The Big CHIPS Act Matching-Subsidy Myth

April 11, 2023

Image of white man smiling, wearing a light blue shirt and a tie.Public officials, groomed for decades to “give away the store” to attract businesses, are misreading the new CHIPS and Science Act. Contrary to what some are telling taxpayers, the Act, which includes $39 billion for new semiconductor factories—does not require massive or matching subsidies from states or localities.

Still, microchip manufacturers — all too glad to double dip — aren’t correcting the record.

That may come as harsh news to some residents of New York and Ohio, which have recently committed two of the biggest subsidy “megadeals” in U.S. history to microchip makers. The Empire State committed at least $6.1 billion to Micron and the Buckeye State’s total for Intel is $2.1 billion and counting.

In fact, those states and others who are playing the same game, do not have to spend huge sums to qualify for the federal incentives, even though that’s a generally held impression.

Read the federal CHIPS Act closely and you’ll see that states or localities seeking to win a “chip fab” need to offer “incentives.” But it then immediately defines such incentives as including a number of things other than direct-to-company aid, including investments in workforce development or other public goods.

Indeed, the CHIPS Act anticipates that states will reflexively try to subsidize companies directly, but advice about its use from the Commerce Department says direct corporate subsidies, such as tax abatements, are less beneficial and thus less competitive. Yes, an applicant company “must be offered a state or local government incentive,” however:

The [U.S. Commerce] Department encourages projects that include state and local incentive packages capable of creating spillover benefits that improve regional economic resilience and support a robust semiconductor ecosystem, beyond assisting a single company. Such incentives might include investments in workforce, education, site preparation, or infrastructure (including transit or utilities) that are not limited to the applicant, but designed to benefit both the applicant and the broader community. Likewise, the Department will place less weight on incentives (such as direct tax abatements) with less potential for spillover benefits.

Translation: states and localities should focus on making themselves “sticky” for tech employers by investing in cost-effective public goods and services that generate the biggest payoffs. That’s the opposite of risky “megadeals” and a smart way to ensure the broadest possible community benefits.

The CHIPS Act guidance is the latest evidence that Uncle Sam, thanks to the Biden administration, is finally over the reflexive American fear of Industrial Policy. Combined with elements of the Inflation Reduction Act that augur in favor of domestic manufacturing, the two laws are signaling that the “economic war among the states” or “race to the bottom” is a losers’ game. The real competition is overseas, not the state next door.

That’s great news from Washington, but the early microchip deals reveal that the 80-plus years of indoctrination by our tax break-industrial complex has created a belief system among states and cities that will not fade away easily.

We at Good Jobs First call upon President Biden and Commerce Secretary Gina Raimondo to get louder on this crucial message. The CHIPS and Science Act is not intended to drain state or local coffers by bankrolling subsidy megadeals, but rather to help build more resilient economies.

More resilience means wider broadband access, better access to public health services, catch-up help for students after Covid, cheaper access to community colleges and state universities, modernized infrastructure — and other public investments that benefit all working families and employers both incumbent and prospective.

The contents of this guest column reflect those of the author and not necessarily those of Barrett and Greene, Inc.

This piece first appeared on Barrett and Greene, Inc.’s website.