[Senate Hearing 118-766]
[From the U.S. Government Publishing Office]
S. Hrg. 118-766
AMERICAN MADE: GROWING U.S.
MANUFACTURING THROUGH THE TAX CODE
=======================================================================
HEARING
before the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
MARCH 12, 2024
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
______
U.S. GOVERNMENT PUBLISHING OFFICE
62-599--PDF WASHINGTON : 2026
COMMITTEE ON FINANCE
RON WYDEN, Oregon, Chairman
DEBBIE STABENOW, Michigan MIKE CRAPO, Idaho
MARIA CANTWELL, Washington CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland TIM SCOTT, South Carolina
SHERROD BROWN, Ohio BILL CASSIDY, Louisiana
MICHAEL F. BENNET, Colorado JAMES LANKFORD, Oklahoma
ROBERT P. CASEY, Jr., Pennsylvania STEVE DAINES, Montana
MARK R. WARNER, Virginia TODD YOUNG, Indiana
SHELDON WHITEHOUSE, Rhode Island JOHN BARRASSO, Wyoming
MAGGIE HASSAN, New Hampshire RON JOHNSON, Wisconsin
CATHERINE CORTEZ MASTO, Nevada THOM TILLIS, North Carolina
ELIZABETH WARREN, Massachusetts MARSHA BLACKBURN, Tennessee
Joshua Sheinkman, Staff Director
Gregg Richard, Republican Staff Director
(II)
C O N T E N T S
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OPENING STATEMENTS
Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee
on Finance..................................................... 1
Crapo, Hon. Mike, a U.S. Senator from Idaho...................... 3
WITNESSES
Widmar, Mark R., chief executive officer, First Solar, Inc.,
Tempe, AZ...................................................... 5
Fendley, Anna, director of regulatory and State policy, United
Steelworkers (USW), Pittsburgh, PA............................. 7
Janis, Shannon M., vice president of global tax, onsemi,
Scottsdale, AZ................................................. 9
Silver, Courtney, president and owner, Ketchie, Inc., Concord, NC 10
Huntsman, Peter R., chairman, president, and chief executive
officer, Huntsman Corporation, The Woodlands, TX............... 12
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Brown, Hon. Sherrod:
Submission for the record.................................... 45
Cortez Masto, Hon. Catherine:
Submissions for the record................................... 64
Crapo, Hon. Mike:
Opening statement............................................ 3
Prepared statement........................................... 71
Fendley, Anna:
Testimony.................................................... 7
Prepared statement........................................... 72
Responses to questions from committee members................ 76
Huntsman, Peter R.:
Testimony.................................................... 12
Prepared statement........................................... 77
Responses to questions from committee members................ 82
Janis, Shannon M.:
Testimony.................................................... 9
Prepared statement........................................... 83
Responses to questions from committee members................ 86
Lankford, Hon. James:
Submission for the record.................................... 90
Silver, Courtney:
Testimony.................................................... 10
Prepared statement........................................... 91
Responses to questions from committee members................ 96
Widmar, Mark R.:
Testimony.................................................... 5
Prepared statement........................................... 99
Responses to questions from committee members................ 102
Wyden, Hon. Ron:
Opening statement............................................ 1
Prepared statement with attachment........................... 105
Communications
Acena Consulting, LLC............................................ 113
Acoustic Range Estimates, LLC.................................... 115
American Chemistry Council....................................... 116
American Clean Power Association................................. 118
American Rental Association...................................... 119
Bloom Energy..................................................... 120
Lee, John........................................................ 123
Off Planet Research, LLC......................................... 124
One Voice for Manufacturing...................................... 125
Smart Material Solutions, Inc.................................... 126
Thrive Business Group............................................ 127
U.S. Tire Manufacturers Association.............................. 128
Vital & FHR North America LLC.................................... 136
AMERICAN MADE: GROWING U.S.
MANUFACTURING THROUGH THE TAX CODE
----------
TUESDAY, MARCH 12, 2024
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:05
a.m., in Room SD-215, Dirksen Senate Office Building, Hon. Ron
Wyden (chairman of the committee) presiding.
Present: Senators Stabenow, Cantwell, Carper, Brown,
Bennet, Casey, Hassan, Cortez Masto, Warren, Crapo, Lankford,
Daines, Young, Barrasso, Johnson, Tillis, and Blackburn.
Also present: Democratic staff: Kimberly Arndt, Tax
Counsel; Ursula Clausing, Tax Policy Analyst; Jonathan Goldman,
Senior Tax Counsel International; Alice Lin, Senior Tax Policy
Advisor; and Joshua Sheinkman, Staff Director. Republican
staff: Courtney Connell, Chief Tax Counsel; Kate Lindsey, Tax
Policy Advisor; Gregg Richard, Staff Director; and Don Snyder,
Senior Tax Counsel.
OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM
OREGON, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. There's a lot for the committee to discuss on
the topic of manufacturing, and I want to start off with a
little bit of recent history of key manufacturing issues. On
infrastructure--and we know that you cannot have big league
manufacturing with little league infrastructure--it was a
running joke during the Trump administration that every week
was infrastructure week. The big infrastructure bill was just a
few days away. It was kind of like the marquee at the old movie
house, where it always said ``coming soon,'' but it just never
actually got there. It was the Biden administration that
finally got a major infrastructure bill passed.
Now there are shovels in the ground all over the country
working on rebuilding our roads and bridges, highways, ports,
and airports. On energy, former President Trump talked, again,
a big game on energy independence. Had he wanted, he could have
pushed for big investments in batteries, wind and solar, and
electric vehicles. He passed on that one too.
Democrats got that done in the Inflation Reduction Act. The
United States now produces more energy than ever before, and we
have achieved a greater level of energy independence than we
have had since the days when millions of Americans had big
piles of coal shoveled into their basements. Consumers are
saving money. Putin and OPEC have a whole lot less influence
over our energy prices than they did when former President
Trump was in the White House.
On semiconductors--these are the chips that Americans
interact with from the time they wake up in the morning and
check their cellphones, to the time they go to bed at night
setting an alarm. Once again, Donald Trump was on the
sidelines. He could have pushed for more chips investment to
bring a vital high-tech manufacturing industry back home,
giving us a better and stronger competitive edge with China.
Once again, it did not get done.
The CHIPS and Science Act passed on a bipartisan basis
under the Biden administration; they are getting it done.
Nobody would blame Americans for having grown tired and
frustrated after years of empty political promises about
bringing manufacturing and employment back home. Every
shuttered factory, every job shipped overseas was a painful
wound to those who were left behind in communities that took
pride and found identity in the things they made with their
labor.
Donald Trump talked an awful lot about bringing
manufacturing jobs home. Once again, failure to deliver. In
fact, the manufacturing sector went into a recession in 2019
after his tax law went into effect and before the pandemic
clobbered our economy.
So let's look at what is happening now. The cycle of empty
promises is ended. The U.S. is in a manufacturing boom, thanks
in large part to this landmark legislation passed under the
Biden administration, much of which came from this committee.
Manufacturing investment in clean energy in 2023 was triple the
level from before Congress passed the IRA. The running total of
clean energy and chips investments announced in the last few
years is now more than $350 billion. That is more than a
quarter-million jobs created. That was an effort that Democrats
pushed vigorously with a
private-sector, market-oriented, no mandates, technology-
neutral system that finally broke the gridlock on climate, and
is producing big investments in the private sector for cleaner
energy.
The CHIPS Act and the IRA went further than any laws in
recent memory. The Buy American Act countered dependence on
China. That is a big reason why so many foreign governments
come to town and talk about how upset they are after Democrats
passed the IRA. My response to them is, ``Why don't you all go
do what we did in your country? I think you will find it
works.'' With one single piece of legislation, the U.S. lapped
the pack in terms of investment in clean energy and clean
transportation.
So that is all solid news about the state of manufacturing
in America. Here is the big concern. Former President Trump
wants the IRA repealed. House Republicans voted to gut nearly
the entire IRA energy package. It is not because they have a
better idea for energy or manufacturing; it is because they
wanted to score a political win no matter the cost. And in this
case, the cost would be hundreds of thousands of jobs in
America. It would be higher costs for consumers; greater
dependence on foreign oil; and surrendering to China and other
countries when it comes to clean energy, innovation, and jobs.
We have to make sure that does not happen. For the first
time in a long time, the future of manufacturing in America and
manufacturing jobs looks bright. Congress has to do everything
it can do to build on this progress.
On that topic, the Senate is in the middle of a debate that
pairs tax cuts for businesses, including research and
development expenses, with an expansion of the Child Tax
Credit. I proposed this bill with Chairman Jason Smith of the
House Ways and Means Committee several months ago. The House
passed it 6 weeks ago with 357 votes in favor. I think it would
be fair to say you cannot get 357 members of the House of
Representatives to agree that 1 plus 1 equals 2.
That is an extraordinary vote: both sides of the aisle
almost unanimous in saying that we want to be there for 16
million kids of modest incomes, who right now are discriminated
against if they come from a large family. And then they said we
want to be there for our small businesses that desperately need
that research and development money to make payroll.
The Senate has to get this done. I have said it now for
weeks and weeks. I will talk to anybody who wants to work in
good faith to move this forward quickly, because right now,
folks, let's make sure everybody understands what's going on.
Right now, thousands of small businesses, millions of
families, they are all waiting. They are waiting to see if the
U.S. Congress is going to be there for them. Seems like the
Congress can be there for lots of other causes. Now let us make
sure they are there for those scores and scores of small
businesses, and those millions of families that are waiting.
I have heard from the small business owners that if the
Senate sits on this issue until 2025, a lot of them are not
going to be around to talk about that. They just will not be
here. They will not make it. So the time to act is now, and I
continue to be open to all sides who want to work in good faith
to get this done.
Some of my colleagues understand the urgency here, and
let's understand that this set of policies is not going to be
on the table in 2025 if this bill stalls out. So it is my hope,
and I think we will hear today that the American people again--
another important group of Americans--want the Senate to move
soon.
Senator Crapo?
[The prepared statement of Chairman Wyden appears in the
appendix.]
OPENING STATEMENT OF HON. MIKE CRAPO,
A U.S. SENATOR FROM IDAHO
Senator Crapo. Thank you, Mr. Chairman.
During last Thursday's State of the Union address, using
fair share rhetoric, President Biden laid out his plans for
making American manufacturers more competitive: tax them more--
a lot more. President Biden's proposed 28-percent corporate
rate and about 32 percent when including State taxes, would
leave the U.S. with one of the highest rates in the developed
world.
It gets worse. Biden would also hike the Democrats' book
minimum tax, a fundamentally flawed proposal which harms
American manufacturers, by 40 percent, to 21 percent. Contrast
that vision with what the Republicans actually did in 2017.
Prior to the Tax Cuts and Jobs Act, the U.S. had one of the
highest corporate income tax rates among developed countries.
In 2017, Republicans lowered the rate and broadened the
base, putting a stop to corporate inversions. It led to one of
the strongest economies in generations prior to the pandemic.
Unemployment dropped to a 50-year low. Economic gains flowed to
all demographic groups and all income levels, and American
businesses reported record R&D investment.
In the words of former President Obama's economic advisor
Jason Furman, ``taxes do actually matter.'' In response to a
recent study on the impact of the TCJA's policy changes on
domestic investment, Furman stated, ``These are the most
convincing estimates of the response of investment to corporate
tax rates that I had ever seen.''
I agree--tax rates actually do matter. A competitive tax
system is instrumental in manufacturers' decisions of where to
invest. Reducing business tax rates paired with good progrowth
policies like immediate expensing of capital investments, drove
historic growth in the manufacturing sector.
According to the National Association of Manufacturers, in
2018, the year immediately following the TCJA's enactment,
manufacturing had the best year for job creation in 21 years.
Manufacturing wages grew at the highest level in 15 years.
Manufacturing capital investment grew by 4.5 percent, and
manufacturing production grew 2.7 percent, with December 2018
being the best month for manufacturing output since May 2008.
Stability of tax policy is also key to maintaining strong
manufacturing in the United States. We must protect the TCJA's
progrowth tax policies, and seek to make them permanent before
they expire in 2025. We should also look to improve and build
on those policies to ensure that U.S. companies and workers can
continue to compete globally.
Another area of continued bipartisan interest is bolstering
the domestic supply chain of semiconductors. American
semiconductor manufacturers, represented here today by onsemi,
are operating in an increasingly competitive market. While we
must be circumspect when considering industry-specific tax
incentives, bolstering domestic manufacturing of semiconductors
is vital to safeguarding our national security.
Chairman Wyden and I have worked closely over the years on
proposals to strengthen the U.S. semiconductor supply chain.
The Advanced Manufacturing Investment Credit, the AMIC, is the
result of that bipartisan effort and has already led to
increased investment across the United States.
In my home State of Idaho, Micron announced that it will
construct a new memory chip plant, the first new semiconductor
memory manufacturing fab built in the U.S. in the last 20
years. This expansion ensures the semiconductor industry will
continue to innovate and develop new technologies that keep
Idaho and the country on the leading edge for research and
development.
In contrast to this bipartisan effort, the costs of the
Inflation Reduction Act and the energy incentives contained in
it have quickly mushroomed from the original JCT score of $270
billion over 10 years to a June 2023 estimate of $663 billion.
One of our witnesses today will discuss his experience with how
the administration is proposing to implement these incentives
in a way that bolsters China and foreign manufacturing.
Unfortunately, he is not alone. Hundreds of domestic
stakeholders have provided formal comments to various proposed
energy incentive rulemakings, which express significant
concerns with the implementation of those energy incentives,
including two other witnesses here today.
Congress should closely scrutinize a law that both costs
much more than promised, and also fails to achieve key goals
like making the U.S. less reliant on our adversaries. I look
forward to discussing how we can continue to encourage domestic
manufacturing activity, including addressing the global
semiconductor shortages and supply chain issues.
Thank you, Mr. Chairman, and I yield back.
[The prepared statement of Senator Crapo appears in the
appendix.]
The Chairman. All right. Let's introduce our witnesses now.
Mark Widmar is the CEO of First Solar. I know my colleague,
Senator Brown, very much wanted to be here to introduce you. He
is chairing a hearing in the Banking Committee this morning and
will be here later.
Anna Fendley is the United States Steelworkers director of
regulatory and State policy. We welcome her.
Shannon Janis is vice president of global tax for onsemi.
Courtney Silver is president and owner of Ketchie, Inc.
Our final witness is Peter Huntsman, the chairman,
president, and CEO of Huntsman Corporation.
I want to at this time also publicly acknowledge all the
work that Mr. Huntsman has been doing for years in mental
health. We understand, in the Huntsman family and the Wyden
family, that this takes an enormous toll on millions of
Americans. It is not the topic of conversation today, but we
just want you to know we are very appreciative of the efforts
that you have made working with me specifically, and I look
forward to continuing that work.
All right. Let's go and begin with you, Mr. Widmar.
STATEMENT OF MARK R. WIDMAR, CHIEF EXECUTIVE OFFICER, FIRST
SOLAR, INC., TEMPE, AZ
Mr. Widmar. All right. Good morning, Chairman Wyden,
Ranking Member Crapo, and distinguished members of the
committee. My name is Mark Widmar, and I am the chief executive
officer of First Solar, the Western Hemisphere's largest solar
manufacturer. We have over 6 gigawatts of operational capacity
in Ohio, with new factories under construction in Alabama and
Louisiana that are expected to take us to 14 gigawatts of
capacity in the U.S. and 25 gigawatts cumulative global
capacity by 2026.
Our proprietary, uniquely American thin film solar
technology was developed here in the U.S., and is manufactured
in fully vertically integrated factories that produce thin film
solar wafers, cells, and modules in a single process entirely
under our factory's roof.
First Solar is enabled by thousands of hardworking people
across the country: soda ash miners in Wyoming; silicon miners
in Michigan; copper miners in Utah; steelworkers in Alabama,
Louisiana, and Ohio; glassworkers in Illinois, Ohio, and
Pennsylvania; woodworkers in Indiana; and a nationwide network
of truckers, rail workers, and many more.
Given this context, it is an honor to represent First Solar
today, and I thank the committee for convening this hearing on
how tax policies impact domestic manufacturing in the U.S. We
applaud the IRA and believe it represents America's first
durable solar industrial strategy. Implementation of the IRA--
consistent with its legislative intent and the establishment of
restrictions to prevent companies controlled or owned by the
Chinese Government from receiving American taxpayer dollars,
together with effective enforcement of trade law--gives the
potential to dismantle China's near-
complete control of the solar supply chain and enable the
United States to secure its clean energy manufacturing base
while capturing economic value and creating good-paying,
enduring jobs.
Not only did the IRA provide CapEx-based grants to enable
the setup of onshore manufacturing, but through supply driven
advanced manufacturing tax credits, the IRA took on the complex
challenge of incentivizing the operational side of
manufacturing in strategic clean energy sectors. This provides
solar, wind, battery storage, and other manufacturers the
momentum needed to scale domestically, drive down cost, and
spur cycles of innovation to maintain American technology
leadership. The IRA also created a crucial parallel demand-side
driver to incentivize purchasing the output of these American
factories, by introducing a bonus to the investment or
production tax credit, accessed by solar generation asset
owners if projects procure domestically made content, including
solar panels.
While regulations to implement this aspect of the IRA
remain pending, the domestic content bonus is expected to
create a durable market pull for solar produced via high-value
domestic manufacturing. It is difficult to overstate the IRA's
economic potential, and First Solar provides a case in point.
Analysis shows that First Solar's U.S.-based footprint alone
will support an estimated 30,000 direct, indirect, and induced
jobs in 2026, representing approximately $2.8 billion in annual
labor income, while generating over $10 billion in economic
output in 2026 alone.
