U.S. Senate FABS Act Proposes Fat Tax Credits To Turbo Boost Domestic Chip Production

intel fabs
It's no secret that the United States has lost its dominant position as a hotbed for semiconductor production. The U.S. long ceded the crown to other countries like Taiwan, home to [contract] chip manufacturing giant TSMC. However, U.S. lawmakers finally realize that providing a competitive environment for domestic chip production is not only good for national security reasons but could also add high-paying jobs.

A group of bi-partisan Senators has announced the aptly named Facilitating American-Built Semiconductors or FABS Act to return the U.S. to a dominant position in the semiconductor realm. The FABS Act is in addition to the $52 billion plan approved by the U.S. Senate last week to boost chip R&D and fab construction (among other things).

The FABS Act is sponsored by Senators Ron Wyden (D-OR), Mike Crapo (R-ID), Mark Warner (D-VA), John Cornyn (R-TX), Debbie Stabenow (D-MI), and Steve Daines (R-MT). It proposes a 25 percent "investment tax credit" that would be applied to the construction of new fabs and the specialized equipment used to manufacture chips.

"Taxpayers can elect to receive the tax credit as a direct payment, and must make this election before their facility or equipment is placed in service," as outlined in the proposal for the FABS Act [PDF]. "[This will] provide certainty and predictability for taxpayers, the credit would be permanent."

The Senators point out that just over 30 years ago, the U.S. share of global chip production was 37 percent. Today, that figure pales in comparison, at just 12 percent. There are several reasons for that steep drop-off, but it mainly comes down to immense fab [construction] costs and the efforts of foreign governments to help subsidize those costs for chipmakers.

Countries like Taiwan and South Korea offer massive tax incentives to attract new fabs, but the U.S. federal government has been uninterested in playing that game. Until now, it's been left up to local and state governments to provide tax incentives and other package "perks" like infrastructure bonuses for companies (i.e., road construction, electrical/water utility discounts).

Seventy-five percent of global ship production now takes place in East Asia, according to the Senators. It's not hard to understand why, considering that the South Korean government just approved massive tax incentives for domestic chip production. R&D tax credits are increasing from 30 percent to 40 percent (for firms the size of Samsung). Not surprisingly, Samsung, in turn, committed to investing $117 billion in new fab expansion over the next decade.

It remains to be seen how far the FABS Act will advance in the Senate and how long it will take U.S. chip production to rebound if all these tax incentives are signed into law.