17 Republicans vote in support; House could consider Chips bill as early as Thursday

The Senate on Wednesday, July 27, passed, by a vote of 64-33, the CHIPS and Science Act (HR 4346), a $280 billion bill that aims to build a domestic US supply chain for semiconductor chips in the face of foreign competition, while also spending billions on scientific and technological research to keep US industries competitive with China and other rivals.

Seventeen Republicans joined Democrats in voting for passage. The Senate on July 26 had voted to invoke cloture on the bill, cutting off debate, by the same margin. The House could take up the bill as soon as Thursday (July 28). Whereas House Democratic leaders this week had predicted they had enough support from Republicans to pass the bill in that chamber, the announcement Wednesday evening of a new agreement between Senate Majority Leader Chuck Schumer (D-NY) and Sen. Joe Manchin (D-WV) on a budget reconciliation bill raising $739 billion in new revenue — with provisions on Medicare drug pricing, climate change and a 15% corporate minimum tax — may change that calculation, with Republicans possibly withdrawing their support. With some House progressives questioning the chips bill's subsidies to largely profitable semiconductor companies, it is uncertain if House Democrats could muster enough votes for passage of HR 4346 on their own.

Attached with this Alert please find the text of HR 4346 (the "substitute amendment") and a section-by-section staff summary of the bill.

On the Senate floor Tuesday, Schumer called the bill "a major step for our economic security, our national security, our supply chains and, in fact, for America's future. With this bill we will reawaken the spirit of discovery, innovation, invention and optimism that made America the envy of the world."

Chips language drawn from stalled USICA bill

HR 4346 is a narrower version of the Senate's more sweeping USICA China competition bill (HR 4521). While a bicameral conference committee had met for weeks in a bid to negotiate differences with the House's own China competition bill, the America COMPETES Act, the conference was unable to resolve a number of disagreements with the House over trade policy and other issues. Citing the urgency of boosting the US microchip industry while other countries are tempting manufacturers with incentives, Majority Leader Chuck Schumer (D-NY) and Todd Young (R-IN), sponsors of the original chips-focused Endless Frontier Act (S. 1260), produced a new bill that extracted USICA's language funding $52.7 billion in grants, subsidies and loans to semiconductor manufacturers and a 25% investment tax credit for semiconductor manufacturing. Those key provisions formed the core of the new 1,000-page bill, while a number of additional provisions bolstering US science and research capabilities over the longer term were drawn from USICA.

The Republicans voting for passage were Sens. Roy Blunt (MO), Richard Burr (NC), Shelley Moore Capito (WV), Bill Cassidy (LA), Susan Collins (ME), John Cornyn (TX), Steve Daines (MT), Lindsey Graham (SC), Bill Hagerty (TN), Minority Leader Mitch McConnell (KY), Jerry Moran (KS), Rob Portman (OH), Mitt Romney (UT), Ben Sasse (NE), Thom Tillis (NC), Roger Wicker (MS) and Todd Young (IN). Among senators caucusing with Democrats, only Bernie Sanders (I-VT) voted against the bill. Sen. Patrick Leahy (D-VT), who is recovering from hip surgery, and Sens. Manchin and Lisa Murkowski (R-AK), who have both tested positive for Covid-19, did not vote but all three were on record as supporting the bill.

Chips manufacturing provisions

$52 Billion in Manufacturing Incentives. The CHIPS and Science Act, where CHIPS stands for Creating Helpful Incentives to Produce Semiconductors, includes $52.7 billion in funding for semiconductor manufacturing subsidies, grants and loans. Most of the money ($50 billion) is dedicated over five years to a CHIPS for America Fund that will implement incentives issued by the Commerce Department to "develop a domestic manufacturing capability, and research and development and workforce development programs authorized by the FY21 National defense Authorization Act" (NDAA), according to a staff summary.

$24 billion is marked to be spent in fiscal 2022, of which as much as $6 billion could be used to cover the cost of direct loans and loan guarantees and $2 billion for facility investments to support advanced fabrication, assembly and other activities at "mature technology nodes." $2 billion is specifically dedicated to "legacy chip production to advance economic and national security interests." The chips funds would also establish a National Semiconductor Technology Center, a new National Advanced Packaging Manufacturing Program and other R&D and workforce development programs. The bill "clarifies the eligibility of upstream suppliers, essential to building strong domestic semiconductor manufacturing ecosystems, to receive CHIPS funding." The summary adds that distribution of the incentives should "ensure … consideration of a broad range of semiconductors and the relevance of the technology to supply chain vulnerabilities." The Commerce Department will implement an application process for the assistance programs.

Investment Tax Credit. The bill's "advanced manufacturing investment credit" is a 25% investment tax credit for investments in semiconductor manufacturing and includes incentives for the manufacturing of semiconductors, as well as for manufacturing of specialized tooling equipment required in the semiconductor manufacturing process, with taxpayers allowed to treat the credit as a payment against tax ("direct pay").

'Guardrails' for Recipients. Recipients of the semiconductor incentive funds would have to agree to certain restrictions, including:

• Recipients would not be permitted to build or expand advanced chip fab plants in China or other potentially unfriendly countries, if the chips made there are smaller than 28 nanometers. The 28nm standard for "legacy chips" can be expanded or otherwise revisited by the Commerce secretary two years after enactment. Violators of the restriction would have 45 days to provide the Commerce Department proof that the planned transaction has ceased or been abandoned, and Commerce could recover the full amount of assistance if a firm fails to remedy a violation.
• Recipients cannot use the money for stock buybacks, to pay dividends or make other capital distributions.

In addition, Chinese military entities are banned from participating in the various programs authorized under the bill.

Science & Research provisions

Most notably, the bill authorizes $102 billion over five years for the National Science Foundation (NSF), the Commerce Department and the National Institutes of Standards and Technology to increase investments in R&D. Within that, the bill authorizes $20 billion for a technology, innovation and partnerships directorate at the NSF, an idea drawn from the original Endless Frontier Act, including a series of new university technology centers. The bill directs that the research focus should be broad, aiming at sectors such as robotics technology, high-performance computing, semiconductors, artificial intelligence, quantum information science, disaster prevention and mitigation, biotechnology and cybersecurity.

The bill also focuses on STEM education from pre-K through high school, directing the NSF to invest in elementary education programs focused on science and technology. The bill includes funds to award scholarships and fellowships to develop the science, technology, engineering and mathematics workforce. Such provisions are "essential if the US hopes to out-compete China and protect our intellectual property," said Sen. Roger Wicker (R-MS), ranking member on the Senate Commerce Committee, in a statement.

The bill also includes money for 5G wireless technology; reauthorizes the country's NASA space programs; and appropriates $20 million to protect Supreme Court justices and their families. The Congressional Budget Office estimated that the bill would add $79 billion to the budget deficit.

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ATTACHMENTS

Text of HR 4346

Section-by-Section staff summary