In a visit this March to Intel’s Ocotillo facility in Arizona, President Biden was joined by CEO Pat Gelsinger and other executives. Following the passage of the CHIPS Act more than a year ago, the Biden administration has confirmed that semiconductor manufacturing will now be eligible for a 25% tax credit. This expanded eligibility includes wafers used in semiconductor production as well as solar wafers, although it still excludes certain materials like polysilicon.

Eligible entities for these tax breaks include chip manufacturers and chip equipment makers, with the inclusion of solar wafers potentially boosting the domestic manufacturing of solar panels in the U.S. However, despite a significant increase in investments in solar panel manufacturing, expansions in related component production capacity remain challenging.

While the scope of the tax credit now covers wafers, it does not extend to upstream supply chain components. Basic material producers critical for semiconductor manufacturing, such as polysilicon manufacturers, are still excluded. According to officials from the U.S. Treasury, the criteria for eligibility were determined in line with the original legislative intent, referencing definitions from the Department of Commerce regarding semiconductor manufacturing and equipment while leaving raw material producers out.

The CHIPS Act comprises three main components, with tax credits being one of them. Additionally, the act allocates $39 billion in grants, over 90% of which have been approved, though actual disbursement is pending. A further $75 billion is set aside for loans and loan guarantees, with approximately half of that amount currently approved.

Although grants and loans receive considerable attention, tax credits could provide the most tangible benefits for businesses. For instance, Micron’s two chip factories in New York are expected to save around $11.3 billion due to these credits. Combined with a factory in Idaho, Micron has received $6.1 billion in grants and $7.5 billion in loans.

Texas Instruments anticipates tax credits ranging from $6 billion to $8 billion, representing five times the amount of the grants it has received. Companies that do not receive grants can also benefit from tax reductions if they meet the eligibility criteria.

Preliminary estimates from the Congressional Budget Office suggest that these tax breaks could lead to a $24 billion reduction in government revenue. A report from the Peterson Institute for International Economics in June indicated that the actual shortfall could exceed $85 billion, which it described as a conservative estimate based on current investment trends.

In recent years, announcements by chip manufacturers regarding plans to invest in U.S. facilities have totaled over $400 billion, with notable companies like TSMC and Intel heavily investing in large chip manufacturing plants in the country.