While we are not the only American solar manufacturer to
come into existence at the end of the last century, the grim
reality is that we are the only one of scale to remain today.
It is therefore imperative that America's response to China's
dominance of the solar industry is not a one-horse race.
Consider this: solar is already the lowest-cost form of new
electricity generation, and the IRA offers a catalyst for
unprecedented growth in high-value domestic solar
manufacturing. And yet the solar manufacturing industry remains
in a precarious position today. Less than a third of the 35
gigawatts of new solar installed in 2023 in the U.S. were
produced here. None, not one of the crystalline silicon panels
installed, was assembled with American-made solar cells.
The relentless Chinese anticompetitive behavior has caused
a significant collapse in cell and module pricing. This dynamic
goes well beyond just a risk to our company. It threatens the
viability of all aspiring U.S.-based manufacturers, who may
never be able to finance the startup or growth of their
operations.
The U.S. tax code, through legislation such as the IRA, has
the power to incentivize domestic investment, but for those
investments to endure, they must be supported by corresponding
strong and consistent enforcement of trade. And there should be
no doubt: we invite competition and free trade. All we ask is
that this competition and trade are practiced on a level
playing field.
On behalf of First Solar, I am pleased to participate in
this important discussion. I thank you, and I will be happy to
answer any questions you may have.
[The prepared statement of Mr. Widmar appears in the
appendix.]
The Chairman. Thank you very much, Mr. Widmar.
Ms. Fendley?
STATEMENT OF ANNA FENDLEY, DIRECTOR OF REGULATORY AND STATE
POLICY, UNITED STEELWORKERS (USW), PITTSBURGH, PA
Ms. Fendley. Good morning. On behalf of the members of the
United Steelworkers Union, I would like to thank Chairman
Wyden, Ranking Member Crapo, and the members of the committee
for holding this hearing and for the invitation to testify. Our
members manufacture a wide array of products in some of the
most advanced facilities in the world. Their jobs are the sort
that built the middle class. We appreciate that this committee
has spent many years considering, developing, and overseeing
initiatives to grow U.S. manufacturing.
Through the infrastructure law, the CHIPS Act, and the
Inflation Reduction Act, Congress has enacted a once-in-a-
generation investment in industry, and these efforts have
already led to a boom in spending on manufacturing
construction.
While I will only discuss a few tax credits in my
testimony, they are part of an interlocking series of policies
necessary for manufacturing workers. The first provision I
would like to highlight is the section 45X Advanced
Manufacturing Production Credit. Our union was particularly
supportive of efforts to create this tax credit to reshore
solar manufacturing capacity after the majority of it was lost
to China, to ensure that a new domestic offshore wind industry
is supplied by U.S.-made components, and to boost the
production of critical minerals for batteries in this country.
We are grateful for careful work being done by the Internal
Revenue Service to implement this provision so far, including
efforts to solicit public input on certain key questions. The
implementation of this credit is an iterative, as yet
incomplete process, and our union has offered supportive
comments on some provisions and suggestions to the agency on
others in the recent comment period. However, we are very
excited about the prospect of this credit to help build U.S.
supply chains for clean technologies.
The second credit to discuss is the section 48C Qualifying
Advanced Energy Project Credit. Our union supported 48C when it
was originally enacted in 2009. The revival and expansion of
48C will advance decarbonization efforts through the domestic
manufacture of energy technologies and in direct efforts to
decarbonize industrial processes. We applaud the expanded list
of technologies that Congress included in the credit this time.
We also applaud Congress's direction to allot 40 percent of the
funding to designated energy communities, which will ensure
that the benefits accrue to those communities and workers that
may suffer the most harm from the loss of fossil fuel jobs.
As expected, the appetite for this credit has been huge,
with the first round of applications for $4 billion in credit
availability attracting concept papers seeking $42 billion in
funding. This is not a surprise, given how over-subscribed 48C
was in 2010. Because awarding of the 48C credit functions more
like a grant process than a typical tax credit, I would be
remiss not to mention the important role that the Department of
Energy is playing. Our union strongly supports the work that
DOE has done to include Community Benefits Plans into these
funding criteria. This process requiring labor engagement has
helped drive very productive conversations between our members
and their employers, and I am sure I join most in this room in
looking forward to learning which projects are selected in this
first tranche of funding.
These two credits are both supply-side drivers. They will
help producers make things. But in order to be fully effective,
producers need certainty. Even with a tax credit, these
projects are not free, and undertaking them entails risk. That
risk can be mitigated by demand-side drivers that give
producers confidence that there will be a stable market for
their products. These are somewhat new to the tax code. The
Inflation Reduction Act included a bonus credit for clean
energy projects that use American iron, steel, and manufactured
goods, and the section 30D tax credit now includes requirements
for vehicle assembly, and provisions around critical mineral
and battery production. We strongly support these provisions.
Additionally, we must have strong trade enforcement, a
topic also under this committee's jurisdiction. This is an
exciting time for American manufacturing. The transition to a
clean energy economy will result in lots of jobs somewhere in
the world, and we want them to be jobs for American workers.
Still, there is a lot of work before us. Implementation of
the credits is not yet complete, and arguably more could be
done to engage small and mid-size manufacturers to ensure that
this opportunity is broadly shared. We look forward to
continued work with you, the administration, our employer
partners, and others on these matters.
Thank you for your interest in our union's perspective, and
for the opportunity to testify today.
[The prepared statement of Ms. Fendley appears in the
appendix.]
The Chairman. Thank you, Ms. Fendley. And not a week goes
by when Senator Casey and Senator Brown make some of the very
same points that you have made today, and we are going to stay
at it until those hopes for steelworkers and manufacturing
communities are realized. Thank you.
Okay. We are now going to hear from Ms. Janis.
STATEMENT OF SHANNON M. JANIS, VICE PRESIDENT OF GLOBAL TAX,
ONSEMI, SCOTTSDALE, AZ
Ms. Janis. Chairman Wyden, Ranking Member Crapo, and
members of the committee, thank you for the invitation to
testify today. My name is Shannon Janis, vice president of
global tax at onsemi. I am here today to share what we do at
onsemi and discuss how U.S. tax policy shapes our decisions
regarding domestic manufacturing.
onsemi is a Fortune 500 semiconductor company with over
4,000 employees in the U.S. We specialize in delivering
industry-leading intelligent power and sensing solutions that
greatly improve the safety, sustainability, and power
efficiency of end products in the automotive and industrial
markets. We operate 19 manufacturing sites across eight
countries worldwide. These sites consist of front-end materials
and wafer fabrication facilities known as fabs, as well as
back-end assembly and test site facilities. In the U.S., our
materials and fab operations are located in five States:
Oregon, Idaho, Pennsylvania, New York, and New Hampshire.
Each of these sites is an integral part of onsemi's global
manufacturing network. Our wafer fab in Gresham, OR is onsemi's
third largest fab globally. The Gresham fab employs over 600
people. Over 50 percent of Gresham's volume supports the
automotive market, with over 35 different technologies
manufactured at the site. Our wafer fab in Nampa, ID employs
over 260 people, and supports the image sensor business. Image
sensors are a key component in machine vision cameras,
including digital and security cameras. Our Mountain Top, PA
fab employs over 240 people making power semiconductors, and is
the only union fab in the U.S. Our East Fishkill, NY fab is
onsemi's largest manufacturing facility in the U.S., employing
over 1,000 people, and it is the only 12-inch power discrete
and image sensor fab in the U.S. And our Hudson, NH facility is
the cornerstone of onsemi's silicon carbide products.
Today, onsemi is the only U.S.-based company that has fully
integrated end-to-end silicon carbide manufacturing. Why is
this important? Silicon carbide semiconductors play a pivotal
role in enabling the transition to electric vehicles and
renewable energy systems. Manufacturing silicon carbide
semiconductors is more complex than traditional semiconductors,
due to higher temperatures, specialized equipment, and unique
expertise. We are proud that our New Hampshire site enables our
network of factories to deliver the end-to-end silicon carbide
power solutions necessary for EVs, hybrid vehicles, and
renewable energy.
As this committee is aware, the steady decline in the
United States' share of worldwide semiconductor manufacturing
capacity poses a risk to America's supply chains and our
national security. This decline has been decades in the making,
and it will require persistent attention to achieve a
sustainable reversal. A key contributing factor to this decline
has largely been due to the substantial manufacturing
incentives offered by the governments of our global
competitors, placing the U.S. at a competitive disadvantage.
Additionally, Federal investments in semiconductor research
have historically been flat as a share of GDP.
While other countries have prioritized investments in R&D
initiatives to strengthen their own semiconductor capabilities,
our U.S. R&D tax incentives have lagged behind those of other
countries. Although the U.S. has taken the initial steps to
curb this decline, other countries, both within the European
Union as well as countries such as South Korea, Japan, and
China, are significantly increasing their investments in the
semiconductor industry and its workforce. Many of these
countries have legislation similar to the CHIPS Act to support
their domestic companies, as well as incentivizing other
companies to invest in their regions. The CHIPS Act, and in
particular the section 48D Advanced Manufacturing Tax Credit,
have played a critical role in enhancing the global
competitiveness of the U.S. The enactment of the CHIPS and
Science Act was a landmark step toward reinvigorating domestic
semiconductor manufacturing and innovation.
The mission is clear. Establishing a leadership role is
vital for the U.S. to win the global technology race in the
semiconductor industry. Ongoing support from the CHIPS Act,
with its section 48D Advanced Manufacturing Tax Credit, will
enable companies like onsemi to continue to invest in the U.S.,
compete with companies that are located offshore, and
strengthen the resiliency of critical supply chains.
Mr. Chairman, I appreciate your calling for this hearing
and this committee's support of the U.S. semiconductor
industry. Thank you for the opportunity to testify at today's
hearing.
[The prepared statement of Ms. Janis appears in the
appendix.]
The Chairman. Ms. Janis, thank you very much, and good to
hear about chips manufacturing going on in Gresham, OR. That is
the right place to have it. Thank you.
Okay; Ms. Silver?
STATEMENT OF COURTNEY SILVER, PRESIDENT AND OWNER, KETCHIE,
INC., CONCORD, NC
Ms. Silver. Good morning, Chairman Wyden, Ranking Member
Crapo, and distinguished members of the committee. Thank you
for holding today's important hearing on how the U.S. tax code
impacts manufacturing in America. My name is Courtney Silver,
and I am the president and owner of Ketchie. Following my
husband's passing, I was honored to take over Ketchie, a third-
generation, full-service, precision machine shop located in
Concord, NC.
Ketchie was established in 1947 to fill the gap of the
local textile industry after World War II. We have been a
pillar in Concord for nearly 80 years, providing strong
manufacturing jobs and giving back to our community. Our
mission is to support the U.S. manufacturing supply chain by
delivering reliable, high-quality machine parts to our
customers. We invest in equipment, technology, and most
importantly people, to make it easy for our customers to focus
on what they do best and have confidence in their manufacturing
supply chain. My testimony will focus around one main theme
today, and I hope if members take away anything from me, it is
this.
Manufacturing is a team sport. A team can only reach
greatness if every player is operating at their full potential.
If not, the team falls apart. At the core of any sport are
clear, sensible rules that do not unfairly handicap any
players. The rules must be consistent, rather than constantly
changing, so that the game does not devolve into chaos.
In this context, the rules of the game are the U.S. tax
code. The 2017 Tax Cuts and Jobs Act was revolutionary for the
manufacturing sector. After it was signed into law, Ketchie
experienced its best year in our 7-decade history. I know
others further up in my supply chain were booming as well. I
clearly remember our typically organized shop floor covered in
pallets of material in every available space to keep up with
our customers' demands. We were able to invest more than $1
million in capital and equipment and create several new jobs
within Ketchie in 2018.
While Ketchie experienced a significant increase in sales,
every day is a battle. When we want to win, the only choice is
to pour profits back into your team. We made major investments
in capital equipment. We were able to purchase advanced
robotics. We invested in new HVAC systems for our facilities,
and in new security systems for our team members. What I am
most proud of is that we were able to provide 100 percent of
our Ketchie team with pay raises and quarterly bonuses in the
years following TCJA. Our team members were buying their
families' first homes and first cars. We were making a true
difference in the lives of those who had dedicated themselves
to our mission.
Of course, our growth trajectory was disrupted during the
COVID-19 pandemic, like the rest of the world. However, thanks
to TCJA's impact in 2018 and 2019, we were able to withstand
the shutdowns and supply disruptions in 2020. Even as some of
our customers went out of business and others were unable to
pay open invoices, we were able to survive.
Ketchie might not be here today if we did not have the
economic boom provided by tax reform in the years prior to the
pandemic. Unfortunately, beginning in 2022, the rules of the
game began to change, making it more difficult for
manufacturers to thrive in America. Crucial policies began to
expire, such as immediate R&D expensing, enhanced interest
deductibility, and full expensing. These tax policies were a
game-changer for the manufacturing industry. They certainly
were for Ketchie. Manufacturers need members of this committee
to restore these policies and ensure small manufacturers can
compete here and in the global economy.
More tax increases are on the way. Other critical
provisions expire at the end of 2025, which will have a direct
impact on the manufacturing sector. Ketchie will be directly
harmed by the loss of the pass-through deduction, the increase
in our tax rates, and the reduced protection from the estate
tax. If Congress does not act both now and in 2025,
manufacturers will be competing with one hand tied behind our
back for the foreseeable future.
Manufacturers across the country made a promise to take tax
reform's progrowth provisions and ensure they had a direct,
positive impact on American lives. We have kept our promise,
and I hope Congress will allow us to continue to do so even
more. Manufacturing truly is a team sport, and you all are on
our team. Small companies like mine are depending upon you to
play with us rather than against us, and to ensure our U.S. tax
code does the same.
Thank you.
[The prepared statement of Ms. Silver appears in the
appendix.]
The Chairman. Well said. We are going to be playing with
you very hard over the next few weeks to get done what we can
get done now, and then we will have a big debate in 2025. Thank
you.
Mr. Huntsman, again welcome, and we will talk mental health
another time.
STATEMENT OF PETER R. HUNTSMAN, CHAIRMAN, PRESIDENT, AND CHIEF
EXECUTIVE OFFICER, HUNTSMAN CORPORATION, THE WOODLANDS, TX
Mr. Huntsman. Thank you very much, Chairman Wyden. And I
know my father greatly appreciated his work with you,
particularly his friendship with you.
Ranking Member Crapo, members of the committee, my name is
Peter Huntsman, and I'm chairman, president, and chief
executive officer of Huntsman Corporation. Over 40 years ago, I
worked as a Senate intern for Orrin Hatch. The idea that I am
testifying before his former committee is nearly inconceivable
to me. If there is one conclusion I would like members of this
committee to come away with from my testimony, it is this:
American manufacturing dominance, prosperity, security, and
power are based predominantly on access to cheap, abundant, and
reliable energy, primarily in the form of hydrocarbons. Without
it, our way of life is simply not possible.
My father started his life in an Idaho home with no indoor
plumbing. He founded Huntsman and built a global chemical
company with billions in revenue, operations in dozens of
countries, and thousands of associates. He is a quintessential
American story. I started my career as a truck driver. Over my
life, I have witnessed boom and bust business cycles, multiple
iterations of peak oil and the collapse of the Soviet Union,
the reunification of Europe, the rise of China, the growth of
the Internet, and the transformational impact of hydraulic
fracturing, among other things. I have also observed the tax
policy and regulatory environment around the chemical sector as
it has ebbed and flowed across Democratic and Republican
administrations and Congresses. Our company and the chemical
industry have played a role in it all.
In the chemical industry, we take atoms and molecules, we
break them apart and put them back together to make the
building blocks of virtually everything you see and touch in
modern life: automobiles and trucks, airplanes, mineral
refining, batteries, building and insulation materials,
pharmaceuticals, semiconductors and computers, solar panels,
wind turbines, clean drinking water, to just name a few. The
most utilized starting atoms, or ``feedstocks,'' for chemical
manufacturing are hydrocarbons derived from natural gas and
petroleum. Without abundant access to these fossil fuel
feedstocks, we cannot make chemicals. We know the biggest
threat to American manufacturing is the belief that we can
choose not to extract our natural resources.
Even if we could transition tomorrow to a fossil fuel-free
energy grid, we cannot transition away from fossil fuels as a
feedstock for chemical and manufacturing production. It is the
chemical sector that develops the molecules that allow us to
lower our emissions. If the goal of government and business is
to reduce greenhouse gas emissions, tax policy should be
calibrated to increase production of the very chemicals and
materials needed to reduce energy consumption.
MDI made by Huntsman is a great example of this. MDI is
used to make spray foam insulation. This building material
reduces energy consumption by as much as 50 percent. Huntsman
was pleased to work with Senators Hassan and Collins on
legislation that updated the Energy Efficient Home Improvement
Tax Credit to be sure we capture the energy conservation
benefits of spray foam.
Increased adoption of EVs in the United States will
increase our Nation's dependence on China, unless the U.S.
Government enables a massive domestic expansion of mining and
chemical refining. For most parts of the EV battery supply
chain, China is the dominant global producer. American
companies have little hope of competing against lower-cost
Chinese labor, Chinese coal-based manufacturing, and Chinese
pricing. Huntsman has experienced this phenomenon firsthand.
Huntsman is the only North American producer of ethylene
carbonate, a chemical that is so critical to the production of
electrolytes that you cannot make an EV battery without it.
