Semiconductor Tax Break Sought by Senators in Competition Bill

Senate Finance Committee leaders want a semiconductor tax credit to be included in a broader China competition measure, but the effort runs the risk of bogging down talks.

Lawmakers want to send a bill to boost U.S. competitiveness against China to President Joe Biden’s desk by the end of the summer, before they head back to their districts to focus on campaigning. Negotiations are now beginning, with conference members under pressure to find a compromise that can pass in both chambers.

Still, Sens. Ron Wyden (D-Ore.) and Mike Crapo (R-Idaho) told Bloomberg Government they will push for the inclusion of a semiconductor investment credit in the conference. The House- and Senate-passed bills (H.R. 4521 and S. 1260) didn’t include tax breaks for the chips, which facilitate electricity for technology from computers to cars. Adding one could open the door for other lawmakers to try to squeeze in their tax proposals.

“Semiconductors are right at the heart of America’s competitiveness in a tough global market,” Wyden said. “So we’ll see what the caucus will accept, but both Senator Crapo and I feel strongly about it.”

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Photo: Adam Glanzman/Bloomberg via Getty Images

Employees wearing cleanroom suits walk through the main bay inside the GlobalFoundries semiconductor manufacturing facility in Malta, N.Y, on March 16, 2021.

The Senate and House bills would provide more than $50 billion for semiconductor manufacturing and research and development. Wyden, Crapo, and several other Republicans are seeking to include a proposal from their Facilitating American-Built Semiconductors Act (S. 2107) that would provide a 25% tax credit for investments in chip manufacturing facilities or related equipment.

Rep. Michael McCaul (R-Texas), sponsor of a companion to the FABS Act (H.R. 7104), also plans to push for the credit’s inclusion in the conference legislation, according to an aide.

Lawmakers view greater domestic production and innovation of semiconductors as crucial for competing against China, which dominates manufacturing of the tiny silicon chips.

The FABS Act coupled with the billions of dollars for semiconductors “means you’re going to have a full tool box to deal with the economic challenges,” Wyden said.

Crapo said he believes “very strongly” that the tax credit should be included, although he warned that including it could open the door to other members’ tax priorities. “I don’t know how it will all proceed at this point because it would lead to a tax piece in the conference,” he said.

‘Complicating Factor’

Lawmakers have already proposed adding several other tax items to the final deal.

Senators voted overwhelmingly in support of a nonbinding measure to restore a research and development expensing break that expired at the end of 2021, and Rep. Dan Kildee (D-Mich.), a House conferee, wants to provide an extension on taxes owed by auto dealers, which have been hurt by chip shortages.

House Democrats also included a host of other provisions in their legislation that could be used as leverage for tax incentives.

“The House and Senate bills are so wildly different, there are so many conferees, and there is a limited window of when this can all be done,” Marc Gerson, former majority tax counsel to the House Ways and Means Committee, said in an interview. “Adding a tax provision is viewed as another complicating factor.”

“It could come later in the process with all four corners of leadership wanting to air-drop it in,” said Gerson, who is now tax department chair at Miller & Chevalier.

Wyden said lawmakers haven’t identified whether or how the tax credit would be offset.

With assistance from Colin Wilhelm

To contact the reporter on this story: Maria Curi in Washington at mcuri@bloombergindustry.com

To contact the editors responsible for this story: Sarah Babbage at sbabbage@bgov.com; Anna Yukhananov at ayukhananov@bloombergindustry.com