Foundation capital

Chip Bill: Computer chip subsidies for semiconductors?

The Senate has begun a debate on the so-called chip bill, which would provide $52 billion in grants and $24 billion in tax credits to supposedly bolster semiconductor production in the United States. United. If passed, US semiconductors will join wool, mohair and helium. , soybeans, ethanol, steel, credit unions and Amtrak as industries deemed so important they warrant taxpayer subsidies – forever.

As President Ronald Reagan once remarked, “The closest thing to immortality is a government program.” So lawmakers should think ahead 50 years from now and ask themselves if members of Congress might ask, “What were they thinking?

This is especially true for an industry that changes as rapidly as Moore’s Law, which basically says that the speed and capacity of computer chips tends to double every two years. When wool and mohair were essential for making WWII flight jackets, electronics were powered by vacuum tubes. Imagine if Congress then decided that having a strong American vacuum tube industry was key to national security and therefore deserving of taxpayer subsidies. Did industry invent transistors, which ultimately led to the invention of semiconductors?

Maybe not. Although when synthetic materials replaced wool and mohair in flight jackets, subsidies to these farmers continued for decades. In other words, we would most likely still have a taxpayer-subsidized vacuum tube industry despite the creation of computer chips.

In his book The logic of collective actionthe great economist Mancur Olson has taught us that the reason such programs metastasize in the federal budget is that the special interests who benefit from these subsidies are louder and better organized than the citizens whose taxes fund them.

For example, there are approximately 150 million taxpayers. So the Chips Bill’s $76 billion in total subsidies for the semiconductor industry works out to about $500 per taxpayer. Which interest group is ready to organize and fight harder for its participation in the flea bill?

Olson’s theory of interest groups has kept each of these industries on the taxpayers’ plate for decades, often with unintended consequences. Ethanol subsidies pit our cornflakes against our cars. Large credit unions do not pay income taxes, but compete directly with banks that pay taxes. The US steel industry has been shielded by various tariffs and trade restrictions for six decades, but it continues to shrink every year. Amtrak was created in 1971 by merging 20 largely bankrupt private passenger railroads and still relies heavily on taxpayer subsidies. It took decades for the federal government to sell off the national helium reserves, which began when zeppelins ruled the skies.

The federal budget is made up of sedimentary layers of often well-meaning programs that were created to address a national crisis or emergency. Unfortunately for taxpayers, special interests are organizing to protect these programs and subsidies long after the crisis is over. Lawmakers should heed these historical lessons and not lay down semiconductor subsidies on these alluvial layers of fiscal largesse.

A better way, as a recent Tax Foundation study, “Taxes, Tariffs, and Industrial Policy: How the U.S. Tax Code Fails Manufacturing” points out: tends to be inefficient, and tariffs often weaken protected domestic industries and harm downstream industries.

The solution, the study concludes, is to fully charge all capital investments, including equipment, structures, and research and development. These measures allow all industries to thrive, not just the politically connected ones.