In 2021, Huntsman made the decision to invest $50 million
to increase our U.S. production capacity by 530 percent to meet
the projected needs of the U.S. EV battery business. However,
following passage of the IRA, Chinese producers slashed their
price for EC, ethylene carbonate, by 75 percent, a level far
below Huntsman's cost of production. Huntsman simply cannot
compete with the Chinese under these circumstances, and I
recently made the painful decision to suspend work on this
expansion.
Reductions in energy consumption, a robust manufacturing
industry, and secure supply chains in the U.S. can be achieved
only if America has a thriving chemical industry. America needs
policies that recognize and promote our industry.
I look forward to your questions. Thank you.
[The prepared statement of Mr. Huntsman appears in the
appendix.]
The Chairman. Thanks very much, Mr. Huntsman. All of you
have been very helpful, and I am going to start with taxes.
Now the tax bill that is being considered is a bill that
was written by the House Republican Chair of the Ways and Means
Committee, Jason Smith, and myself. So, this Smith-Wyden bill
had a number of key provisions, helping 16 million kids trying
to figure out how they were going to get shoes and school
clothes and all that kind of thing, and then it was going to be
paired with the important business incentives. Right at the
center of that was the research and development tax break.
It was the feeling of members that to compete with China,
which gives such generous incentives for research and
development, we could not walk away from research ourselves.
But that was what was done in the Republican tax bill in 2017:
that research and development incentive was stripped. Ever
since then, I can tell our panel, I have heard virtually every
Senator and most members of Congress, whether they are
Democrats or Republicans, say, ``I am going to get that fixed
at the first possible opportunity.'' That first possible
opportunity has now arrived. Three hundred fifty-seven members
of the House of Representatives have voted for that, 16 million
kids getting help, important assistance for housing, and we are
pulling out all the stops to get that done here.
So my question to our witnesses today--you really sort of
started it, Ms. Silver--is what the effect of postponing this
tax bill would mean for all of you. Mr. Widmar, what kind of
damage would be done to domestic manufacturers if the Senate
punts on the passage of the provisions in the Smith-Wyden tax
bill?
Mr. Widmar. Yes. First and foremost, we are somewhat on an
island of our own. We are a U.S. company that has to go up
against China, Inc. All of our competition is outside of the
U.S. and headquartered in China. We need to out-innovate. So,
the only way we are going to be successful is by being a
technology leader.
We are in the process right now of making a $400-million
investment in a research and development center in Ohio. We
will be spending about $200 to $250 million a year on R&D. If
we are not able to out-innovate, we will not be able to survive
the onslaught that we are facing today.
This bill is critical from that standpoint, as it relates
to R&D and the opportunity for expensing the R&D versus
deferring R&D. But it is also very critical to the bonus
depreciation that is enabling a lot of the factory expansions
that we are making right now.
So, outside of the R&D centers, we are putting another 2-
plus million dollars into new factories here in the U.S. So
this bill is critical, that this gets addressed.
The Chairman. And putting everything off just generates
more uncertainty and delay?
Mr. Widmar. Delay and loss of thousands of jobs.
The Chairman. Thousands of jobs--thousands of jobs being on
the line with getting this done now. Thank you.
Ms. Fendley?
Ms. Fendley. First, I would like to acknowledge the work
that you have done to negotiate that. The ability of
manufacturers to innovate, as Mr. Widmar said, is so important
to global competitiveness, and our fear is that, without
appropriate tax incentives to do that, companies will stand
still for too long, and that harms their global
competitiveness.
I also just want to mention the importance of the Child Tax
Credit for working families. This is a really critical piece of
this legislation. Our union would support a bolstering to what
was included in the American Rescue Plan, but we do strongly
encourage the Senate to begin debate on this.
The Chairman. You are absolutely right. And Chairman Smith,
to his credit, as we worked in a bipartisan way--a Republican
and a Democrat--also made the point that having those
opportunities for the kids puts them in a better position to be
healthy and become the workers that you are all talking about
here today. So there really is a link between healthy kids and
a healthy job base.
Ms. Janis?
Ms. Janis. Right now, the OECD says that the U.S. now ranks
30 out of 37 for research and development incentives among the
advanced world economies. If the R&D tax deduction is not
restored quickly, R&D will shift to elsewhere in Europe, Asia,
and even the other USMCA nations. I recognize that budgets are
tight; however, restoration of this immediate expensing is
imperative to innovation. I would encourage the committee to
advance this legislation, the 174 immediate expensing, and if I
may also request, to go for its permanency, in order to provide
assurance to businesses and stabilization.
The Chairman. That may be too logical for everybody in
Congress right now, but I am glad to hear that is the voice of
Oregon. Thank you, and well said.
Ms. Silver?
Ms. Silver. Not taking action now has a huge impact on
Ketchie and the entire manufacturing sector. In fact, I am
delaying an investment in capital equipment and technology
because of it, and it means less job creation.
The Chairman. Tell me a little bit about the project you
are delaying on right now with the uncertainty.
Ms. Silver. Sure. Well, due to the change in bonus
depreciation dropping to 60 percent, it is actually something I
think about every day when I walk on my shop floor. I have a
very large area on my shop floor that is empty, and I have a
crane there, I have air, I have electrical. I know the piece of
machining technology that I would like to invest in. This piece
of machining equipment and technology would decrease our lead
times. It would increase our productivity. It would get us into
new markets that we are not currently in, and it would create
jobs--highly skilled, highly paid jobs in machining.
So, due to the bonus depreciation dropping to 60 percent,
that changes my return-on-investment calculation, and it feels
like an irresponsible business decision, and it feels too
risky. It is honestly an awful feeling. It is a roadblock to
achieving our mission.
My customers are large manufacturers all across our
country, and they need to have confidence in their domestic
supply chain so they can focus on what they do best. In order
for them to have that, I have to be able to invest in machines.
I have to be able to invest in our people and invest in
processes.
The Chairman. Mr. Huntsman--and I am over my time.
Mr. Huntsman. Chairman Wyden, I will not repeat what has
already been said here. I would just note the company spends
roughly $150 million a year. We do not invest 1 year at a time.
We invest over a horizon of 20-30 years at a time when we build
facilities.
So, what Ms. Janis said earlier about making this permanent
would be incredibly helpful. It would also be very helpful if
the government and the regulatory body, particularly around the
EPA--and the Senate worked very hard to pass TSCA, which gives
the EPA 90 days to approve all the work that comes out of our
R&D facilities. We are now waiting in some cases up to 3 to 4
years to have our technical innovation, and the progress that
we make in chemistry, approved so that we can manufacture. So
it would be great if we could make it permanent; it would be
great if the regulatory bodies could also be supporting us as
well.
The Chairman. All right.
Senator Crapo?
Senator Crapo. Well, thank you very much, and let me at the
outset say I agree completely with--in fact, I do not know that
there is a stronger advocate in Congress for extending and
making permanent the three expired or expiring TCJA provisions
that have been referred to here: the R&D tax credit, the bonus
depreciation, and the interest deduction. My hope is that we
can get there sooner rather than later. There are, as everybody
knows, some concerns on the Republican Senate side with regard
to other provisions in the bill. And my hope is that the
Republican Senate can have its voice, we will be able to deal
with it, and get something resolved quickly.
It is a difficult time, and as with almost every single
issue in this Congress today, there are difficult battles to
deal with. That being said, I do not disagree with the
testimony of any one of you. In fact, you are all giving great
examples of why those three provisions of the TCJA are so
critical.
I would like to go to you first with my question, Mr.
Huntsman. I understand, as the example you gave, your need in
your company to delay the opening of a new chemical facility
because of how the IRA is being implemented. Tell me if I have
this right. I understand that you were basically undercut by
Chinese price fixing, if you will, by the Chinese market, in
your effort to develop this new chemical--its name I cannot
repeat right now--and that the ability of the Chinese to simply
underbid you in the market caused you to have to stop the
production.
Is that a very first grade level of explaining what
happened?
Mr. Huntsman. Yes. Well, this product, ethylene carbonate,
is one of the raw materials on a chain. Look, there were
positive things in the IRA, obviously, that came out. One of
the areas of concern with us is that the Treasury Department
recently came out and said that a number of products that China
produces will be exempt when we talk about things that are made
in America.
I think if you would write down this rule right here, we
would all agree that when it says ``made in America'' that
ought to be the entire supply chain too. It ought not just be a
bunch of products that come in from around the world and the
final assembly is made in America, but that entire supply chain
is made in America. With a product like ethylene carbonate,
that was a product that we were hoping the Treasury Department
would define that way and look at as a product that should be
made in America. When there are other products like graphite
and so forth--we do not make any of that in the United States,
but we need to build those industries; we need to be given
incentives. So this is a product that we hope the Treasury
Department, hopefully in due course, will see fit that we ought
to have as a domestic component. And when the Chinese undercut
prices like this--this is usually just on a temporary basis--
this discouraged hundreds of millions of dollars of future
investment not just by Huntsman, but other producers as well,
for other companies to come in and eventually produce these
products.
Senator Crapo. So, thank you. You have explained it very
well, and I want to be sure that we make this point. The
solution to stopping your particular crisis with the Chinese
undercutting your prices could be fixed regulatorily by the
United States Treasury Department in its regulatory actions. Am
I correct?
Mr. Huntsman. Yes, sir.
Senator Crapo. So this is a situation in which our
interpretation of, or our implementation of, the IRA has not
been effective enough to get us to the point where our American
producers can have a balanced playing field against the
Chinese?
Mr. Huntsman. As it pertains to this product, yes, sir.
Senator Crapo. Yes; and I assume that there are a lot of
other products that are on that same list, that would like to
be getting into the designation of being an American-made
product?
Mr. Huntsman. Assuming that we are allowed to produce those
products on a competitive playing field, yes, sir.
Senator Crapo. All right. Thank you very much.
The Chairman. Senator Lankford, you are next.
Senator Lankford. Mr. Chairman, thank you. Thanks for the
hearing and pulling this topic together. You all, thanks for
the testimony as well, and to be able to bring these things
together.
We do need to get permanency in the tax code. What we are
discussing currently right now is a temporary fix, but we need
to get some permanency to our tax code, so it is predictable. I
heard a number of you say basically, get the tax code set and
leave it alone. Make it business-friendly so we can actually
hire people, buy equipment, do those things and be able to set
it.
I have the ALIGN Act that deals with the bonus
depreciation, to try to make this permanent so it is
predictable. This has been bipartisan in the past. Every year
since 2000, we have had some kind of bonus depreciation except
for 2007. This has not been a partisan issue for us. It is a
basic progrowth policy in our tax policy, and I would like to
be able to get it set and to be able to leave it there.
Ms. Silver, you mentioned a lot about this bonus
depreciation piece and some of the investment--obviously, a big
gap in your shop floor right now waiting on a piece of
equipment to be able to come. Talk about the difference between
if we--60 percent now, as you mentioned before, but just
scratch that. If we just set it and just leave it alone--
obviously north of 60 percent, because that is not the tax
piece that you need at this point--what is it on the permanency
that makes a difference? Because there is some conversation to
say the bonus depreciation should just come in in times of
economic downturn, and not be normal, standard policy.
Should this just be made permanent, or is it better when it
is just in an economic downturn, to turn it on and off ?
Ms. Silver. Definitely permanent. Planning, taking risks,
innovating, wanting to be here for the next 80 years, requires
a permanent, stable, consistent, common-sense tax code.
Senator Lankford. Great. It's what we all expected to be
able to hear, and it is what I think we need to have. And
obviously next year, as we sit down and talk through a lot of
the tax issues as well, we've got to find a way to be able to
move this from, over the next 2 years it has this, to as far as
the eye can see, to be able to get this set so that we know
what policy we are actually going toward and where we are
headed on this.
Some of the challenges that we have had have been on
hydrocarbons, Mr. Huntsman, as you have brought up as well. It
is remarkable to me to be able to sit in this room at times and
to be able to hear a conversation about ending drilling or
ending hydrocarbons, and I sit in this room and think ``the
carpet is made of hydrocarbons.'' That little sign right there
is made of hydrocarbons. This chair is made of hydrocarbons.
This bottle is made of hydrocarbons, and the belief that at
some point we are going to just turn all that off and that is
going to work out well for our economy is just factually not
true, based on what is happening both in chemical production
and in energy production, trying to keep the costs down.
What we have seen is a rise in cost in hydrocarbons right
now that is unnecessary in some ways. And the IRA, when it came
out, specifically targeted oil and gas production, to be able
to target them, to raise their taxes significantly. Every one
of you can deduct your everyday expenses. Every one of you can
deduct your everyday expenses, unless you are an oil and gas
producer. And now you cannot do that anymore. So that
particular type of manufacturing was pulled out and punished in
the tax code, in the IRA, and the result that we have seen is
higher prices now for oil and gas. It means higher prices for
manufacturing, higher prices for the consumers.
So the challenge that we have is how to be able to actually
protect those mid-size businesses, so that they do not have to
deal with higher tax burdens as well. The Protecting Domestic
Energy Act is an act that I have on this.
I have a letter, Mr. Chairman, I would like to be able to
enter into the record. This comes in from the American
Exploration and Production Council and Domestic Energy
Production Alliance, what we know affectionately as AXPC and
DEPA. Those organizations are saying, hey, we need to find some
way to be able to not just deal with the tax code for this
manufacturer, but for all manufacturers, and actually have
fairness in the tax code as well, so that they are not
specifically targeted.
The Chairman. Without objection.
[The letter appears in the appendix beginning on p. 90.]
Senator Lankford. So my question on this is, when we start
dealing with the issue of hydrocarbons and start to deal with
all of the challenges that you have dealing with China, and
what Senator Crapo was saying as well, all the issues about
antidumping--and I want to drill down a little bit on that with
you, Mr. Huntsman.
How difficult is it to make a charge on dumping on a trade
charge, as far as the legal fees, the challenges of it--to say
not only is our own Treasury allowing an exception for a
Chinese company which drives American manufacturing out, but if
you wanted to make an antidumping charge on China, how
technically difficult is that, and is that something this
committee, which also has a responsibility for trade, needs to
take on?
Mr. Huntsman. In the 30 years that I have been president of
this company, I do not think we have ever initiated an
antidumping charge, not because it does not occur. It is just
too long, too complicated, and you rarely ever see it through
to fruition. It would be great if we could somehow just
streamline that process and come to a conclusion quicker. We
are not asking that justice be more on our side or anybody
else's side; just make it where you can come to a conclusion
quicker.
Senator Lankford. Yes. I have heard that over and over
again; steel, for instance, and all kinds of manufacturing to
say, we know the dumping is happening, but it is too
complicated, too expensive, takes too long to be able to do it,
so we just shut down manufacturing rather than actually charge
antidumping. And the American consumer and American businesses
and jobs continue to get hurt.
Mr. Chairman, I know this is a tax conversation, but this
issue on trade is exceptionally important for this committee to
take on as well.
The Chairman. You got me at ``hello'' on the whole issue of
streamlining the dumping rules, because we hear this in sector
after sector. So, message sent.
All right. Let's see. Senator Casey, you are here by your
lonesome. We are glad you are here, Mr. Manufacturing.
Senator Casey. Mr. Chairman, thanks very much, and thanks
for calling this hearing. I want to thank you and the ranking
member. I want to thank our witnesses for being here. I will
direct my questions probably to only two of our witnesses.
But I wanted to start with the recent record. It is really
a remarkable record of job creation, especially manufacturing
job creation. The years 2021, 2022, 2023 each had more job
growth than any year since the 1990s. According to the Federal
Reserve, private companies are currently investing a record
$225 billion to build and refit new manufacturing plants.
That is three times the manufacturing investment we saw
before the pandemic. So that is why we are glad to be with the
manufacturers in front of us here, as well as the Steelworkers,
to talk about what you are investing in America and also
expanding America's productive capacity.
Mr. Widmar, I will start with you. You testified about
First Solar's ``uniquely domestic supply chain.'' Can you tell
us what are the advantages of having an American supply chain?
Mr. Widmar. Yes. For me, it all comes back down to
certainty and integrity of your counterparties, to deliver
against obligations and commitments. We are making investments
that are multiyear investments that go out really toward the
end of this decade. And I need to have counterparties and
partners who can grow and can scale with me, that I know are
going to be there at the time that I start to ramp up a new
factory.
My supply chain is just instrumental to the success of our
company long-term. Trying to have a supply chain for our
manufacturing operations in the U.S. that is offshore or in
Southeast Asia or even China just opens you up to too much risk
and exposure.
We saw that through the pandemic and the disruption in
ocean freight, the cost associated with it, and we have seen it
more recently with what is going on in the Red Sea. I make a
product that comes off a production line about every 1 second
somewhere in the world, most of that being here in the U.S.
I produce 24-7, 365. I need a supply chain that can be
there with us to grow. If my glass supplier does not meet their
delivery commitment, I cannot run my factory. If my junction
box supplier does not meet their commitment, I cannot run my
factory.
So, having a supply chain that is close, that we can rely
on, have certainty around, has been instrumental to our long-
term success, and it translates into success in our
relationship with our customers. We have a very unique approach
compared to our competition, which we refer to as ``responsible
solder.''
We have a circular economy approach to what we do. We
recycle everything that we make. Over 90-plus percent of the
content is recycled and reused, and having supply chain
partners that can work with you to evolve your value
proposition into the marketplace has been very important for
us, and we have been very successful with selling out multiple
years of demand right now.
Senator Casey. Well, that is good news, and I think a lot
of what you said is what we were contemplating when we were
putting together the Inflation Reduction Act. In that
legislation, I sponsored a domestic content bonus tax credit,
which rewards companies that have American supply chains. That
means that they manufacture their product in America, with
American materials and American workers, from start to finish.
