Lawmakers press for semiconductor manufacturing tax credits on China bill

A joint effort by Republicans and Democrats to append tax credits onto an economic bill focused on competition with China is underway in the Senate as the bill entered conference negotiations on Thursday.

The Bipartisan Innovation Act, which would address supply chain issues and bulk up domestic manufacturing capabilities, is a major priority for the White House as it faces lasting inflation and sagging approval numbers for President Biden.

But the bill could face delays now as lawmakers seek to tack on one tax credit related to semiconductors known as the FABS Act, as well as another tax credit extension on research and development costs that has long had the eye of corporate America.

“Senator [Ron] Wyden [D-Ore.] and I are advocating that the FABS Act, which is for fabricating R&D for semiconductors, be included, and we’re both also supportive of doing the R&D tax extension,” Sen. Mike Crapo (R-Idaho) said in an interview. “They’re not in the bill, so we’re advocating that.”

“If we try to put any tax provisions in, then people will try to fill it up with all of their unrelated tax policies, and I’m against any unrelated tax policy,” he added. “There were those who said today that they didn’t want to see any tax provisions in the bill, so there’s still a big debate over that.”

The FABS Act offers private firms a 25 percent tax credit towards the purchase or construction of a semiconductor manufacturing facility to be used for making computer chips.

East Asian countries like Taiwan and South Korea currently produce the world’s most advanced chips.

Wyden told the conference that “it’s critical to address the semiconductor issue — and other major supply chains — in a way that will protect consumers and jobs and defend our economy against the next big shockwaves.”

Asked about additional tax provisions in the bill, Sen. Mark Warner (D-Va.) said, “That’s the subject of some of our debates.”

“There are component parts like the FABS, which, if we want to build these semiconductor facilities, we need grants but we also need some tax provisions,” he said.

The White House released a statement Thursday afternoon encouraging the swift passage of the bill, which would amp domestic production capacity for semiconductors, as well as create an office in the Department of Commerce to support supply chains, whose disruption over the course of the pandemic has been the core driver of inflation.

“As President Biden said this week, fighting inflation is his top economic priority, and the Bipartisan Innovation Act will help us get that done by promoting domestic manufacturing and strengthening our supply chains,” the White House said. “There is common ground between the House and Senate bills, and it’s his hope that conferees focus on what they agree on.”

Last week, Biden said the same thing in somewhat less delicate terms. “Pass the damn bill and send it to me,” Biden said.

The U.S. Chamber of Commerce endorsed the inclusion of the FABS tax credit in the bill, saying it would incentivize “semiconductor research, design, and manufacturing in the United States. This will in turn strengthen the U.S. economy, national security, and supply chain resilience and increase the supply of chips so important to our entire economy.”

Both Democrats and Republicans also see provisions in the bill relating to tariffs on China as another potential sticking point.

“This committee also has an opportunity to address blatant trade ripoffs that undercut American jobs and hurt consumers. It’s particularly important to shed light on repressive censorship by China, Russia and other governments that hurts internet users, tramples on human rights and makes it tough for American exporters to compete,” Wyden said to the conference.

Josh Hawley (R-Mo.) wrote the whole bill off as “terrible” for being “so soft on China tariffs at exactly the wrong time,” adding that he’d be “delighted” if the bill “died in conference.”