profitable industry. But what such advocates miss is that the legislation isn’t about corporate welfare; it’s about the welfare of U.S. industrial competitiveness, defense capability, and also the interests of the millions of American jobs the industry supports. The legislation’s intent is to ensure that many more of the semiconductor fabs that will be constructed over the course of the coming decade are built here in the United States.
The reality is that the United States has lost massive global share of a key industry it created. In fact, since 1990, America’s share of global semiconductor manufacturing has declined by 70 percent, falling from 37 percent to 12 percent. Perhaps the most significant reason why the U.S. share has plummeted is that other nations compete ever-more fiercely for this industry and in doing so offer very generous incentives to attract semiconductor manufacturing to their shores. In fact, the Boston Consulting Group finds the 10-year total cost of ownership (TCO) of U.S.-based semiconductor fabs is 25 to 50 percent higher than in other locations, with government incentives accounting for 40 to 70 percent of the U.S. TCO gap. Foreign government incentives that reduce up-front capital expenditures on land, construction, and equipment may offset from 15 to 40 percent of the gross total cost of ownership (pre-incentives) of a new fab, depending on the country.
The $39 billion in CHIPS for domestic semiconductor manufacturing investment incentives is designed to offset and level the playing field with regard to these foreign incentives. The reality is that global semiconductor demand is expected to increase 58 percent by 2030. Dozens of new semiconductor fabs will be built this decade—the question is will they be built in the United States?
Jurisdictions, whether states or nations, have to compete intensely to attract globally mobile advanced-technology investment; that’s why U.S. governors from red and blue states alike regularly offer attractive incentive packages to bring investment to their domains. For instance, the Texas Enterprise Fund awards grants upon the closing of a deal to open or expand a facility in the state that includes significant projected job creation and capital investment. Consider Samsung’s November 2021 announcement of plans to build a $17 billion fab in Taylor, Texas. The city of Taylor and surrounding Williamson County offered Samsung property tax breaks greater than 90 percent for the first 10 years while the local school district provided a tax break and the state of Texas kicked in an additional $27 million in incentives. As Williamson Country Judge Bill Gravell explained, affirming the importance of the incentives, “We beat out every location in the world…because we wanted it.”
Similarly, Columbus, Ohio bested 40 other sites across the United States to attract Intel’s announcement last week it would build a $20 billion facility set to become the world’s largest fab. As The Wall Street Journal explains, “The region landed Intel’s investment, in part, by offering infrastructure upgrades, a massive space with room for expansion, and other incentives.” Similarly, South Carolina offered $150 million worth of incentives to attract a BMW auto manufacturing plant to the state. For its part, in North Carolina, manufacturing machinery and energy and raw materials sold to manufacturing firms are exempt from state sales and use taxes and manufacturing inventories are excluded from property taxes.
Florida, led by Republican Governor Ron DeSantis, offers numerous incentive packages to attract advanced-industry investment. Florida offers High-Impact Performance Incentive Grants to facilities operating in designated high-impact sectors, which include silicon technology and transportation equipment manufacturing. Its Quick Action Closing Fund is a deal-closing grant offering where, “Florida’s traditional incentives are not enough to win the deal.” Florida also offers Capital Investment Tax Credit for taxable corporate or premium income generated by a project in specified industries, including semiconductors, advanced manufacturing, and transportation equipment manufacturing and it extends a Semiconductor, Defense, or Space Technology Sales Tax Exemption.
Republican and Democratic governors alike offer such incentive packages because they recognize globally mobile investment may land in the state or nation down the road rather than theirs if they don’t compete fiercely for such investment. The United States is every bit as much in such competition as U.S. states are, and that’s exactly what the CHIPS and FABS Act are all about: ensuring that globally mobile semiconductor industry investment lands in the United States.
Of course, even beyond being a high-value-added advanced technology industry, like aerospace or pharmaceuticals, the United States should wish to capture greater global share in semiconductors because they are essentially the world’s most important product—vital for both U.S. national security and as the technology driving the global digital economy.
Lastly, policymakers must recognize that this is an industry that supports very well-paying U.S. jobs, with jobs in the U.S. semiconductor industry paying $80,000 on average, almost 40 percent more than the average U.S. job at $51,000. The sector already supports 277,000 U.S. jobs directly and another 1.6 million jobs indirectly. Moreover, analysts predict the CHIPS/FABS Act would create an annual average of 185,000 temporary American jobs and add to $24.6 billion to the U.S. economy as new semiconductor manufacturing facilities are constructed from 2021 to 2026.
So, the CHIPS and FABS Acts are not about corporate welfare, they’re about U.S. industrial competitiveness, U.S. national and economic security, and U.S. jobs. The House needs to pass the legislation and send it to the president’s desk today.