In fact, First Solar will be buying, I am told, $2.6 billion
worth of high-tech glass from a Pennsylvania manufacturer, a
manufacturer that has locations in both Meadville and Carlisle.
And I wanted to ask you--or if you can tell me about the
effect that my domestic content bonus credit has had on your
business and your suppliers in Pennsylvania.
Mr. Widmar. So right now, with the current guidelines that
are out on domestic content, we started a journey in about
2018-2019 to localize our supply chain. Timing was obviously
very good, given how things have moved forward. But it was a
strategic thread along the lines that I referenced before, and
why we wanted a domestic supply chain.
In today's market right now, we are the only company under
the current guidelines that qualifies to have a domestic
product here in the U.S. All of the components that are
required in order to meet the requirements for domestic content
are sourced in the U.S. and are manufactured here in the U.S.
So, it translates directly into our ability to sell through
to our end customers, to give them the world's leading, best
technology, and for us then to contract to have multiyear
investments in contracts that go out now through 2028 and 2029.
Senator Casey. That's great.
Mr. Chairman, thanks. I will have questions for the record
for Ms. Fendley; but thank you.
The Chairman. Thank you, and thank you in particular,
Senator Casey, for all your contributions on the IRA, because I
know that was a difficult and challenging issue for many of
your communities, and I think we are getting it right. Those
are communities I have in timber and natural resources. So I am
glad to be in line with you on that, and thank you for your
work.
Okay. Senator Blackburn, you are next.
Senator Blackburn. Thank you, Mr. Chairman, and thank you
for the hearing on this. I want to talk a bit about
competitiveness, and as we have gone through the hearing this
morning, you have heard a little bit about that.
When I talk to Tennessee companies, this is what they talk
with me about, whether they are competitive domestically,
competitive in a global market. They talk about the inputs and
the cost of those inputs, the importance of taxes and tariffs
and how that plays into their pricing and therefore their
competitiveness. And let us go to Ms. Silver and Mr. Huntsman--
Ms. Silver first and then Mr. Huntsman--because I do want to
talk about the Tax Cuts and Jobs Act.
When I talk to Tennesseans, they talk about how they
benefited from that, and cutting that tax rate from 35 to 21
percent, and basically saying to businesses this is a good
place to invest and to grow your business. And then we hear the
President yesterday talk about hiking that corporate tax rate
to 28 percent, and then increasing the book minimum tax from 15
to 21 percent, which--as you can imagine, I heard immediately
from some of our manufacturers.
So, Ms. Silver first, and then Mr. Huntsman. Talk to me
about how the TCJA helped you to grow your business, how it
influenced the decisions that you make, and what would be the
consequences for raising that tax rate? Ms. Silver first.
Ms. Silver. Thank you for the question, Senator. So TCJA
provisions were--they were rocket fuel for us. We were able to
invest over a million dollars in capital equipment to create
jobs, give our team members quarterly bonuses, raises. It gave
us confidence, and not only confidence, but it gave us cash
flow. It gave us liquidity, which has especially proved to be
critical going into the unexpected years of the pandemic.
And a quick example of even just some of these tax
provisions that you mentioned: because of those TCJA tax
provisions, we were able to, a couple of years ago, invest in
our first collaborative robot. So this robot allows us to run a
machine during the day and after shift, with no one there.
And so, it decreases our lead time. It increases our
productivity, so much so I was able to pass along a cost
savings. I was able to reduce my customers' price on these
particular precision machine parts. This customer is a large
customer in the fluid motion control industry. So, we were able
to invest in our company due to good progrowth tax policies,
passing along these savings to our customers. They are able to
reduce their cost of goods sold, and then I still am making a
very healthy profit. So this is--it is a win-win for the entire
manufacturing supply chain.
Senator Blackburn. Good.
Mr. Huntsman?
Mr. Huntsman. Thank you very much. We were able to bring
over a billion dollars from offshore businesses back into the
United States. At least half of that went into projects over
the course of the last 5 years, capital projects to expand
production, to bring manufacturing into the domestic market
share. And for us, that has bolstered our R&D, where we have
been able to develop new technologies in the field of chemistry
to reduce waste, better recyclability, and so forth. So, as we
look at that entire supply chain for us, it has made the United
States now one of the most competitive areas in which we can
invest.
Senator Blackburn. Excellent.
Thank you, Mr. Chairman.
The Chairman. I thank my colleague.
Senator Warren is next; no, let me see. Senator Warren,
Senator Barrasso was here first, so Senator Barrasso is next,
then Senator Warren. And colleagues ought to know that we are
getting ready to wrap up.
Senator Barrasso?
Senator Barrasso. Thanks so much, Mr. Chairman. Mr.
Huntsman, good to see you again, and good to be with you. Thank
you, Mr. Chairman, for pulling all these folks together.
You know, conventional energy is at the heart of U.S.
manufacturing. Petrochemicals derived from oil and natural gas
help our Nation manufacture thousands of the everyday products
and the high-tech devices that people use every day. These
include plastics, clothing, digital devices, medical equipment,
pharmaceuticals, detergents, towels, and fertilizers to grow
our food.
So ironically, solar panels and wind turbines rely heavily
on oil and gas production. President Biden and many Democrat
colleagues in the Senate want to move us away from these
resources. They use the tax code as both a carrot and a stick
to make that happen. They throw up regulatory roadblocks to
stifle traditional energy production and refining, and you
mentioned this in your testimony. But I just don't think we can
hear it enough right now. What would it mean for U.S.
manufacturing if we continue to move away from oil, gas, coal
production, and is manufacturing even possible without the
production of those fossil fuels?
Mr. Huntsman. Thank you very much, Senator Barrasso. It is
very nice to see you as well.
Look, I have no problem moving away from fossil fuel, so
long as you can move me to something else, and the problem is,
there simply is no replacement, as I said in my prepared
remarks. Even if you were to go to a complete fossil-free
energy grid system, if we were to go to 100-percent nuclear,
you would still need these basic building blocks to produce all
the products that you have just said.
And then we talked about one of the greatest inflationary
pressures on society, particularly for those of low income. It
is the inflation that we see in these basic raw materials. We
simply pass these through. I should not say ``simply,'' because
we are still having to compete against foreign entities and so
forth.
But these higher costs--whether it is in taxation or
whether it is in raw materials--are just pass-throughs that go
on down, and they put the inflationary pressures, as we saw in
this morning's numbers. These are stubborn things to turn
around.
Senator Barrasso. Energy prices are certainly up, but also
food, groceries. I mean, the thing I hear about in Wyoming is
the cost of going to a grocery store, and it is much, much
higher than it was 3 years ago when this administration took
over.
Mr. Huntsman. Well, your cost of manufacturing food,
protecting food, cold storage of food, packaging of food,
transportation of food, that is all part of our supply chain,
where we produce the supply.
Senator Barrasso. I wanted to get to China if I could. As
we find opportunities to grow U.S. manufacturing, I think we
have to look at ways to limit China's influence in the United
States in terms of manufacturing, the impact on supply chains.
You know, the so-called Inflation Reduction Act, with the
help of the administration, I think favorably opened the door
for U.S. tax dollars to go to entities controlled by China. Our
energy and green manufacturing sectors are flooded with
expensive tax credits, and this tax and spending bill is
pushing us away from the fuels and the technologies that
America dominates.
Instead of pushing us toward the minerals and technologies
controlled by China, I think we ought to be focusing more on
what we do here in the United States. So, ``American Made'' is
the title of this hearing, but the products and technologies
that the Democrats are subsidizing are going to be put in with
components and materials that say on them ``Made in China.''
So my question to you is, what are some of the ways that
China benefits from this so-called Inflation Reduction Act, and
isn't that hurting us?
Mr. Huntsman. Well, many of the products that go into the
supply chain, the battery components and so forth, are exempt
or we do not have to say that they are made in China. We can
just say we do not produce them here, and they are going to be
part of that.
So, you look at Ford's recent earnings, and I do not have
the exact numbers--I think maybe somewhere between $50,000 and
$60,000 per car, per EV they produce. I can assure you that
China does not lose money on the battery components that they
are selling into that EV, everything from the cadmium to the
lithium to the cobalt and so forth, the manganese products that
we can be producing here domestically, ethylene carbonates and
so forth.
Those products are of great profit, and they continue to be
subsidized by Chinese coal and government subsidies. So, there
is that balancing where we either need to commit to that
production and those supply chains ourselves, incentivize and
admit that we need to get in there, or we need to let the
Chinese do it if we are going to have an EV fleet.
Senator Barrasso. And from what I have read from the
economists, for most traditional vehicles--you ask the average
person what percentage of the entire cost of the vehicle is the
battery. For electric vehicles, about half of the cost is the
batteries. Is that consistent with your findings?
Mr. Huntsman. Well, it certainly is the most technically
oriented and the part with the fewest raw material suppliers.
You do not go out and find 20 different suppliers of cobalt.
Usually you have one or two Chinese producers in these areas.
This is not something you go scour and you get in 15 different
suppliers around the world.
Senator Barrasso. Thank you.
Thank you, Mr. Chairman. My time has expired.
The Chairman. I thank my colleague. Senator Stabenow is
next, and I appreciate all my colleagues being patient. We have
people coming and going, and it is a little hectic, but I think
we can get to everybody.
Senator Stabenow's next.
Senator Stabenow. Well, thank you so much, Mr. Chairman. I
am glad I got in at the end of this conversation a little bit.
It is interesting to me as we transition, as a person who has
authored the Made in America Office that we now have and the
robust incentives for Buy America. We know that we do not yet
produce everything here; that's why we are scrambling so hard
to be able to get that done. When we passed the CHIPS Act, we
did not say you cannot--manufacturers or technology companies
and so on--buy any more chips overseas, you've got to wait 5
years until we get these fabrication plants up and going in the
United States.
We did not say that. We did not say that. It would have
been pretty dumb to say that, and instead what we are doing is
building the capacity here so we can bring those jobs home as
we continue. Now, the reason this is such a big fight is
because it is oil and gas on one side, who are frantically
trying to slow down EVs.
And so, that is the undercurrent that I see happening all
the time on this, as we transition to the technology and
batteries and other kinds of technology that are needed for
electrification of vehicles. And we will get there. In fact, in
the past 3 years under President Biden we have made incredible
progress in a whole range of clean energy areas, $649 billion--
with a ``b''--in new private-sector investment announcements
across an array of industries.
There is more to come, and we know we have nearly 15
million new jobs, including 800,000 new manufacturing jobs and
counting. We have about 350,000 new jobs in Michigan that we
are very excited about. When you make things, you say
``Michigan,'' and so we are very excited about that as well.
But this could not have come at a more important time,
because we are on the knife's edge of ceding an insurmountable
lead to China on advanced manufacturing. We know that, which is
why the strategy has been put in place with the infrastructure
law and CHIPS and Science, and most notably the Inflation
Reduction Act. That is what is going to allow us to make that
transition to own this technology. There is no reason we cannot
do that. We have smart businesses, smart workers creating the
technology, and we are in a position to retake our position as
global leaders.
And so, when we look at this--I mean, we are hearing people
talk about a domestic manufacturing renaissance, and I think we
are starting it. But it is a transition, just like any other
transitions to new technology.
Unfortunately, there are huge, very, very big wealthy
forces on the other side that do not want this to happen and
will continue to put out, what I view as disingenuous and many
times just plain false information, to try to slow this down as
much as possible.
Questions: one provision that is going to play a
particularly important role in putting America in the driver's
seat will be the clean energy manufacturing tax credit, 48C. I
first authored this in the 2009 Recovery Act. We have now
brought it back in our focus on this, and I think this is going
to be an important part of this.
Miss Fendley, I wanted, first of all, to thank you for the
United Steelworkers' support for this provision. You have been
very steadfast in supporting this and making things in America
and bringing jobs home. So I appreciate that. As we allocate
the decisions for the first round for 48C, Ms. Fendley, what
sort of impacts do you foresee this credit having in
communities across the country?
Ms. Fendley. Thank you for the question, and we are also
very glad that you have brought this credit back. Congress
allocated a tremendous amount of money to catalyze investment
in manufacturing jobs in communities across the country.
I think one of the most important things that Congress did
is allocate a portion of the funding directly to coal or energy
communities, where there is potential or already job loss that
has happened, so that we are reinvesting in these communities
through 48C and hopefully through follow-on private investment,
to really rebuild some of those local economies.
Senator Stabenow. Great. Thank you very much, and let me
ask a question on the domestic content bonus. Solar is one area
where we have a lot of catching up to do in the United States
as a global leader. As it stands right now, Chinese-
headquartered companies now make up 99 percent of the world's
solar wafer and 80 percent of the world's polysilicon
production to core components that make up half the cost of
solar panels. But we also are in a position to be able to take
that back. So I sent a letter along with many colleagues,
asking Treasury to ensure that solar polysilicon and wafer
manufacturing are both counted in the IRA's domestic content
bonus rules.
Mr. Widmar, if you could--I know I am out of time here, but
how important is it that the administration get the
implementation of this right as we go forward?
Mr. Widmar. I think it is absolutely critical, and I
obviously applaud you and some of the other Senators for
proposing the legislation that would actually require the wafer
to be included in as part of the definition of domestic
content. The intent of the IRA, as well as for the domestic
content, was to enable a domestic industry, a domestic value
chain.
You have to then associate value to those various
components, and where there is technology differentiation or
there is high value-added manufacturing, to simply allocate
domestic content criteria benefits to module assembly does
nothing for us. I think Mr. Huntsman made a very similar
comment about that earlier on as well.
We need to enable cycles of innovation and technology here
in the U.S. It is no secret--and it should not surprise anyone
here--China does not want the U.S. to have its own domestic
capabilities. We not only manufacture here in the U.S., we
actually manufacture in other markets internationally, such as
India. India has put in similar policies, and China is trying
to disrupt that.
That is why there is such a global oversupply right now.
They are trying to usurp the opportunities that countries like
the U.S. are trying to create with domestic capabilities. We
have to avoid that at all costs, and we have to make sure there
is value created to the technology, and the domestic content
has to be associated with that.
Senator Stabenow. Thank you.
And as I close, Mr. Chairman, I just want to put in a
plug--you already talked about the Wyden-Smith tax bill. The
research in there is so important, the R&D tax credit is so, so
important to this discussion. Thank you.
The Chairman. Thank you.
Senator Carper is next.
Senator Carper. Thanks. Thanks, Mr. Chairman. Thanks for
putting this together. To each of our witnesses, good morning.
Thanks for joining us today and for sharing your thoughts and
responding to our questions.
Manufacturing is one of the largest sectors in Delaware's
economy. We are big in tourism, big in agriculture, big in
biopharmaceuticals. We are also a growing presence in
manufacturing jobs, which is a good thing. We are a small
State, but just, I think, the last couple of years we added
about 2,000 new manufacturing jobs, all of them welcome, and we
are excited about that.
In Delaware and across our country, clean energy has been
at the forefront of the manufacturing boom, as you know. As we
know, without the right incentives to help American companies
scale their production, demand for these clean energy
technologies will go to the lowest-cost producers in China.
I have a question for Mr. Widmar. We do not mean to pick on
you, but you showed up, so we are going to take this
opportunity. But can you just explain for us how the Inflation
Reduction Act has provided certainty for your business and
strengthened domestic supply chains in the solar industry?
Mr. Widmar. Yes. I think this is what is so important about
the Inflation Reduction Act, that it is the first time it
actually gave a view of a runway, a certainty around a policy
environment that would go out 10 years effectively, right, to
the early 2030s. It also created an opportunity to enable and
create a value to all participants in the industry. So, whether
you are the developer of a project, whether you are the
manufacturer of the technology, whether you are the owner of
the generated asset, there is value for everyone that we all
could align to.
It was the first time there has ever been that type of
industry approach and overall alignment so that we can now work
collectively and collaboratively together for success. So it
created a long-term vision, it created the alignment, and then
it enabled the investments that needed to be made. So, if you
think about it, one of the key opportunities on policy has to
be around industrial policy, which the IRA did. It gave us a
very strong industrial policy and gave us a very strong demand
profile. So the manufacturing tax credit was very enabling of
an industrial policy, and a production tax credit with bonus
adders for domestic content and the like addresses the demand
side of the equation, which were two fundamental enablers of a
policy environment that people could move forward to.
And then we have added--a lot of new capacity has come into
the U.S. We personally have doubled our manufacturing here in
the U.S. because of the IRA. We have a local supply chain, so
100 percent of our materials are sourced locally. So we
actually then enabled our suppliers in turn to grow.
And as we indicated in our prepared remarks, if you go
through and you look at the economic impact of what we as one
company are doing as the result of IRA, it is creating 30,000
direct, indirect, and induced jobs here in the U.S. That will
be about $2.8 billion of annual payroll. I do not know of any
other policy that can have that direct of an impact around U.S.
manufacturing, innovation, and jobs.
Senator Carper. Thanks for your comments. As we know, there
are a lot of factors that determine whether or not businesses
are going to be successful or not. One of the things that is
most important is certainly predictability, and I am reminded
of that almost every day in the work that we do here.
Over, I think the last 15 or so years, Delaware has
positioned itself as a leader in our country's hydrogen and
fuel cell manufacturing economy. We are not alone in that
regard. In order to sustain this growing industry, we need to
extend the traditional fuel cell investment tax credit until
green hydrogen is available at scale. I have introduced
bipartisan, bicameral legislation to do just that, and I wanted
to thank and express my appreciation to our fellow committee
members, Senator Brown and Senator Tillis, for joining me, and
my lead sponsor, Senator Lindsey Graham.
We look forward to continue working with Chairman Wyden. We
look forward to working with Ranking Member Crapo and the rest
of our colleagues to find a path forward to extend this
critical tax credit.
