Millions of children are living in poverty, the planet is warming, and inflation is reaching new heights. Now, a bipartisan coalition in Congress has come together — to push for $76 billion in subsidies to the highly-profitable domestic computer chip industry. 

Yesterday, the Senate voted to advance the CHIPS Act by a 64-34 vote. Those voting in favor included 49 Democrats and 15 Republicans. Senator Bernie Sanders (I-VT) and 33 Republicans were opposed. 

The bill includes a combination of grants and tax credits for chip manufacturers designed to encourage domestic production. The money would subsidize the creation of new plants, known as fabs, and the retooling of existing facilities. The corporations expected to benefit the most are Intel, Texas Instruments, Micron Technology, Global Foundries, and Samsung. 

The legislation is intended to address a very real problem that emerged during the pandemic — an acute shortage of chips. That shortage drove up costs for goods that rely on chips, such as cars, and impeded economic growth. 

But even the most adamant supporters of the CHIPS Act concede that the legislation would not help address the current shortage. Fabs take multiple years to construct. Meanwhile, the shortage is already easing and some analysts are predicting that supply will outstrip demand "in the second half of 2022 or 2023." 

Another rationale for the legislation is that about 90% of the production of the most advanced chips are concentrated in Taiwan. This, according to some, is a national security threat because Taiwan could someday be invaded by China. If that occured, the United States could lose access to the most advanced chips. 

But potential instability in Taiwan isn't just a national security problem. It is also an economic risk  that chip manufacturers have to address. The United States is a large consumer market that chip manufacturers need to reach. Manufacturing within the United States is attractive because it provides a consistent way to supply a large market irrespective of political instability in Taiwan or any other region. So while other countries are providing subsidies to chip manufacturers, that doesn't mean that the industry will abandon manufacturing in the United States. 

That's why, even in the absence of federal subsidies, several manufacturers have begun construction on fabs for advanced chips in the United States. This chart of fabs currently under construction was compiled by the CATO Institute:

The three nanometers chip type represents the most advanced chips currently being produced. 

Will $76 billion in subsidies incentivize these companies to build new fabs? Or will this money simply be a windfall for companies that are already expanding their capacity in the United States? 

Intel, the loudest proponent of the CHIPS Act, has the resources to invest in new plants. In 2021, Intel collected $20 billion in profits. Its CEO, Pat Gelsinger, received a compensation package worth $176 million. Since the start of the pandemic, it has spent $16.6 billion on stock buybacks — a strategy that rewards stockholders by boosting share prices. 

Pat Gelsinger @PGelsinger

Thanks @chuckschumer, @SenatorCantwell and @JohnCornyn for your leadership in advancing CHIPS Act funding through this evening’s vote. I know there is much more to do, but this is a great step to protecting our national and economic security.

July 20th 2022

39 Retweets363 Likes

Now Intel is demanding taxpayer subsidies with few strings attached. While the American public is expected to provide Intel with billions of dollars, the profits that those facilities generate will go only to the company and its stockholders.

Intel's sloppy publicity stunt

Intel is using its new Ohio facility, announced in January, to pressure Congress to approve the CHIPS Act. In June, Intel announced that it was delaying the groundbreaking in Ohio because Congress had failed to approve the bill:

As we said in our January announcement, the scope and pace of our expansion in Ohio will depend heavily on funding from the CHIPS Act. Unfortunately, CHIPS Act funding has moved more slowly than we expected and we still don’t know when it will get done. It is time for Congress to act so we can move forward at the speed and scale we have long envisioned for Ohio and our other projects.

"The idea of delaying ... this sucks... I am not a delay guy," Gelsinger said on CNBC on July 6. He pleaded with Congress to pass the CHIPS Act "before August." Last week, Gelsinger issued a demand to Congress: "[D]o not go home for August recess until you have passed the Chips Act because I and others in the industry will make investment decisions."

Gelsinger failed to mention that $2 billion in economic incentives had already been approved for the plant by the state of Ohio. This includes a "$600 million an onshoring grant that is intended to offset Intel's cost of building the plants in America where costs can be 20% to 30% higher than in Asia," and "$650 million over 30 years in income tax incentives based on the number of workers Intel hires." The city of New Albany is also offering a "30-year, 100% property tax abatement on the buildings that Intel constructs in the city's business park."

Further, the announcement of a delay appears to be just a publicity stunt. The only thing that was delayed was the groundbreaking ceremony. Construction has already started. An Intel spokesperson told The Register that "the start date for construction had not changed." 

The massive lobbying campaign

Congress can't agree on anything. How did two-thirds of the Senate coalesce around a plan to provide billions in subsidies to the computer chip industry? One factor was a massive corporate lobbying campaign. 

According to a review of federal lobbying disclosures by Popular Information, the five chip manufacturers poised to benefit most from the CHIPS Act and the trade association that represents them, the Semiconductor Industry Association (SIA), spent $34.8 million on lobbying since 2020. This includes massive expenditures by Intel ($10.9 million), Texas Instruments ($3.4 million), Micron Technology ($4.1 million), Global Foundries ($3.5 million), and Samsung ($9.5 million). SIA chipped in $3.4 million. Virtually every lobbying filing since 2020 specifically mentions the CHIPS Act as a focus. 

Notably, some of the companies that are lobbying for taxpayer money are not American companies. Samsung is a South Korean company. Global Foundries is majority owned by the sovereign wealth fund of the UAE.

The key Senators pushing the CHIPS Act are Chuck Schumer (D-NY) and John Cornyn (R-TX). Intel has hired Klein/Johnson, a lobbying firm that was established in 2020 by a former Schumer aide (Israel Klein) and a former Cornyn aide (Matthew Johnson). Intel is currently paying Klein/Johnson $50,000 every three months. 

Although the bill is touted as a way to counter the influence of China, Intel and SIA are lobbying to make it easier for corporations to take the money without impacting their international business. According to reports, "Intel and its peers have been pressing lawmakers to not constrain their business in China." Intel and others want the ability to expand the production of chips in China even as they collect billions to increase domestic manufacturing. The Senate moved the bill forward even with these key issues unresolved.

The U.S. Chamber of Commerce, a major lobbying force that represents nearly every large American corporation, has also thrown its weight behind the bill. 

When money is no object

When he was negotiating a reconciliation bill to address climate change, improve health care, and support working families, Senator Joe Manchin (D-WV) insisted that the bill generate twice as much revenue as it spent. That was imperative, Manchin said, to reduce the deficit. He eventually pulled the plug anyway, citing inflation.

So how is Congress paying for $76 billion in subsidies to the computer chip industry? It's not. "Asked about the cost of the bill and whether it needed to be offset by cuts elsewhere… McConnell said he viewed the spending as important to national security," the Wall Street Journal reported. 

Nevertheless, Manchin voted on Tuesday to advance the CHIPS Act.