The Biden administration finalized rules for a 25% tax credit for semiconductor manufacturing projects, expanding eligibility for what is likely to be the largest incentive program from the 2022 Chips and Science Act.
The new
The credits also will apply to solar wafers — an unexpected shift that could help spur domestic production of panel components. So far, the U.S. has struggled to foster manufacturing of those parts, despite a surge of investment in U.S. panel-making factories.
Samsul Said/Bloomberg
But the benefits don’t extend all the way up the supply chain. Still excluded are facilities that produce underlying materials like polysilicon, which is used to make wafers. That approach is consistent with how the original law was written, as well as how the Commerce Department defines semiconductors and equipment as opposed to materials, a Treasury official said.
The tax refunds are one of three main subsidy streams available from the Chips Act, which aims to revitalize the American semiconductor industry after decades of production shifting abroad. The law also set aside $39 billion in grant funding — more than 90% of which has been allocated, though not yet spent — and $75 billion in loans and loan guarantees, of which officials are likely to use less than half.
The latter two incentive categories have garnered the most attention — President Joe Biden has even visited factories to herald the announcements — but it’s the tax credits that could be most meaningful for companies. Proposed grants typically cover 10% to 15% of project costs, compared with 25% for tax credits. The idea is to make it just as cost-effective to build a factory in the U.S. as in Asia.
“Our goal is to give you the minimum amount of money necessary to get you to expand on our shores in a way that advances our economic and national security objectives,” Mike Schmidt, director of the Commerce Department’s chips office, said in an August interview when asked about tax credits. “That means looking at all sources of funding and then figuring out how our funds get you over that hump.”
Some companies argued in negotiations that the tax credits shouldn’t “count against” their other funding, Schmidt said — a line of reasoning that didn’t sway government officials.
Chip companies have announced more than $400 billion in planned U.S. investment over the past several years, including massive factories from leading-edge manufacturers like Taiwan Semiconductor Manufacturing Co. and Intel Corp. There also are efforts underway to make older-generation processors and other supplies.
The surge in activity likely means that the Chips Act will be more expensive than anticipated.
The Congressional Budget Office originally
That would exceed the original projected cost of the entire Chips Act, the report said, “resulting in a total cost overrun of nearly 80%.”
Asked whether the Treasury Department has its own cost estimate for the tax credit, an official didn’t provide a specific number. But any overrun could be seen as a win by the Biden administration since it represents additional investments in American manufacturing.
In almost every case, tax credits will account for the greatest share of Chips Act incentives going to any one company. Micron Technology Inc., for example, expects to get around
Texas Instruments Inc. anticipates $6 billion to $8 billion in tax credits — as much as five times the size of its Chips Act
Credit: Source link