With that, I thank you, and bid you ``adieu.''
The Chairman. I thank my colleague.
Senator Tillis is next.
Senator Tillis. Sorry, Mr. Chair. I thought it was Senator
Johnson.
Senator Johnson. That's what I thought too.
The Chairman. You know something? You are right. Senator
Johnson is next. My apologies.
Senator Johnson. Thank you, Mr. Chairman. You know, I just
came from a Budget hearing where the President is presenting a
$7.3-trillion-a-year budget. This is $3 trillion more than the
$4.4 trillion we spent in 2019. Astounding. There is not 1
year, projecting out 10 years, where the deficit is less than
$1.5 trillion.
So, we are talking about the tax code, and a quick question
for all the witnesses, just a quick ``yes'' or ``no.'' Do you
think our current tax code is simple and rational? Mr. Widmar?
Mr. Widmar. That is a dangerous question, but I will say
``no.''
Senator Johnson. Ms. Fendley?
Ms. Fendley. I would agree. It is challenging.
Senator Johnson. Ms. Janis?
Ms. Janis. I would have to agree. It is extremely complex.
Senator Johnson. Ms. Silver?
Ms. Silver. No.
Senator Johnson. Mr. Huntsman?
Mr. Huntsman. No.
Senator Johnson. So I ran a manufacturing plant for 30
years. I have made investment decisions and invested millions
of dollars in plant and equipment, and from my standpoint the
thing that was most annoying, other than the regulation--
overregulation--was the complexity of the tax code. I never
made an investment decision based on tax treatment, quite
honestly. I mean, when you get right down to the nub, I suppose
you can take a look at the ROI and determine, well, if I get
this deduction now, it is going to put me over that limit. But
generally, I was responding to supply and demand, and looking
ahead.
As a student, I took accounting and got an accounting
degree. And I remember a tax course where one of the tax
principles was wherewithal to pay. So I guess the point I am
trying to make in this questioning is, rather than arguing over
these different treatments economically engineered through the
tax code--I think we do a terrible job of it, because it comes
and goes, it creates a high level of uncertainty.
What I am proposing is, why don't we, rather than reform
our tax code--all change is not progress, all movement is not
forward--why aren't we talking about simplifying and
rationalizing it? Wouldn't that be a better way to approach
this thing, to take a look at this goal: what is a simple way
of taxing American business?
I would suggest a really simple way would be to consider
cash income taxable income. Then you would not have all these
issues of R&D tax credits and accelerated depreciation. And by
the way, it would just be a timing difference, correct? Mr.
Huntsman, you obviously operate on a global scale. Don't you
think that would be a rational approach here: simplify the tax
code, let us tax cash income, and get rid of all this crap? I
would just like your comment on it.
Mr. Huntsman. You are getting me kind of just a little bit
off kilter here. It sounds--it sounds reasonable. Yes, it does.
Senator Johnson. Oh, it is very reasonable.
Mr. Huntsman. Okay. I, without having studied----
Senator Johnson. It is also very doable.
Mr. Huntsman. Without having studied it, yes. Yes, sir.
Senator Johnson. But we don't do it because all of a sudden
you don't have lobbyists coming here every year and having to
lobby for this tax treatment or the other tax treatment. You
know, I think it is remarkable--and again, I was not a really
big fan of the tax act in 2017, 2018. I had to dig my heels in,
because all we were going to do was cut income taxes for the
top 5 percent of C corps. You know, great for the C corps.
Really bad for pass-throughs who have to compete with that. So
I dug my heels in. In the end, I voted for it.
But what is not widely known is--because we did not know it
at the time--what the effective tax rate of C corps was in 2017
and 2018. It was 21 percent, for both large and small C corps.
Now, after the tax act, for large corporations the effective
rate is 10 percent. For small corporations, C corps, it is 14
percent. So in that act, we actually created disparity between
large corporations and small corporations. I do not like that
fact. Plus, with the pass-through provisions expiring in 2026,
now we are going to have an enormous disparity between the top
5 percent of C corps versus the other 95 percent of businesses.
So I guess my appeal to this committee is, let's take a
look at what we need to do in 2026. Let's simplify and
rationalize our tax code. You know, income is income. You need
wherewithal to pay. So let's just tax cash income, and then we
do not have to worry about all these provisions. We will not
have all these lobbyists coming in here begging for a
continuation and totally screwing up their business models.
Yes, I completely agree with the fact that with all these
things being temporary, it is very hard to make business
decisions if you do not know what your tax treatment is going
to be. So that is basically my pitch. I would like all of you
to consider it, and I would certainly like the chairman and the
ranking member to consider what I have been proposing.
Thank you.
The Chairman. Thank you.
Senator Bennet, you are next.
Senator Bennet. Thank you. Thank you, Mr. Chairman. I would
like to thank the panel for being here, and thank you for
holding this hearing.
My first question is for Anna Fendley and for Mark Widmar.
Thank you for being here. With the IRA, we passed the most
significant climate legislation that any country on the planet
has passed, and because of that bill, the United States is
better positioned than any country in the world, I think, to
lead the global transition in energy. The IRA incentives will
help us deploy a lot more solar, a lot more wind and battery
projects, and help us add three times the amount of clean
energy to the grid by 2030. That is all good news from
Colorado's perspective. Those incentives were also designed to
help us ensure clean energy supply chains so we can begin to
wean ourselves off products from China and other countries
around the world, something the American people want us to do.
Last summer, I visited Pueblo, CO, which was once the steel
capital of the West, and it powered our State; it powered our
country for decades. That community has long felt ignored by
Washington for good reason. It felt stymied by our inability to
actually invest at home in our own industries until now. In
Pueblo, I visited CS Wind, which is now the world's largest
wind tower production facility. The facility is expanding to
double its input, and the chairman of CS Wind told us that this
expansion, Mr. Chairman, would not have happened without the
tax credits that we passed in the IRA. As a result, the company
will create 850 new jobs in Pueblo, jobs that pay a good wage--
a really good wage--and equip workers with the skills for the
21st-century economy.
Because of the legislation we passed, for the first time in
a long time, we are actually outcompeting the rest of the
world. We are showing the world what it looks like when America
actually invests in America again.
So, Ms. Fendley and Mr. Widmar, could you speak a little
bit about how these clean energy manufacturing tax credits, not
only for wind but for solar and for batteries, will continue to
drive clean energy deployment, create good-paying jobs, and
spur new investments in communities around the economy? How are
these provisions in the IRA helping us to compete with China?
You can fight it out. No, I was just kidding.
Ms. Fendley. Well, I will pick up on your question about
China. It has been a conversation by most of the witnesses here
today, and I think China has had a long-term industrial
strategy on many of these technologies that you are talking
about. The Inflation Reduction Act, along with the CHIPS bill,
along with pieces of the Bipartisan Infrastructure Law, are
industrial policy for the U.S. They are providing some long-
term policies that manufacturers can take some certainty from,
that will help us build and deploy here in the U.S. and,
hopefully, export to the rest of the world.
Mr. Widmar. Yes. As it relates to growth and adoption of
solar, it has been a significant catalyst. You know, some of us
were meeting with a handful of customers a week or so ago, and
one of our key partners, who is developing about 10 gigawatts
of solar across the U.S., said he had no issue right now with,
he referred to it as ``customer acquisition.''
There is a tremendous amount of demand right now. It is a
matter of how to best serve that, or what are the constraints
that we are dealing with right now in order to address the
underlying market demand? There are issues like grid capacity
or transformers. Certain equipment today is a little bit more
challenging in order to meet the requirements of the build
schedules that we are starting to see, so those are becoming
some challenges.
So, the catalyst in the market is strong. The other
challenge, I would say, is just certainty. With the onslaught
of the collapse in global pricing for solar modules right now,
with the excess supply that China has dumped into the
international markets that have been heavily subsidized by
their domestic industry and then exported into international
markets, it is creating some concern right now in terms of the
ability to deliver against the vision that a lot of people have
set out to accomplish.
So that is something that needs to be addressed. And when
you lack certainty, you lack ability to move investments
forward through investment committees. And lack of
understanding of announcements that were made here in the U.S.
for new manufacturers--you know, First Solar is unique in our
technology, right? So our technology is thin film. I do not
have the same constraints of the supply chain that my
competition does.
But we all do one thing. We take photons, and we make
electrons with a semiconductor that is sitting between two
sheets of glass. That is what we do, and the world of
electrification cannot happen unless somebody's making photons
and changing them into electrons, at least enabled through
solar. So we need the innovation and the capabilities here in
the U.S. market, to really aspire to accomplish the vision.
Senator Bennet. Thank you.
Thank you, Mr. Chairman.
The Chairman. We have a vote on, and we are going to try
and get everybody in.
Senator Tillis is next.
Senator Tillis. Thank you, Mr. Chairman. I will be brief.
First, I want to welcome everybody here to the committee, but I
also have to favor Ms. Silver, who happens to represent a North
Carolina manufacturer that is only about 25 minutes from my
house. So thank you all for being here.
I am glad that we are having a hearing about how tax policy
can basically improve economic circumstances for everybody. I
think we proved that in 2017 when we passed the Tax Cuts and
Jobs Act. There is no question, by any reasonable measure, that
the economy had an immediate response to it. In fact, I am so
glad that we did it. It was a partisan maneuver made through
reconciliation, but thank goodness that the economic activity
was where it was before we encountered the pandemic.
Can you imagine if our economic activity had been at the
rate that it was in 2016? I think it would have been
devastating, and quite honestly, we would not have had the
resources, or at least the optimism about future resources, to
commit the trillions of dollars that we did without paying for
it when we were passing those bills. We did it solely on the
basis of the need to address something that no Congress had had
to deal with for 100 years.
So, Mr. Chairman--I really appreciate the chair's
leadership. We have a difference of opinion about how we get
some of these tax provisions done this year, but I appreciate
his leadership. In fact, I like him so much I try to coordinate
my wardrobe to look like yours on hearing day, Mr. Chairman.
[Laughter.]
But we have an honest disagreement about timing and
packaging. I have had several CEOs call me since I stated my
concerns with the Wyden-Smith bill as it currently stands, and
they would be CEOs of companies that you all would recognize. I
let them build the case for me supporting the bill, and I went
on to say I would consider you to be guilty of malpractice if
you did not make this phone call, because your job and your
fiduciary responsibility to your investors, to your employers
is to maximize your business performance.
My job is to do the same for the U.S. Government, and so,
while I understand--and none of these CEOs, incidentally, have
an opinion on the Child Tax Credit, the $34-trillion, 3-year
program that arguably, I think, should be scored at $600
billion over 10 years. They are not taking a position on that.
They are taking a position on the tax provisions. I have the
unfortunate circumstance of having to take a position on both,
and then judging the measure on the whole. On the whole, I
think that we are making a mistake to move it forward in its
current form, and I hope that Senator Crapo and Senator Wyden
get to a point where I do not have to take this position.
We have a number of bipartisan bills that have been filed--
supported by Democrats and Republicans--on the tax provisions
that are in this package. It is a bipartisan package. What we
do not have is bipartisan agreement on a number of the tax
provisions that we need to extend next year. I think we have to
have a fulsome discussion about the entirety of the tax
measures that need to be in place for us to continue to move, I
think, to a positive place in terms of economic performance.
Without that, it is very difficult for me to support the
package as it is. I think we have to have a discussion about
whether or not we're setting a precedent on future tax
provisions, having a payfor. We have not normally done that,
but we have done that in this bill to the tune of about $34
billion.
So what does that mean next year when we are having a
debate about $2 or $3 trillion to extend the tax provisions
from the Tax Cuts and Jobs Act? Do we get opposition from my
Democrat colleagues because we do not have a payfor, because
most of us believe dynamic scoring will prove, as it did in
2017, you create economic activity and cover it.
So, the reason I do not have a question for any of you is,
what I wanted to do is come here and explain why if you want an
argument, you've got to pick another subject on the tax
provisions. But I alone do not have the luxury of only
considering the tax provisions. I have to consider Child Tax
Credit policy, and I want to provide help to people who are
struggling. I am not sure that this is the best way to do it. I
am not sure if 91 percent of it being fully refundable is the
smartest way to do it to create a sustainable policy for people
who need help.
I look forward to working with the chair, because I
consider him a good chair, and the ranking member, to hopefully
get to a good place on this bill. Thank you, Mr. Chairman.
The Chairman. I thank my colleague. Too much for me to
respond to, and we've got a lot of colleagues waiting.
Next in order of appearance would be Senator Warren.
Senator Warren. Thank you, Mr. Chairman.
So, under President Biden, the U.S. economy has added
80,000 manufacturing jobs, partly because of tax incentives for
semiconductor and clean energy manufacturing. But some tax
breaks do not actually incentivize job creation. They are just
corporate handouts.
Right now, Congress is considering a bipartisan tax package
that includes two big pieces: number one, tax breaks for giant
corporations championed by Republicans; number two, a boost to
the Child Tax Credit to help the poorest families buy diapers
and school shoes, which Democrats are fighting for.
Let's take just one of the corporate tax breaks that
Republicans are demanding: a more generous deduction for
research and experimentation, or R&E. This break goes mainly to
the largest corporations, subsidizing investments they would
make anyway, and here is the kicker: Republicans want to make
this break retroactive, subsidizing decisions that giant
corporations made years ago.
Ms. Fendley, you represent the United Steelworkers, who
know a thing or two about American manufacturing. Is there any
evidence that giving giant corporations billions in retroactive
tax breaks for investments made years ago will incentivize
investment and create jobs?
Ms. Fendley. I am not aware of any.
Senator Warren. Yes. Well, they do not have a time machine,
so it is pretty hard to figure out how this would change
things.
So let's take a look at how these tax giveaways--who is
really being benefited here. Ms. Fendley, which companies would
be the largest benefactors of this tax break, and how much
would they receive from the R&E investments that they made back
in 2022?
Ms. Fendley. My understanding is that the tech industry
would largely be the benefactors, in the order of billions of
dollars. I do want to underscore, for manufacturers, the
importance of some of these business credits, right? The
innovation the steel industry has been able to do to make
lighter, stronger, more formable steel has been really helpful
to people. But that is separate from what I think you are
talking about.
Senator Warren. Well, all I am talking about is, as I look
at the numbers now, it is two companies that would receive $13
billion--that is billion with a ``b''--in terms of tax breaks
here in 1 year, and that is more than we spend in the entire
year on all Federal child-care funding for the entire country.
At the same time that Republicans push for retroactive
corporate handouts, some are fighting against a modest
expansion of the CTC called ``the lookback,'' and that would
ensure that when a working family has a temporary drop in
income, their CTC benefit does not also drop at the same time.
So, Ms. Fendley, let me ask you about this. Could this
happen to a steelworker, that they or their spouse could lose
their job or have to cut back on hours--and the ultimate
question is, should a family get less help when their income
has gone down, which is what this proposal would do?
Ms. Fendley. I think the short answer is ``no,'' right?
When a family is going through a hard time, maybe the hardest
time, they should not get less help. I think for our union,
getting it right on the Child Tax Credit is incredibly
important, and we strongly urge the Senate to do its work here.
Senator Warren. I appreciate that, and I agree with you. We
do need to do our work. You know, I think we need to be clear
about what is going on here. Republicans are outraged about
modest help for our most vulnerable children, at the same time
that they are shamelessly fighting for billions of dollars in
retroactive tax breaks for a handful of giant corporations. I
believe that is wrong, and we should not let it happen.
Thank you, Mr. Chairman.
The Chairman. I thank my colleague.
Senator Hassan?
Senator Hassan. Thank you very much, Mr. Chairman, and
thanks to our witnesses for being here. I want to thank the
chair and Ranking Member Crapo for holding this important
hearing today. It is very well-timed.
In January, the House overwhelmingly passed, on a 357 to 70
vote, a bipartisan tax package that would boost U.S.
manufacturing through the tax code. This bipartisan package
would restore full and immediate deductions for R&D
investments, an effort I have long worked on with Senator
Young, among other major tax priorities for our manufacturers
and our small businesses. In addition to supporting our
domestic manufacturing sector, the bipartisan tax package would
also cut taxes for hardworking families through the Child Tax
Credit.
The package is a bipartisan win-win, and the Senate needs
to pass it as soon as possible, before we reach the end of the
tax filing season in April. So I urge my colleagues to come
together to clearly identify a path forward for this bill that
is so important to small businesses--and I will emphasize that
point: thousands of small businesses across the country, and
families all across the country.
So I am grateful to our witnesses today, because each
brings to the table a unique understanding of the importance of
passing this bipartisan package. I am going to start with a
question to you, Ms. Silver, because you are a small business
owner, as I understand it.
In your opening statement, you spoke about how incentives
for research and development can help small and mid-size
manufacturers like your business. So, just following up a bit
on what Senator Wyden was asking you questions about, can you
explain, from your perspective, how the bipartisan tax package
would help small manufacturers invest in their communities and
create jobs?
Ms. Silver. Sure. Thank you for the question. So,
specifically about R&D--I have an example of that. I have been
doing business with a software company that provides software
solutions for the manufacturing industry. They have a business
in Texas. I have been doing business with them for 17 years,
and it is what we run our entire company on.
And they were dramatically affected with the change in the
R&D tax provisions expiring. They created less jobs, they had
less liquidity in their company to grow, to innovate, and
therefore the product that I use every day to run my business
was affected. So, like I said in my testimony, manufacturing is
a team sport, and so it does not matter the size, the
structure--if you are a C corporation, a pass-through entity
like mine--we are all affected by these tax provisions. And
when my large manufacturing customers do well, we do well.
