Biden to require subsidized chip firms to share excess profits

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WASHINGTON- The Biden administration on Tuesday said it will require companies winning funds from its $52-billion US semiconductor manufacturing and research program to share excess profits and explain how they plan to provide affordable childcare.

The Commerce Department on Tuesday released its plans to begin accepting applications in late June for a $39-billion manufacturing subsidy program. The law also creates a 25 percent investment tax credit for building chip plants, estimated to be worth $24 billion.

The CHIPS Act plays a central role in the Biden administration’s effort to bring semiconductor manufacturing back to the United States. Its success is vital to US ambitions to keep ahead of China in global markets.

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Semiconductor companies have already announced more than 40 new projects including nearly $200 billion in private investments to increase domestic production.

Recipients who receive more than $150 million in direct funding “will be required to share with the US government a portion of any cash flows or returns that exceed the applicant’s projections by an agreed-upon threshold,” the department said.

Commerce expects “upside sharing will only be material in instances where the project significantly exceeds its projected cash flows or returns, and will not exceed 75 percent of the recipient’s direct funding award.”

Democratic Senator Jack Reed praised the profit sharing plan, saying chips funding is “not a free handout for multi-billion dollar tech companies…. There is no downside for companies that participate because they only have to share a portion of future profits if they do exceedingly well.”

Republican House Science Committee Chair Frank Lucas criticized the childcare and revenue-sharing provisions, saying they exceed authority granted by Congress. He says Commerce is “focusing less on the urgent need for chip production and more on attempting to impose their labor agenda on this critical industry.”

Companies winning funding are also prohibited from using chips funds for dividends or stock buybacks, and must provide details of any plans to buy back their own shares over five years. The department will consider an “applicant’s commitments to refrain from stock buybacks.”

Democratic lawmakers have noted that the largest US semiconductor companies have poured hundreds of billions of dollars into stock buybacks in recent years, with Intel spending more than $100 billion on buybacks since 2005. Intel also pays a dividend.

It’s not uncommon for states to require specific employment targets as a condition for tax subsidies, but the Biden administration is a significant expansion.

Commerce Secretary Gina Raimondo said companies must submit a plan that includes an outline of workforce needs. Applicants seeking more than $150 million in direct funding must submit “a plan for how they will provide affordable and accessible childcare for their workers.”

White House economic adviser Heather Boushey said the announcement “is emblematic of using public incentives to simultaneously deliver on building strategic supply chains for our economic and national security while also investing in our care infrastructure.”

The Biden administration laid out ambitious plans to pay millions of caretakers, mostly women, better salaries, and make child and elder care cheaper in 2021 but it failed to win majority support in Congress. – Reuters

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