A $52 Billion Boost for the US Chip Industry

Reuters
By Yuval Rosenberg

Happy Wednesday! On this date in 1969, Neil Armstrong and Buzz Aldrin became the first people to walk on the moon. And here we felt brave taking a stroll in 90-degree heat.

Today is also National Hot Dog Day, so cheers to all who are celebrating, as long as you don’t use ketchup.

Here’s what’s happening on the fiscal front.

Senate Advances Scaled-Back Chips Bill

The Senate on Tuesday evening voted 64-34 to advance legislation to provide billions of dollars in assistance to the U.S. semiconductor industry.

"After 16 Republican senators voted in support of the measure, Senator Chuck Schumer, Democrat of New York and the majority leader, restored to the legislation a host of critical research and development measures that had previously been sidelined," The New York Times reports. "In an unusual exercise, Mr. Schumer had said he would add the provisions only if the bill drew 60 votes, indicating that it could survive a filibuster and move to passage in the Senate."

Thirty-three Republican senators and Sen. Bernie Sanders (I-VT) voted no.

Tuesday’s bipartisan vote outs the Senate on track to pass a broader package that would reportedly pour some $250 billion into the semiconductor industry and other technological research and development. That package is actually a scaled-back version of earlier legislation meant to improve U.S. competitiveness with China that stalled out as the House and Senate approved rival measures.

The latest package is expected to pass the Senate by next week. Speaker Nancy Pelosi (D-CA) said Wednesday that she’s optimistic the House will be able to vote on the bill as early as next week. In a letter to colleagues, she called the legislation "a major victory for American families and the American economy" and "a bold, bipartisan package that will lower costs for families here at home while reigniting American competitiveness on the world stage."

The package contains:

* $52.7 billion in subsidies and tax credits for U.S. chip makers, including $39 billion to build, expand, or modernize domestic manufacturing facilities and related research and development and $11 billion for Commerce Department R&D programs;

* a 25% tax credit, reportedly estimated to be worth about $24 billion, for investments in semiconductor manufacturing;

* $1.5 billion for 5G mobile broadband deployment;

* "guardrails" that prohibit companies from using funds from the program for stock buybacks or dividend payments or for building semiconductor facilities on China or other countries that "present a national security concern."

Some GOP objections: Republican Senator Rick Scott (R-FL) criticized the bill to Reuters, saying taxpayers should get a return on their investment rather than providing grants to industry that don’t require repayment. "The taxpayer doesn't get anything here," Scott told Reuters. And Sen. Ron Johnson (R-WI) reportedly called the semiconductor provisions in the bill "corporate welfare."

In a similar vein, billionaire investor John Arnold tweeted: "Just baffled how a $50 billion corporate welfare bill just passed with 64 Senate votes without a peep about paying for it."

House Passes $400 Billion ‘Minibus’ Funding Bill

The House on Wednesday voted 220-207 to pass a legislative package containing six funding bills for the 2023 fiscal year.

The package includes the appropriations bills covering Transportation, Housing and Urban Development; Agriculture, Rural Development, Food and Drug Administration; Energy and Water Development; Financial Services and General Government; Interior and Environment; and Military Construction and Veterans Affairs.

The package is worth more than $400 billion, according to The Hill, and includes substantial increases in spending on an annual basis for key Democratic priorities at the departments of the Interior, Transportation, Energy and Housing and Urban Development, as well as at the Veterans Administration. If the House version holds, federal employees will receive an average pay increase of 4.6% next year.

Rep. Rosa DeLauro (D-CT), chair of the House Appropriations Committee, celebrated the successful vote, saying that the legislation would address "some of our nation’s biggest challenges by combatting climate change, bolstering mental health services, supporting our Veterans, and building safer communities with less crime and violence and more security."

Hurdles ahead: The House needs to pass six more funding bills, but political disputes over difficult issues such as immigration policy and total defense spending mean that is unclear if lawmakers will be able to meet their goal of passing all 12 funding bills for 2023 before leaving for their August recess.

Meanwhile, the Senate is far behind in the process, with little progress to show on its 12 funding bills. In addition, the Senate has yet to announce a topline number for the 2023 bill, making it harder for the House to determine its spending proposals.

While Senate Democrats are expected to release more details on their 2023 spending plans before the recess, some lawmakers have expressed doubts about the upper chambers’ ability to complete the process before the fiscal year ends on September 30.

Sen. Roy Blunt of Missouri, the senior Republican on the Senate Appropriations Subcommittee on Labor, Health and Human Services and Education, said he thinks the final spending package could take months to finish. Blunt told The Hill that he’s focused on "what the bill [will look] like in December. I think that’s pretty much what everybody’s thinking."

Chart of the Day: ‘Our Failure to Invest’

The apparent failure of President Biden’s Build Back Better plan is a reminder that public investment has been on a downward trend for years, as this graph from the Financial Times demonstrates. "In the US, net government investment (after accounting for depreciation of the existing public capital stock) fell by almost two-thirds in the decade to 2014, when it dropped to 0.5 per cent of GDP," says the FT’s Martin Sandbu. While government investment has rebounded modestly from time to time, it remains well below the roughly 2% of GDP recorded in 1970.

"Why have we lived for so long off past investments and failed to make enough new ones?" Sandbu asks. "I think our failure to invest is profoundly political. Raising the investment-to-GDP ratio, whether through boosts to private or public investment, or both, means that a smaller ratio of GDP is left over for consumption. Even if this prepares a better future, it can feel like a measlier existence today. And that is something a generation of politicians across the rich world have been afraid to inflict on their voters."

Opinion of the Day: A Message for Manchin

Kimberly Clausing, a professor of tax law and policy at UCLA School of Law, addresses one of the more baffling aspects of Sen. Joe Manchin’s rejection of Democrats’ proposed tax hikes.

Writing at Bloomberg, Clausing says that while inflation is running unacceptably high, tax hikes wouldn’t make it worse: "I must set the record straight: Higher taxes do not stoke inflation. On the contrary, they can help get prices under control. … Even economists who oppose higher taxes recognize this simple fact. Inflation results from a mismatch: When demand for goods and services exceeds supply, prices increase. Raising taxes has the opposite effect, reducing disposable income and hence demand."

Similarly, Committee for a Responsible Federal Budget has noted that more deficit reduction would help fight inflation and that "[p]olicies to close tax loopholes, reduce tax breaks, improve compliance, and raise revenue will help mitigate inflationary pressures."

Clausing runs through some possible concerns about scenarios in which tax increases could fuel inflation, but she concludes that none stand up to scrutiny. "All told, Senator Manchin, now is an excellent time to raise taxes," she concludes.

Read the full piece at Bloomberg.

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