Senator Hassan. Gotcha. Thank you very much.
To Ms. Janis, first of all, just a ``thank you'' to onsemi
for having a wonderful facility in Hudson, NH. We are very
proud of the work you do and grateful for the jobs that you all
have created there.
You discussed in your opening statement how other countries
are starting to outpace the United States in R&D. China, for
example, offers Chinese businesses a super-deduction of up to
200 percent of their R&D costs. Again, following up on Senator
Wyden's question, how would passing the bipartisan tax package
help U.S. manufacturers outcompete their counterparts in China?
Ms. Janis. You are correct, Senator Hassan. China, along
with other nations, provides a 200-percent deduction for R&D
expenses. So, this means that Chinese companies can deduct $200
for every $100 spent on innovation. U.S. companies face
capitalization rules that hinder immediate expensing for R&D,
especially R&D salaries and wages. To enhance U.S.
competitiveness, as I recommended before, I strongly recommend
that Congress make immediate R&D expensing permanent, to
provide businesses with the clarity and assurance with the
associated costs on R&D projects.
Senator Hassan. Thank you.
And finally, to Ms. Fendley: the bipartisan tax package
would not only boost U.S. manufacturing as we have just been
talking about, it also cuts taxes for working families through
the Child Tax Credit, and helps increase affordable housing
through the Low-
Income Housing Tax Credit.
Could you please talk about how the bipartisan tax bill
would benefit both businesses and hardworking families?
Ms. Fendley. Sure. Thank you for the question. We have
talked a lot about how it would impact businesses, which
obviously creates long-term stability for working families. But
of course the Child Tax Credit is so important to working
families, particularly those at the margins. I think it is
incredibly important that we look at the most expansive version
of that that we can, to help lift many, many children out of
poverty.
Senator Hassan. Understood, and this is a good compromise
bill. Thank you very much.
The Chairman. I thank my colleague. I am looking around the
room, and I see four champs of the research and development tax
provision. I cannot just call a vote among the five of us, but
I can dream.
Senator Cortez Masto?
Senator Cortez Masto. Thank you, Mr. Chairman. Thank you
for this great discussion. I appreciate all the panel members
and the comments, and the written comments.
Ms. Fendley, let me start with you, and thank you for
recognizing the importance of the 45X manufacturing tax credit
in your testimony. Congress's intent with this credit was to
provide incentives for businesses to build domestic
manufacturing capacity for energy components to reduce reliance
on China, Russia, and other hostile nations. That's why it's
key that we included critical minerals in 45X. As we all know,
China dominates the market for many minerals essential for
defense and energy.
I know my home State of Nevada has the capacity to mine and
process many of the critical minerals that we need, and that is
why I have been concerned with Treasury's proposed rule for
45X, which excludes mineral extraction as a credible cost. Now,
I know USW has also raised the same concern. Would you please
expand upon this a little bit more, and explain to maybe some
of my colleagues and those who are watching, why this is so
important?
Ms. Fendley. Sure. I appreciate the question. Mining is
going to be critically important to this Nation as we move
forward in our energy economy. And as the largest mining union
in the U.S., we want to make sure that we are passing policies
that will enable that.
You are right that we sent some more comments to Treasury
that extraction materials cost should be part of 45X. That
really has to do with the high cost of standing up a mine or a
processing facility and the threats that you outlined from
China. There is so much potential for the mining industry at
this point, not only because of what we have in the ground, but
also because of the potential for innovation. We are seeing all
kinds of minerals being extracted from waste for the first
time. So I think that this is a really exciting space, and I
appreciate you highlighting it.
Senator Cortez Masto. Thank you, and thank you for your
comments. Mr. Chairman, I would like to submit for the record
my comment letter on 45X, signed by eight other Senators, as
well as two industry comment letters on the same subject.
The Chairman. Without objection, so ordered.
[The letters appear in the appendix beginning on p. 64.]
Senator Cortez Masto. Thank you.
Ms. Janis, thanks so much for your testimony regarding the
importance of the semiconductor industry to American security.
Listen, whether we like it or not, China is enacting policies
to dominate certain industries, and there has to be a response
from the U.S. and our allies. I am proud Congress came together
to help ensure that the U.S. maintains its advantage in chips.
But there is another area which has not gotten as much
attention, and that is rare earth magnets. These are essential
components of our defense systems, and yet China has a near
monopoly on magnet manufacturing.
Now, I have a bipartisan bill with Senator Mullin to
provide tax incentives for domestic magnet manufacturing, and
the bill was included as a bipartisan recommendation from the
House Select Committee on China. Ms. Janis, can you speak to
how important it is to see an incentive in these key industries
when you are competing with China, which is providing massive
subsidies and other forms of support?
Ms. Janis. Yes, yes, the importance of having tax
incentives in the area of semiconductors is extremely
important. We need to drive all of that production that went
offshore, we need to drive it home onshore in order to create
supply chain resiliency, as well as give our customers
assurance on and consistency on their products.
Senator Cortez Masto. Thank you, and let me add--and I just
so appreciate this conversation. There is more to be done, and
let me ask all of you. As we are looking at these tax
incentives to drive industry in a certain direction, to clean
energy, to build out, bring manufacturing back here, one of the
things is, we do not want to go backward. We do not want to
repeal what we have already done.
But where are the things that we should continue to focus
on? Are there gaps in that supply chain? Are there gaps
somewhere that we are not thinking about that we need to
incentivize? To me, I am hearing about critical components that
are necessary for this clean energy economy if we want to bring
the manufacturing here. But that is just not happening yet
because there is no incentive to build out.
I am curious of your thoughts, if anybody has any thoughts
on that.
Mr. Huntsman. Senator, thank you very much. I do not
believe that we are being at all realistic. We do not make
chips in this country. We do not mine in this country without
the chemical industry. You eventually dig a hole in the ground,
but you've got to process these chemicals. You've got to do
something with them, and you do not do that without chemistry,
and you do not do that without new chemistry, without cleaner
chemistry that can eliminate waste in the byproducts and so
forth.
And while we sit and we wait for years and years for the
EPA to get approval on this chemistry, our chips and our mining
industries, they can go overseas and build these facilities and
do it cheaper. And so it is not just the end product and it is
not just the beginning, but it is the entire supply chain that
we need to be focused on. How do we do it efficiently, how do
we do it cleanly, and how do we do it profitably?
Senator Cortez Masto. Thank you. I know my time is up.
Thank you, Mr. Chairman.
The Chairman. I thank my colleague.
Next is Senator Brown.
Senator Brown. Mr. Chairman, thank you, and I know we have
a vote coming up, and I know Senator Daines is next. I thank
you for a really, really, really important hearing. This really
matters; welcome very much. Thanks for being here.
Mr. Widmar, I want to first start with you, and then I want
to move to the Steelworkers and what they are doing.
First Solar was founded 25 years ago in the glass city,
Toledo. Much of the development of glass in this country was in
Toledo. Toledo still leads; the University of Toledo took that
science and made it even better. And what you have done with
First Solar--I think that is the reason for your location
there. Twenty-five years ago, founded; now with three factories
in Ohio.
They have made panel wafer cell modules under one roof
during the company's entire existence. They have grown and
innovated in the face of Chinese competitors, who receive
massive state subsidies, who engage in the theft of
intellectual property, who wantonly--and I think wantonly is
the right adverb--violate our Nation's trade laws.
First Solar's manufacturing activity in Ohio, along with
its national supply chain, as you all know, supported 16,000
jobs, created $1.6 billion with a ``b'' in labor income. Mr.
Chairman, I would like to enter into the record a recent report
demonstrating First Solar's tremendous economic impact in my
State and all over the country.
The Chairman. Without objection, so ordered.
[The report appears in the appendix beginning on p. 45.]
Senator Brown. Thank you, Mr. Chairman.
The Inflation Reduction Act, as you know, included new tax
incentives to support American manufacturing and the
development of genuine domestic--underscore domestic--supply
chains for growing industries like yours. Tell us about the
importance, Mr. Widmar, of the 45X Advanced Manufacturing
Credit.
Mr. Widmar. Yes. It is going to be transformational to
enable crystalline silicon innovation that we largely have been
without for most of those 25 years. First Solar has innovated
in new technology that we were able to get to scale, and
innovate in a way that creates an advantaged technology in the
marketplace that is going to enable the world of
electrification that we all envision in front of us.
The world of electrification, as I alluded to in a prior
comment, starts by taking photons and making electrons. It
cannot be a one-horse race. We need to have capabilities here
in the U.S. that have other types of technology, whether it is
existing crystalline silicon technology or evolution toward new
technologies that could evolve over the next several years. The
manufacturing tax credit is going to be an enabler of doing
that. That is going to allow companies to make investments,
allow them to scale, and allow them to compete, right?
We still need to focus on how to ensure a level playing
field, but it is clearly going to allow them to compete and to
scale, and by the time, if the IRA runs its course, I think we
are going to have a thriving domestic industry, and we will be
a technology leader here in the U.S.
Senator Brown. Thank you, and thanks for the conciseness of
that answer.
Our tax code is supposed to support American manufacturing
in building out the domestic supply chain that should not be
exploited by the Chinese Communist Party. I am working with
colleagues, as you know, on both sides of the aisle, to tighten
the restrictions of the 45X credit to ensure that taxpayer
money is not going to Chinese companies and other Foreign
Entities of Concern. We have passed restrictions on Federal
support going to Foreign Entities of Concern on a bipartisan
basis. Would you support adding these so-called FEOC
restrictions on the 45X credit?
Mr. Widmar. Absolutely, yes. I think it is nonsensical for
an industry that is heavily subsidized domestically then to
benefit from U.S. taxpayer dollars to fund incentives here in
the U.S. It does not make any sense to me.
Senator Brown. And how do those restrictions--how will that
help specifically?
Mr. Widmar. So, what I am most concerned about right now is
that the decisions that are being made right now on the
manufacturing that is coming into the U.S., I think are
temporary in nature. It is basically module assembly. It is not
bringing any real technology advancements that we need here
into the U.S., and it is done in such a way that all the tools
that are being sent from China, the construction in some cases,
are just leased buildings, they are not investing in the
building site. It is something that can easily be turned down
and walked away from were the IRA to expire.
And by doing something that is enduring, that says now we
are going to invest in U.S. companies--we will make those
capital investments with a view of making this enduring and
sustainable--I think will help us achieve the intent of what
the IRA was set out to do, which is to make us, as a Nation, a
technology leader in renewable energy.
Senator Brown. Thank you.
I will shift in my last minute to Ms. Fendley of USW. Your
testimony points out the importance of a comprehensive tax and
trade agenda. You know in February the International Trade
Commission ruled against an antidumping and countervailing duty
case brought jointly by the United Steelworkers and by
Cleveland-Cliffs, which makes the cleanest steel in the world--
and I would add, tinplate products produced at the facility in
Weirton, WV. Talk about why we need stronger trade enforcement
as a critical piece of our domestic economy strategy in the
last few seconds. Thank you.
Ms. Fendley. Sure. I will just say that none of these
policies live by themselves. They are all interlocked, and no
other organization has been a supporter or party to as many
antidumping cases as we have. We know that trade has been an
important factor here. We would urge Congress to update our
trade enforcement laws with the Leveling the Playing Field 2.0
Act.
The other factor here for our members in Weirton, who are
going through possibly the worst time in their lives, is they
need Trade Adjustment Assistance, which Congress has yet to
reauthorize.
The Chairman. Thank you, Senator Brown. Very important
points.
Senator Daines?
Senator Daines. Mr. Chairman, thank you.
I will tell you, as somebody who has spent most of my
career in the private sector, the foundation of businesses back
in Montana is pass-through businesses. These pass-through
businesses in Montana are 95 percent of all businesses. They
employ the majority of workers in our country. In Montana, just
in terms of employment, not just entities, 75 percent of
private-sector employees come through pass-throughs. Back in
2017, we placed these businesses on more equal footing with
their C corp counterparts by providing them a 20-percent tax
deduction on qualified business income.
These businesses are absolutely critical to our
communities. If you look at data in terms of when you come out
of a recession, it is the pass-throughs that typically take the
lead on rehiring and growing and so forth faster than the C
corps. That is why I am proud to be leading the bill that would
make this deduction permanent. The Main Street Tax Certainty
Act protects tens of millions of small businesses, allowing
them to keep more of their profits, create more jobs, and
strengthen the economy. The thing is, the core word in
capitalism is ``capital.'' This allows these businesses to have
more capital to invest, to let these businesses decide in the
free market society where to make these capital investments,
versus the government taking more of those dollars and
allocating them in this city called Washington, DC--and most
voters understand we are not the best stewards of those
resources.
If we do not act to make this provision permanent, these
businesses are facing an immediate 20-percent tax hike at the
end of 2025. That is coming very soon. President Biden made it
clear in his State of the Union address that he wants to
increase taxes on Americans to further his agenda. In fact,
just yesterday President Biden released a reckless budget
riddled with tax hikes, including an increase in taxes on pass-
through businesses. Under this administration, small businesses
have already fought record levels of inflation and economic
uncertainty. The last thing we need to do is create more
uncertainty with the sunsetting of the 2017 tax as it relates
to pass-throughs, and an increased tax burden of more than 20
percent.
Ms. Silver, in your testimony you shared that you benefit
from that 199A deduction. Could you provide some of the ways
that your company reinvests the money it saves from this
deduction?
Ms. Silver. Thank you for the question, Senator. So that is
one of my favorite things to do, to reinvest in the company,
because that is what it is all about. And I talked earlier
about investing in machining technology and equipment, advanced
robotics, passing along those savings to a customer.
But I would like to highlight another story. Another
example is, a couple of years ago, we were able to take our
profits and create and launch a high school internship program.
We call it ``Opportunity Knocks.'' It is a partnership with our
local high school. Seventy percent of the students there are
minority; 100 percent are in economically disadvantaged
situations, and these students have never been exposed to
manufacturing before.
They come over for 4 days a week. They are on the shop
floor with their mentors. They are job shadowing. The fourth
day, they are in our conference room, more of a classroom
setting, where they go through the ``craftsman with character''
curriculum, where we discuss things: virtuous skills, things
like leadership, team work, communication. And that has been
absolutely impactful, not only for them--it has been a tipping
point for recruitment and retainment in our machining skilled
trade, but it has also just been so impactful to watch men and
women who have been in manufacturing for 30 years be able to
pour into these students. And then also for the students to try
on manufacturing, see if it is something they like.
I have a student right now who is going to graduate in May;
very bright. His parents immigrated here from Mexico, his dad
is a bricklayer, and he loves machining, and he is going to
continue on with us and stay full-time. I have another student
who graduated last year who is now in our certified
apprenticeship program.
So in addition to that, I went out and bought a piece of
capital equipment last year because I realized, how am I going
to do training and job shadowing without a piece of equipment
to train on? So we actually bought a piece of expensive capital
equipment to not have that in our production schedule, so we
can actually train on it as well.
Senator Daines. And so, what you have just demonstrated too
is a problem we are trying to solve in this country, in terms
of more manufacturing here in America. Check that box. And
second, workforce development, check that box as well, because
you had this additional capital to invest. It works. Thank you
for those comments.
I want to, as I am wrapping up here, talk about the Federal
estate tax. I think it is one of the most immoral taxes in
America. Look at the OECD. So from a private-sector career, I
spent a lot of time managing operations around the world.
I think maybe sometimes it is a surprise when you realize
that 40 percent of OECD countries do not have a death tax. I
remember when I was in Australia doing business in Sydney--we
had an office there selling American software. I remember I
said, ``We have this thing called a death tax in America,'' and
they said, ``What in the world is that? Is it something that
Americans invented?''
Forty percent of OECDs do not have any estate tax. When
someone loses a loved one, they should not have to worry about
the family business too. In addition to placing more burdens on
already grieving families, the death tax is a direct threat to
agriculture, and that is our number one economic driver, the
farms and ranches in my great State of Montana.
As lawmakers look to the expiration of the 2025 tax cliff,
it is really important we avoid any changes that would
introduce more uncertainty, because I will tell you, who
benefits from all this are tax lawyers and estate planners
trying to game out what is going to happen here in Washington,
DC. Let's allow these families to continue to focus on their
businesses and not having any of these elaborate estate plans
because they do not know what is going to happen here in
Washington, DC.
Ms. Silver, as a third-generation family-owned company,
could you share what a change to the estate tax exemption would
do to companies like your own? And I know we are about out of
time, so I just need a quick answer from you.
Ms. Silver. Okay. Just to talk from my personal life, so my
husband passed away of brain cancer, and he was the sole
shareholder/owner of Ketchie. So upon his passing, I became
president and owner. Thinking back then, I do not know if it
would have made sense. I don't know, even if it did make sense,
and I had the risk tolerance for it, if I would have been able
to pay a tax liability, because so much of our assets are not
liquid. I run a very capital-intensive business, so the impact
is huge, and other small manufacturers should not be faced with
these decisions.
Senator Daines. Yes; thank you. I am sorry for your loss as
well. Thank you for your comments.
The Chairman. Yes. You can only imagine what it is like for
a spouse to walk into a situation like that, where husband and
wife have been working on it together for years, and then
suddenly their future is shattered. So we all think about that.
Now, under normal circumstances, I would either shoot
baskets or something, in order to stall for Senator Young for a
couple of minutes, or find some other diversion. But I have one
other question, and then we will wait for Senator Young in all
seriousness.
The House of Representatives actually voted to repeal the
IRA altogether. What would be the impact on your work if that
was to pass the Senate and it was to vanish? Maybe we start
with you, Mr. Widmar, and you, Ms. Fendley, while we are
waiting for Senator Young.
