Dem, Repub Senators Propose Tax Credits For Factories That Churn Out Chips On US Soil

US senators introduced a law bill on Thursday offering semiconductor manufacturers tax credits to encourage them to build more fabrication plants on American soil as well as specialized equipment for chips.

The bipartisan Facilitating American-Built Semiconductors (FABS) Act [PDF] was backed by Senate Finance Committee Chair Ron Wyden (D-OR), and Ranking Member Mike Crapo (R-ID). It’s the latest piece of legislation proposed by Congress aimed at incentivizing the production of semiconductors in the United States as the world grapples with a global shortage of electronics components and materials to build everything from cars to video game consoles.

The FABS Act could help bolster US supply chains, meaning businesses would have to rely less on foreign manufacturers, particularly those across East Asia, and be able to more easily secure the kit they need. Chip production in America has fallen from 37 per cent of global output to 12 per cent over the past two decades as companies manufacture parts abroad because it's cheaper, according to the pair of senators.

“As much as 70 per cent of the cost difference for producing semiconductors overseas is driven by foreign subsidies, rather than comparative advantages. The senators’ bill would close that gap by incentivizing production of semiconductors in the United States,” they added in a statement.

"The legislation would create a 25 per cent investment tax credit for investments in semiconductor manufacturing, both for manufacturing equipment and the construction of semiconductor manufacturing facilities. The proposal includes incentives for the manufacturing of semiconductors, as well as for the manufacturing of the specialized tooling equipment required in the semiconductor manufacturing process."

The semiconductor industry has been hit for six during the COVID-19 pandemic. Fabrication plants around the world had to pause production due to shelter-in-place orders. Power shortages from freak storms, plus drought and fires, have hampered operations, too.

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This came at a time when chip factories were close to maximum capacity anyway, and pressure for more parts for servers, home entertainment, phones, and personal computers, as people worked and studied from home, pushed the industry over the edge. Demand outstripped supply, and components became harder or more expensive to obtain. The supply crunch was felt in America: automakers such as General Motors and Ford halted production as they couldn’t build infotainment or braking systems without their chips. Prices for things like TVs and cameras increased and gamers have had to wait longer for graphics cards and top-end consoles to be back in stock.

The US government has been looking for ways to strengthen its supply chains. President Biden signed an executive order in February promising to analyze the choke points in procuring chips, and to find ways to increase R&D efforts. Last week, senators voted 68-32 to approve the proposed Endless Frontiers Act, sponsored by Chuck Schumer (D-NY), which if it makes it into law would dole out $100bn over the next five years to support research in semiconductors, AI, and quantum computing.

Meanwhile, TSMC and Intel have announced plans to build fabrication plants across the US over the coming years. ®