As the Trump administration reviews the subsidies policy of the CHIPS Act, which was promoted by the Biden administration, the Information Technology and Innovation Foundation (ITIF), a major technology policy think tank in Washington, has raised its voice about the need to expand and extend the tax credit, another key pillar of the semiconductor law.
In a situation where U.S. Secretary of Commerce Howard Lutnick hinted at a reduction in subsidies, ITIF emphasized that the tax credit had been a "hidden key player" in driving the investments of global semiconductor corporations such as Samsung Electronics and SK hynix into the U.S.
In a report released on the 10th (local time), ITIF stated, "While most attention is focused on direct subsidies, the much more important element of the semiconductor law is the 25% tax credit," warning that if the system, set to expire on Dec. 31 of this year, is left unattended, it would not secure investments from semiconductor corporations.
Steve Igel, ITIF's vice president for global innovation policy, noted, "Even in a situation where corporations cannot be certain how much of the U.S. government's subsidy package they will receive or how long it will take to actually pay out, they knew that the 25% tax credit could be claimed as soon as construction begins." He added that "the tax credit is a much more predictable and attractive incentive."
The current U.S. semiconductor law is largely composed of direct subsidies and loans as well as tax credits. Direct subsidies are given in cash by the U.S. Department of Commerce after reviewing companies, and major semiconductor corporations such as Samsung Electronics, SK hynix, and TSMC have contracted with the Biden administration to receive support equivalent to 10-15% of their total investment.
Samsung Electronics is building a foundry (semiconductor contract manufacturing) plant in Taylor, Texas, investing over $37 billion (about 51 trillion won) and has contracted to receive $4.745 billion (about 6.5 trillion won) in subsidies from the U.S. Department of Commerce. SK hynix is to invest $3.87 billion (about 5.3 trillion won) in Indiana to build an advanced packaging production site for artificial intelligence (AI) memory and is set to receive up to $458 million (about 630 billion won) in subsidies.
However, even if subsidies are contracted, corporations must meet certain criteria agreed upon with the Department of Commerce to actually receive them. Additionally, the amount of subsidies may change depending on shifts in government policy, and the process until payment is uncertain. In fact, the Trump administration is currently renegotiating the subsidies that were to be provided to Samsung Electronics, SK hynix, and others. Lutnick stated in a recent Senate hearing that "the Biden administration's subsidies were overly generous," expressing his intention to significantly reduce future direct support to about 4-5% of total investment.
On the other hand, the investment tax credit emphasized by ITIF allows corporations to deduct 25% of the amount invested in semiconductor production facilities and equipment from their corporate taxes. ITIF evaluated that this system played a key role in offsetting the manufacturing costs in the U.S., which are over 30% higher compared to countries like Korea and Taiwan. Igel mentioned that "the U.S. had practically a 0% market share in the production of advanced logic semiconductors under 10 nanometers even before the passage of the semiconductor law in 2022, but it is projected to expand to 28% by 2032." He proposed extending the tax credit's sunset provision at least until the end of the 2020s and increasing the tax credit rate from the current 25% to 35%. A bill containing this content is currently pending in the U.S. Congress.
A semiconductor industry official stated, "As the Trump administration's subsidies policy swings back and forth, the importance of the predictable tax credit only increases," and added, "Ultimately, if Congress does not present a stable carrot in the form of an extension of the tax credit, the 'Made in America' semiconductor strategy may lose momentum."