Mr. Widmar. So, from our standpoint, if the IRA were to be
repealed in its entirety, it would basically bring us to a
complete stop, because we would not have clarity on the policy
environment and how to continue to operate and grow our
business and continue to invest in R&D. We need that long-term
vision and understanding to make informed decisions today.
The Chairman. Ms. Fendley?
Ms. Fendley. I completely agree. The IRA is part of our
industrial policy. It provides both supply-side and demand-side
levers to help manufacturers have certainty moving forward,
making decisions moving forward. It would frankly be
devastating if that was repealed, not only for manufacturing,
but the IRA includes other important provisions like letting
Medicare negotiate drug prices for the first time. That will
really impact seniors' pocketbooks in a positive way. So you
know, we would certainly fight back on a repeal effort.
The Chairman. We will also be looking at health care some
more. I was codirector of the Oregon Gray Panthers for about 7
years, back when I had a full head of hair and rugged good
looks, and we started talking about those kinds of drug policy
reforms, and now we are finally reaping the fruits of it. We
are seeing, for example--in this room, we drafted the provision
that I call the price-gouging penalty, where if the companies
raise their prices over inflation, they pay a penalty.
But he is worth waiting for. Senator Young is here, and I
have appreciated all his leadership, particularly when you
looked across the room and you saw Senator Young and Senator
Hassan. They have been the bipartisan leadership here on R&D,
and we appreciate it.
Senator Young?
Senator Young. Well, I thank the good chairman for his
leadership on this and other issues.
I know that some of my Republican colleagues have
highlighted the impact of the 2017 Tax Cuts and Jobs Act. It
has bolstered the U.S. economy. It has encouraged U.S.
innovation, and as we have heard today, these progrowth tax
policies have driven growth in not just the manufacturing
sector, but in countless other sectors as well.
But today I want to focus on another important piece of
legislation that has increased U.S. global competitiveness and
benefited the U.S. economy, and there is pretty significant
bipartisan support here in Congress but also back home, and it
is called the CHIPS and Science Act. It is a piece of
legislation that Senator Schumer and I saw through the
congressional process. It was signed into law. It authorized
$53 billion worth of incentives for private companies investing
in semiconductor manufacturing, R&D, and workforce development.
Since the bill was passed in 2022, the semiconductor industry
has announced over $240 billion in private-sector investment.
Now, almost none of the public money has even flowed, and
we have seen $240 billion unlocked in the production of both
foundational and leading-edge microchips. The CHIPS Act, as we
call it, also established the Microelectronics Commons program,
under which my home State of Indiana has been designated the
leader of Silicon Crossroads Microelectronics Commons Hub. This
regional partnership was designed to accelerate the prototyping
of advanced microchips. The Hub will bolster private
investments that will secure our country's advantage in
leading-edge semiconductor design--of course, very important to
our national security. This and other partnerships have already
drawn more than $2 billion in publicly announced investments
into the State of Indiana alone. So, great things are being
made in Indiana, thanks to the passage of the CHIPS Act.
And I would like to use that lead-in to ask Ms. Janis to
start. Can you please share how you've seen the CHIPS and
Science Act empower chip manufacturers, like onsemi, to invest
in emerging technologies in the United States?
Ms. Janis. Thank you, Senator Young. onsemi is investing in
the next-generation development of image sensors and analog
mixed-signal semiconductors at our domestic manufacturing
facility in East Fishkill, NY. We plan to qualify and
manufacture at this facility starting in 2025. Remaining cost-
competitive is key in delivering these onshore production
capabilities. This will provide supply assurance to onsemi's
customers, who currently depend on foreign production sites,
and will enable automotive and industrial-grade products with
increased performance in automation technology.
Senator Young. Thank you for that, Ms. Janis. And for those
who are in the semiconductor design and production business
like onsemi, you know that we cannot develop and strengthen our
domestic chips production without a prepared and ready
workforce. Indiana's esteemed colleges and universities are
ensuring that not only are great technological advancements
made in Indiana, but the innovators and leaders of tomorrow are
made there too.
As Secretary of State Blinken said when he came and visited
the State of Indiana not too long ago, we have a talent fab in
Purdue University, and in Ivy Tech Community College. Purdue in
fact has established its Semiconductor Degrees Leadership Board
to solicit input and guidance from industry leaders, to ensure
that Purdue graduates have the skills they need to succeed in
their careers, and onsemi is a member of that board. So thank
you, Ms. Janis.
Ms. Janis, can you please explain how university-industry
partnerships like the Semiconductor Degrees Leadership Board at
Purdue improve worker readiness and allow companies like onsemi
to continue innovating?
Ms. Janis. Absolutely. To onsemi, workforce development is
critically important. onsemi actively recruits top talent, of
course, wherever it can be found. We have an active college
recruiting program with 11 preferred schools including Purdue.
This consortium includes Penn State, Texas A&M, as well as
Prairie View A&M University and Howard University, two HBCUs.
onsemi has committed more than $8.5 million to university
programs, and is actively working with universities in the U.S.
on workforce development. Last year in STEM education grants,
onsemi awarded over $1.3 million to help students in
underserved communities, focusing on semiconductor awareness at
middle schools.
Senator Young. Thank you, Ms. Janis, to you and to onsemi
for that testimony today. Thanks again to our witnesses.
I see I am out of time. Before I pass it back to the
chairman, I would just like to go on record, once again, and
indicate the importance from my eyes that we restore
businesses' ability to fully and immediately deduct the expense
for research and development costs under section 174 of the tax
code.
I know the chairman has helped negotiate a deal that would
include that provision, and I will submit questions for the
record on this for the benefit of our witness.
The Chairman. Well, I thank my colleague. And before you
go, I think, Senator Young, your name is now synonymous with
innovation. If you look at your agenda and what you have done
with chips and competition with China with respect to AI, I
just so appreciate it, because I think that, as we look at tax
policy, tax policy is really about innovation and fairness.
Those are the two most important kind of ideas, and I am
just going to say, as I close today, that I want to touch on a
couple of points with respect to what we are about to vote on,
and put in the record some nonpolitical material.
The Joint Committee on Taxation is the group that we use
around here to do objective, nonpolitical analysis. And we
wanted them particularly to look at this issue of what our work
is going to mean for work generally, because some of those who
have criticized this say it is going to discourage work, that
it is somehow going to cause people to walk out on the
workforce and just see if they can get $1,000 or $1,500 or
something, and then maybe they will jump back into the
workforce some other time.
The Joint Committee on Taxation rejects this argument that
our bill will discourage work. They say, and I quote, ``The
proposed expansion of the Child Tax Credit on net increases
labor supply.'' That is the view of people who are not trying
to grind a political axe and are not saying, well, we are
Democrats or Republicans. That is what they are saying, and I
am going to ask unanimous consent to put the entire document
into the record.
[The report appears in the appendix beginning on p. 106.]
They go on to talk about whether the sample size is the
right size and the like. But they have been specific with
respect to--they do not believe that this will discourage work.
And what I take out of here, because I listened to
everybody, haven't budged for 2 hours like you--thank you very
much, every one of you--is witnesses representing communities
across the country have said specifically--because I asked you,
and other colleagues did as well--you said it would be bad for
your businesses and your workers to postpone this legislation,
the Tax Relief for American Families and Workers Act.
There was no ambiguity in that. You all said it would be a
mistake, a mistake for workers and businesses. The reality is,
we know we are going to have a big, big tax debate in 2025.
Senator Young and I have talked about it, and everybody is
going to go at it, and that is what our system of government is
all about.
But the question becomes, are we going to harm businesses
and families and workers like yours when we have a bipartisan
bill that got so many votes in the House of Representatives,
that when people read it initially, Senator Young, they thought
they had read the wrong number. They thought that maybe there
was a mistake in the number. You do not get 357 votes for
getting a soda at this point.
So you have really, I think, been a very important
contributor to this debate, and as long as I am in public
service, I am going to try to work as hard as I can with
Senators like Todd Young of Indiana, because I think if you are
innovating and you are working to try to find common ground,
that is what public service is all about.
So, thank you all for giving us a chance to get this input,
get it on the record as we move to the final efforts to try to
get this passed and passed quickly, a bipartisan piece of
legislation. Everybody gives speeches about being bipartisan,
gives speeches about research, and competing with China. We are
going to give them a chance to have that opportunity.
With that, I thank you. We are adjourned.
[Whereupon, at 12:31 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Submitted by Hon. Sherrod Brown,
a U.S. Senator From Ohio
FIRST SOLAR: US ECONOMIC IMPACT
The Value of American Vertically Integrated Solar Manufacturing at
Scale
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INTRODUCTION FROM MARK WIDMAR
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.epsSince our founding 25 years ago, First Solar has invested in
America, building our first manufacturing facility in Perrysburg, Ohio
in 1999 and setting ourselves on the path to achieving 14 gigawatts of
annual nameplate vertically integrated manufacturing capacity across
the United States by 2026.
Today, First Solar is unique among the world's largest solar
manufacturers for being the only US-headquartered company and for
competitively producing advanced thin film photovoltaic (PV) solar
panels at a scale unparalleled anywhere in the world. Our proprietary--
and uniquely American--thin film solar technology was developed and has
evolved in labs in California, Colorado, and Ohio. It is the world's
second-most common PV semiconductor after crystalline silicon and is a
significant enabler of the utility-scale solar fleet in the United
States.
Each of our factories manufactures advanced thin film solar panels
using a process that integrates the production of wafers and cells in a
single process that transforms a sheet of glass into a fully functional
solar panel in approximately 4 hours and under one roof.
We are expanding our American footprint to an unprecedented level.
Between 2016 and 2026, we expect to have invested approximately $4
billion in manufacturing and research and development facilities in the
United States. Between 2024 and 2026, we anticipate that our three
operating factories in Ohio will be joined by new facilities in Alabama
and Louisiana to make up a 14 GW American manufacturing footprint.
Later this year, we plan to commission the largest PV research and
development innovation center outside of China, which will form part of
our Ohio campus and accelerate the cycles of innovation needed to
ensure that American innovation drives the energy transition not just
here at home but globally.
And we are not just innovating and manufacturing in America. We are
sourcing our raw materials from across the country. In 2019, we put
into place a strategy that would see us localize our value chains,
setting into motion the changes that allowed us to source materials and
services from large, medium, and small businesses across the US.
Today, our American-made solar panels are produced with American-made
glass and steel. The steel value chain that serves our Ohio
manufacturing footprint is located within a 100-mile radius of our
factories, and we are one of the largest buyers of American-made float
glass, consuming approximately 15% of the country's capacity.
Every day, we go to work making solar panels to support America's
energy security and cleantech supply chain resilience, helping ensure
that our country's energy future is not dependent on China.
And we are enabled by thousands of hardworking people across the
country: soda ash miners in Wyoming, silica miners in Michigan, copper
miners in Utah, steelworkers in Alabama, Louisiana, and Ohio,
glassworkers in Illinois, Ohio, and Pennsylvania, woodworkers in
Indiana, truckers, railroad workers, and many more. With these indirect
and induced jobs forecasted to pay an estimated average salary of over
$83,000 per year in 2026, our investments are providing American
workers with an opportunity to earn happiness.
This is the real value of solar technology that is made in America, and
not simply assembled here using imported components. This is the real
value of American Solar.
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And while we know that our investments are enabling jobs and
prosperity in places such as Lawrence County, Alabama, Iberia Parish,
Louisiana, and Crawford County, Pennsylvania, we recognize the need to
quantify the real extent of our contribution to the US economy.
This comprehensive analysis, conducted by the Kathleen Babineaux Blanco
Public Policy Center at the University of Louisiana, Lafayette, maps
First Solar's impact on America in meaningful terms: jobs, economic
output, and value created in 2023 and forecasts for 2026 when we expect
to achieve 14 GW of annual nameplate capacity across the US.
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The data, unique to First Solar and a direct result of our
operating model, which currently has no parallel in the solar
manufacturing industry, creates yet another differentiator that further
separates us from the competition.
It also confirms just why we have earned the right to call ourselves
America's Solar Company.
Mark Widmar
Chief Executive Officer
First Solar, Inc.
EXECUTIVE SUMMARY
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Founded in 1999, First Solar is an American manufacturer of solar
modules that is unique within the industry as having both a
headquarters and large-scale manufacturing based in the United States.
The company employs a unique, fully vertically integrated manufacturing
process, enabling the transformation of raw materials and components to
a finished module in approximately 4 hours.
First Solar's thin film photovoltaic semiconductor further
differentiates it within the solar industry, which primarily utilizes
crystalline silicon (c-Si) semiconductor material. While c-Si panel
manufacturing can require three to four different factories and
multiple days to produce and assemble, First Solar's entire process
takes place under one roof in a matter of hours. These differentiating
factors allow the company to offer greater transparency, traceability,
and localization of its supply chain.
This study examines the economic benefits of the company's operations
in 2023, which the company ended with over 6 GW of operational US
capacity, and in 2026, by which time it expects to have 14 GW of annual
nameplate capacity in the country. Additionally, the study also
evaluates the impacts of constructing First Solar's facilities in
investments in Ohio, Alabama, and Louisiana, in 2023.
All of First Solar's activities are considered new to the national
economy because in the absence of First Solar, it is likely that demand
for solar panels would be met by a foreign company given the
concentration of solar manufacturing overseas, especially in China.
Key Findings:
While First Solar is currently undergoing a rapid expansion, the
company's 2023 operations are estimated to support a total of 16,245
direct, indirect, and induced jobs and nearly $1.6 billion in labor
income in the US economy. The company's operations are also estimated
to support a total of nearly $2.8 billion in value added and almost
$5.3 billion in total output when including indirect and induced
economic effects.
After the ongoing expansions in Alabama, Louisiana, and Ohio are
complete, annual operational impacts on the US economy starting in 2026
are projected to grow to a total of more than 30,000 jobs and almost
$2.8 billion in labor income. Operating at that scale will support
nearly $5 billion in value added and over $10 billion in output to the
US economy including direct, indirect, and induced economic effects.
First Solar's construction activities in 2023 are estimated to
create a total of 5,765 jobs and $637.8 million in labor income
nationally including indirect and induced effects. These activities are
also estimated to have supported more than $900 million in value added
and $1.9 billion in output, or total sales, within the national
economy.
While the unique impacts of a specific industry, or company, can
vary based on a wide range of factors, First Solar's impacts can be
attributed at least in part to longstanding efforts to cultivate a
domestic supply chain, which helps capture a larger portion of indirect
and induced economic activities within the national economy.
------------------------------------------------------------------------
2026
2023 (Expected)
------------------------------------------------------------------------
Annual US nameplate capacity 6GW+ 14GW
------------------------------------------------------------------------
Employment * 16,245 30,060
------------------------------------------------------------------------
Labor Income * $1.59B $2.78B
------------------------------------------------------------------------
Value Added * $2.75B $4.99B
------------------------------------------------------------------------
Output* $5.33B $10.19B
------------------------------------------------------------------------
* All values represent direct, indirect, and induced impacts, and
exclude construction-related jobs and spending.
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Glossary of Terms
Capital Expenditure Impact: The economic effects resulting from the
company's investments in capital assets or infrastructure. This
includes the construction, maintenance, or improvement of long-term
assets such as buildings, factories, equipment, machinery, or
technology.
Direct Impact: The immediate effects generated by the company's
activities, such as employment, salaries and wages, and direct spending
on goods and services.
Employment Impact: The effect of the business's activities on job
creation or loss, including both direct employment within the company
and indirect employment in related industries.
Indirect Impact: The secondary effects resulting from the spending of
businesses in the supply chain associated with the company, including
supplier purchases and additional economic activity stimulated by the
company's operations.
Induced Impact: The broader economic effects that arise from the
spending of employees and other individuals who receive income directly
or indirectly from the company, such as household spending.
Labor Income: The total wages and salaries of direct and indirect
workers associated with the company, including the value of employment
benefits.
Operational Expenditure Impact: The effects that a company's day-to-day
operations and activities have on the economy, including production
output, employment levels, and purchases of goods and services from
suppliers to run the business.
Output: The total economic output generated by the company,
encompassing the value of goods and services produced and sold by its
operations.
Ratio or Multiplier Effect: The amplification of economic impact as
money circulates throughout the economy, creating a ripple effect
beyond the initial investment or spending.
Value Added: The contribution of the company to the economy, or GDP,
measured by the difference between its total revenue and the cost of
intermediate goods and services purchased.
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FIRST SOLAR'S SUSTAINED IMPACT
ON THE US ECONOMY
2023
Operational Impacts
The long-term recurring impacts of First Solar's operations create a
stable and lasting impact on the economy by creating long-term, good-
paying jobs.
Table 1 shows estimated economic impacts of First Solar's 2023
operations on the US economy. In total, First Solar's 2023 operations
include an estimated $2.1 billion in direct output, which combined with
indirect and induced economic effects generates $5.3 billion total
output. An important component of that output is the $485.7 million in
direct labor income to support the 2,700 direct First Solar jobs.
First Solar embarked on a strategic diversification of its supply chain
in 2019, and thanks to years of cultivating a domestic supply chain the
direct First Solar activities generate large indirect effects including
nearly 6,000 jobs and more than $1.6 billion in output.
Thanks to highly skilled induced jobs that generate substantial labor
income, the average labor income associated with the 12,400 indirect
and induced jobs created by First Solar operations is over $81,000 per
year, well over the national median income.
First Solar supported over 16,000 direct, indirect, and induced jobs
across the US economy with a total labor income of over $1.5 billion in
2023, or six jobs for every direct job it added.
