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24 Republicans support bill, including billions in subsidies for semiconductor manufacturing and 25% investment tax credit, aimed at keeping US competitive in microchips and research

The House on Thursday, July 28, passed, by a vote of 243-187, 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.

Twenty-four Republicans joined all but one Democrat in voting for the measure: Rep. Sara Jacobs (D-CA) voted "present." On July 27, the Senate had passed the bill by a vote of 64-33, with 17 Republicans voting in support.

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

In a statement after the Senate vote, President Biden said, "As Americans are worried about the state of the economy and the cost of living, the CHIPS bill is one answer: It will accelerate the manufacturing of semiconductors in America, lowering prices on everything from cars to dishwashers. It also will create jobs — good-paying jobs right here in the United States."

Reconciliation Bill Announcement. Leading up to today's vote, there was some concern among the bill's supporters that Wednesday evening's announcement of a new agreement between Senate Majority Leader Chuck Schumer (D-NY) and Senator 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 — would lead House Republicans who were in favor of the "Chips-Plus" bill to change their position, and the House Republican leadership whipped against the bill today, citing its "corporate handouts." But the legislation still attracted well more than enough GOP votes to pass.

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, including tools used in 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.

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"). The Congressional Budget Office estimated the tax credit would cost $24 billion.

'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

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 Senator Roger Wicker (R-MS), ranking member on the Senate Commerce Committee, in a statement.

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

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ATTACHMENTS

Legislative text of HR 4346

Section-by-Section staff summary