chip act momentum at risk: tax credit extension needed

2025-06-11 general

Washington, Wednesday, 11 June 2025.
The Innovation Policy Alliance is calling for an extension to the U.S. Semiconductor Manufacturing Tax Credit. The group believes that allowing the credit to expire would halt the progress spurred by the CHIPS Act. The CHIPS Act has already triggered $450 billion in investments across 28 states. Analysts predict that the U.S. will control 28% of advanced logic chip manufacturing by 2032. Without the extension, critical investments from companies like NVIDIA, TSMC, and ASML could be jeopardized. A failure to act might impact stock performance.

The stakes of inaction

The CHIPS Act includes a 25% investment tax credit (ITC) for advanced manufacturing facilities [1]. This credit is scheduled to expire on December 31, 2025 [1]. Building and operating a semiconductor fab in the U.S. is at least 30% more expensive than in Taiwan, South Korea, and Singapore [1]. The cost to construct a leading-edge fab can reach $28 billion [1]. Without the ITC, the cost gap could widen again, impacting investment decisions and potentially undermining the financial viability of new U.S. fabs [1].

proposed solutions

The Building Advanced Semiconductors Investment Credit (BASIC) Act proposes extending the ITC through the end of the decade [1]. It also suggests increasing the credit from 25% to 35% [1]. Additionally, Congress is considering the Semiconductor Technology Advancement and Research (STAR) Act [1]. This act would provide a 25% tax credit for semiconductor design R&D expenditures [1]. Extending and expanding these investment tax credits is a key recommendation from industry advocates [1].

competitive concerns

White House AI and cryptocurrency affairs head David Sacks voiced concerns about strict AI regulations potentially hindering U.S. growth [3][6]. Sacks stated that overregulation could cede key markets to China [3][6]. He cautioned that if Chinese chips become ubiquitous in five years, the U.S. will have lost [3][6]. Sacks argued for policies that allow U.S. chips to gain a firm market foothold [3][6]. He also noted that the risk of AI chips being smuggled to illicit actors is low, given their size and logistical demands [3][6].

shifting geopolitical strategies

President Trump has reportedly rescinded the Biden administration’s ‘AI diffusion guidelines’ [3][6]. These guidelines previously restricted AI chip exports to certain countries [3][6]. The Trump administration and the United Arab Emirates recently announced plans to build the world’s largest AI industrial park [3][6]. Sacks suggested that previous restrictions risked pushing countries towards China [3][6]. He emphasized the need to eliminate innovation barriers for the U.S. AI industry, citing advancements made by Chinese AI applications like DeepSeek [3][6].

broader tax reform context

The U.S. Senate is planning to release significant revisions to President Trump’s $3 trillion tax reform bill [4]. The Senate Finance Committee aims to cut spending on Medicaid and potentially Medicare [4]. These revisions may differ from the House version passed in May [4]. The committee will also address the state and local tax (SALT) deduction [4]. The House version includes a $40,000 SALT deduction limit for those earning under $500,000, costing $350 billion [4]. The Senate Republicans aim to reduce this cost [4].

Bronnen

CHIPS Act Tax Credits