_______________________________________________________________________
By the Numbers
First Solar Operational Impacts: 2023 US
16,245
Estimated jobs supported
6x
Jobs supported for every First Solar job
$1.59 Billion
Estimated contribution to national labor income
$2.75 Billion
First Solar's estimated value added to the US economy
_______________________________________________________________________
Note: All data includes direct, indirect, and induced effects.
Table 1: First Solar National Operational (US) Impacts 2023
----------------------------------------------------------------------------------------------------------------
Impact Employment Labor Income * Value Added * Output *
----------------------------------------------------------------------------------------------------------------
Direct 2,700 $485.7 $977.9 $2,133.9
----------------------------------------------------------------------------------------------------------------
Indirect 5,965 $608.4 $903.0 $1,649.3
----------------------------------------------------------------------------------------------------------------
Induced 7,580 $497.8 $876.9 $1,545.2
================================================================================================================
Total 16,245 $1,591.9 $2,757.8 $5,328.4
----------------------------------------------------------------------------------------------------------------
Ratio 6.0 3.3 2.8 2.5
----------------------------------------------------------------------------------------------------------------
* Labor income, value added, and output are reported in millions of dollars.
A Coast-to-Coast Value Chain
First Solar's uniquely American supply chain reflects the value it
creates for the country. The company began a strategic pivot to a
domestic supply chain in 2019, a business decision designed to reduce
its exposure to overseas supply chains and risks to operational
continuity. Given the current political appetite to buy American, this
strategic shift gave First Solar a significant advantage over the
competition, with its Series 7 module being manufactured with 100% US-
made components identified in the current Inflation Reduction Act (IRA)
domestic content guidance issued by the US Department of Treasury. The
strategic shift also accounts for First Solar's impact on the US
economy as its value chain spans the country from South Carolina in the
East to California in the West, and covering states such as Alabama,
Arizona, Georgia, Illinois, Indiana, Louisiana, Michigan, Ohio,
Pennsylvania, Utah, and Wyoming.
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Construction Impacts
Over 2022 and 2023, First Solar announced approximately $2.8 billion in
investments in Alabama, Louisiana, and Ohio, including two new
factories, the expansion of its current manufacturing footprint, and a
new research and development center. These investments translate into a
significant amount of construction activity spread across three states.
Table 2 shows the economic impacts of First Solar's 2023 construction
activities on the US economy. The national economy is impacted by large
investments in the new Ohio and Alabama manufacturing facilities. At
the time this study was conducted, the company had yet to begin
meaningful construction activity on its just-announced facility in
Louisiana. These investments support 775 direct jobs as well as a large
number of indirect and induced jobs created by First Solar's direct
construction expenditures. In total, First Solar construction
activities in 2023 create an estimated 5,765 jobs and a total of nearly
$640 million in labor income including direct, indirect, and induced
effects.
For every First Solar construction job in 2023 there are approximately
7.4 jobs created in the US economy, with an average of $110,600 in
total annual labor income per job. First Solar's construction
activities contribute $280.4 million in direct value added and direct
output of $755.6 million, which generate a total of $907.1 million in
value added and more than $1.9 billion in total output in the US
economy including indirect and induced economic effects.
Table 2: First Solar US Construction Impacts in 2023
----------------------------------------------------------------------------------------------------------------
Impact Employment Labor Income * Value Added * Output*
----------------------------------------------------------------------------------------------------------------
Direct 775 $273.8 $280.4 $755.6
----------------------------------------------------------------------------------------------------------------
Indirect 1,955 $164.9 $276.2 $550.2
----------------------------------------------------------------------------------------------------------------
Induced 3,035 $199.1 $350.4 $617.4
================================================================================================================
Total 5,765 $637.8 $907.1 $1,923.2
----------------------------------------------------------------------------------------------------------------
Ratio 7.4 2.3 3.2 2.5
----------------------------------------------------------------------------------------------------------------
* Labor income, value added, and output are reported in millions of dollars.
FIRST SOLAR'S ECONOMIC IMPACT AND
JOB CREATION IN OHIO
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2023
First Solar's presence in Ohio dates to its founding in 1999 and the
company has manufactured in the Buckeye State for over 2 decades. The
Toledo area, with its deep ties to the glass industry, was a natural
incubator in First Solar's early years and the company has continued to
build an ecosystem of suppliers and service partners around its campus,
currently the largest solar manufacturing footprint in the Western
Hemisphere with over 6 GW of annual nameplate capacity at the end of
2023. As a result of First Solar's presence, the state can uniquely
claim to be home to every aspect of the solar value chain, from R&D and
manufacturing to recycling.
Given the longstanding presence and large concentration of First Solar
operations in Ohio, state-level impacts were also analyzed in the
state. Table 3 shows First Solar's Ohio operational impacts in 2023, a
year of significant growth with the company's third manufacturing
facility in the state coming online during the year.
From operations alone in 2023, First Solar employs 2,400 workers in the
state and is estimated to have generated more than 10,000 total jobs
including direct, indirect, and induced economic effects. In other
words, every First Solar job created 4.4 total jobs in the Ohio economy
in 2023. Those jobs are estimated to have added more than $1 billion in
labor income to the Ohio economy including more than $580 million in
indirect and induced effects.
First Solar's direct economic output is estimated at more than $1.6
billion in the state including creating more than $563 million in value
added in Ohio's economy. In total, First Solar's activities supported
more than $3.2 billion in output including nearly $1.5 billion in value
added within Ohio in 2023.
Table 3: First Solar Ohio Operational Impacts in 2023
----------------------------------------------------------------------------------------------------------------
Impact Employment Labor Income * Value Added * Output *
----------------------------------------------------------------------------------------------------------------
Direct 2,400 $450.5 $563.0 $1,663.0
----------------------------------------------------------------------------------------------------------------
Indirect 3,980 $353.7 $500.3 $896.9
----------------------------------------------------------------------------------------------------------------
Induced 4,125 $229.0 $415.6 $724.7
================================================================================================================
Total 10,505 $1,033.2 $1,478.9 $3,284.6
----------------------------------------------------------------------------------------------------------------
Ratio 4.4 2.3 42.6 42.0
----------------------------------------------------------------------------------------------------------------
* Labor income, value added, and output are reported in millions of dollars.
Investing in an Ohio Value Chain
First Solar's strategic decision to develop a domestic supply chain in
parallel with the expansion of its manufacturing footprint has spurred
investment and job creation in the state. In response to the company's
expansion plans, the NSG Group constructed its first new float glass
plant in the US in 4 decades. The facility, which is in Luckey and
started operations in 2020, represented a $380 million investment and
created 150 new jobs. Similarly, Ice Industries invested $9 million and
created 120 new jobs when it established a new facility in Bowling
Green to produce steel back rails for First Solar's advanced thin film
modules. Significantly, First Solar's steel value chain is located
within a 100-mile radius of its Perrysburg campus, with the steel made
in Cleveland, processed in Delta, and fabricated into back rails in
Bowling Green.
Construction Impacts
Given the historical concentration of First Solar's US activity in
Ohio, construction impacts are examined at the state level in Ohio as
part of the more targeted assessment of economic impacts within the
state.
Table 4 shows economic impacts of First Solar's 2023 construction
activities in Ohio. The 275 construction workers directly engaged in
constructing First Solar's third manufacturing facility earned $29.8
million in labor income, but also created an estimated 865 indirect and
induced jobs, adding nearly $60 million in labor income to the total
economic impact of construction activities within the state.
These construction activities are also estimated to have generated
$136.6 million in total value added and $367.7 million in total output
to the Ohio economy. Based on 2023 construction activities, the total
economic impact of building First Solar's new facilities shows a jobs
multiplier of more than four total jobs in Ohio for each job directly
engaged in construction.
The average labor income per construction worker on a First Solar site
in Ohio is $108,400 while the average labor income for the associated
indirect and induced jobs is $66,500 illustrating the high pay for
high-skilled workers needed to build the company's manufacturing and
R&D facilities.
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Table 4: First Solar Ohio Construction Impacts in 2023
----------------------------------------------------------------------------------------------------------------
Impact Employment Labor Income * Value Added * Output *
----------------------------------------------------------------------------------------------------------------
Direct 275 $29.8 $36.5 $178.2
----------------------------------------------------------------------------------------------------------------
Indirect 515 $38.1 $64.8 $128.0
----------------------------------------------------------------------------------------------------------------
Induced 350 $19.4 $35.3 $61.5
================================================================================================================
Total 1,140 $87.3 $136.6 $367.7
----------------------------------------------------------------------------------------------------------------
Ratio 4.1 2.9 3.7 2.1
----------------------------------------------------------------------------------------------------------------
* Labor income, value added, and output are reported in millions of dollars.
A Decades-Long Partnership
Headquartered in Wallbridge, Ohio, the Rudolph Libbe Group (RLG) has
constructed every First Solar facility in the state since the company's
first manufacturing facility in 2002. Today, the partnership has
expanded beyond Ohio as RLG constructs First Solar's new facilities in
Alabama and Louisiana. By 2026, RLG will have completed approximately 9
million square feet of manufacturing and R&D infrastructure across the
three states. The Ohio projects alone accounted for approximately 4.5
million square feet and were constructed by union tradespeople. In
fact, the three facilities constructed by RLG for First Solar in Ohio
since 2016 consumed an estimated 2.5 million union hours.
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LOOKING FORWARD: PROJECTED US
OPERATIONAL IMPACTS
2026
Catalyzed by the Inflation Reduction Act (IRA) of 2022, First Solar has
embarked on an expansion plan that is expected to see it achieve 14 GW
of annual nameplate capacity in the US across three states by 2026.
Given that the company is expected to double its nameplate capacity
between 2023 and 2026, this study examined its 2026 operational impacts
on the national economy.
The company's national output nearly doubles in scale from 2023 to
2026, with indirect jobs growing at an even faster pace as domestic
supply lines expand to support First Solar's operations.
Table 5 shows the expected annual economic impacts of First Solar's
operations on the US economy by 2026. Once the expansions that are
currently underway in Ohio, Alabama, and Louisiana are complete, First
Solar expects its operations to create more than $1.5 billion in value
added in the national economy, while generating a total added value 3.2
times larger after accounting for direct and induced economic impacts.
The total output generated in the national economy is nearly $10.2
billion, which is 2.6 times larger than direct output.
The expansion of First Solar's impacts extends to job creation as the
company expects to grow its US workforce from 2,700 in 2023 to 4,100
people in 2026. This increase in direct employment, in turn, allows
First Solar to support a total of more than 30,000 jobs across the
economy with nearly $2.8 billion in labor income. In other words, every
person First Solar directly employs supports 7.3 direct, indirect, and
induced jobs across the US.
Furthermore, First Solar's operations directly are expected to create
more than $1.5 billion in value added in the national economy but
generate total added value 3.2 times larger after accounting for direct
and induced economic impacts. The total output generated in the
national economy is forecasted to be nearly $10.2 billion, which is 2.6
times larger than direct output.
_______________________________________________________________________
By the Numbers
First Solar Expected US Operational Impacts: 2026
30,060
Number of jobs supported
7.3x
Jobs supported for every First Solar job
$2.78 Billion
Estimated contribution to national labor income
$4.99 Billion
First Solar's estimated value added to the US economy
_______________________________________________________________________
Note: All data includes direct, indirect, and induced effects.
Table 5: First Solar US Operational Impacts 2026
----------------------------------------------------------------------------------------------------------------
Impact Employment Labor Income * Value Added * Output *
----------------------------------------------------------------------------------------------------------------
Direct 4,100 $622.9 $1,540.9 $3,979.6
----------------------------------------------------------------------------------------------------------------
Indirect 12,675 $1,291.9 $1,916.8 $3,499.7
----------------------------------------------------------------------------------------------------------------
Induced 13,285 $872.3 $1,536.4 $2,707.4
================================================================================================================
Total 30,060 $2,787.1 $4,994.0 $10,186.7
----------------------------------------------------------------------------------------------------------------
Ratio 7.3 4.5 3.2 2.6
----------------------------------------------------------------------------------------------------------------
* Labor income, value added, and output are reported in millions of dollars.
Renewing American Communities
A glassmaking facility in Meadville, Pennsylvania, which had been
operational since 1968, was forced to shut down in 2020 in response to
slowing demand from the US automotive industry and the economic effects
of the pandemic. In 2023, the facility was given a new lease on life as
First Solar signed an agreement with its owner, Vitro Architectural
Glass, to manufacture float glass for use in its American-made solar
modules. In response, Vitro announced it would invest $93.6 million to
rebuild and modernize the plant, creating approximately 130 new high-
quality jobs, subsequently increasing its investment to approximately
$180 million to adapt and upgrade its current facilities, effectively
doubling the plant's output. The plant is expected to be operational in
2025, bringing the jobs, economic growth, and tax revenues that
domestic manufacturing stimulates.
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Conclusion
Beyond the one-time boost created by large capital investments like
construction of a new manufacturing facility, the long-term recurring
impacts of a company's operations are often most valued because of
their stable and lasting impact. For First Solar, those impacts were
analyzed in 2023 to assess the company's current impact as it undergoes
continued growth and expansion, but also in 2026 after the current
expansions in Ohio, Alabama, and Louisiana will be complete and the
company will be operating at a significantly larger scale.
In 2023, total national impacts include more than 16,000 jobs, nearly
$1.6 billion in labor income and just over $5.3 billion in total
economic output including indirect and induced effects. Notably, the
total jobs created by First Solar's operations represent an effective
economic impact multiplier of 6.0 meaning that for each of First
Solar's 2,700 direct jobs, a total of 6 jobs are created in the US
economy. Within Ohio, the total economic impacts include 10,505 jobs,
over $1 billion in labor income, and nearly $3.3 billion in total
economic impact.
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First Solar's impacts can be attributed at least in part to
longstanding efforts to cultivate a domestic supply chain, which helps
capture a larger portion of indirect and induced economic activities
within the national economy.
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By 2026, First Solar's operations are expected to grow to include
4,100 direct employees and total direct output of nearly $4 billion
nationally. The national economic impact of operating at that scale
includes creation of more than 30,000 jobs, $2.8 billion in labor
income, and $10 billion in total output including direct, indirect, and
induced effects. In 2026, it is expected that First Solar's effective
national jobs multiplier will reach 7.3, meaning that for every First
Solar job, the company will create a total of 7.3 jobs in the national
economy.
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These results compare favorably to other industries such as highway
construction, which has a jobs multiplier of 2.1; small electronics
manufacturing, which has a jobs multiplier of 4.2; and even a high
impact industry like oil and gas extraction, which has a jobs
multiplier of 6.7.
While the unique impacts of a specific industry, or company, can vary
based on a wide range of factors, First Solar's impacts can be
attributed at least in part to longstanding efforts to cultivate a
domestic supply chain, which helps capture a larger portion of indirect
and induced economic activities within the national economy.
Learn more about First Solar's US value chain at https://
www.americassolar
workers.com/.
CONTEXTS: A HIGHLY DIFFERENTIATED SOLAR MANUFACTURING AND TECHNOLOGY
COMPANY
First Solar has consistently leaned into and leveraged its
differentiators to deliver growth and navigate unprecedented change and
industry volatility. The company is unique among the world's largest
solar manufacturers for being the only US-headquartered company and for
producing thin film solar panels that are not dependent on Chinese c-Si
supply chains.
Moreover, First Solar's commitment to Responsible Solar and
sustainability, its distributed manufacturing strategy, the strength of
its localized supply chains, its technology advantage, and the strength
of its balance sheet all drive value creation for its investors and for
America. From 2016 to 2026, First Solar expects to have invested almost
$4 billion in US manufacturing and R&D infrastructure, demonstrating
its commitment to America.
This section explains some of First Solar's key differentiators that
help drive its impact on the US economy.
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Uniquely American Solar Technology
The US is the global leader in cadmium telluride (CdTe) manufacturing
\1\ having developed the technology in the 1950s, although it was only
commercialized by First Solar in 2002. Today, CdTe is the second most
common PV semiconductor after c-Si, which is dominated by Chinese
companies.
---------------------------------------------------------------------------
\1\ Source: https://www.nrel.gov/pv/cadmium-telluride-solar-
cells.html.
CdTe's qualities include lower cost, superior scalability, and a higher
theoretical efficiency limit. Over time, and with almost $2 billion
invested in research and development, First Solar has been able to
harness other advantages that are unique to CdTe. Its strategic
advantages include reduced dependence on China's crystalline silicon
supply chains, supporting US energy security and supply chain
---------------------------------------------------------------------------
continuity through rapid deployment of new manufacturing capacity.
The semiconductor uses two byproducts from zinc and copper mining waste
streams, cadmium and tellurium, which are combined into a stable
compound. Each First Solar module includes a layer of semiconductor
that is only 3 percent the thickness of a human hair.
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Fully Vertically Integrated Manufacturing Process
First Solar's fully vertically integrated manufacturing template, which
was developed and operationalized in Ohio, is unique in its ability to
integrate the manufacturing of thin film wafers and cells in its module
manufacturing process. The semiconductor is deposited on sheets of
glass in a high-tech process that has more in common with producing
flat screen televisions than it does assembling a c-Si solar panel.
This streamlined process allows First Solar to convert a sheet of glass
into a fully functional module under one roof in approximately 4 hours,
compared to c-Si's batch processing approach, which has not
fundamentally changed in the past 2 decades and requires three to four
different factories, multiple companies, and multiple days to achieve
the same result. Significantly, First Solar's manufacturing template
has allowed it to deploy vertically integrated manufacturing at a
location of its choosing in fewer than 24 months.
First Solar's factories exemplify America's manufacturing prowess,
operating 24 hours a day, 7 days a week, 365 days a year, with the
industry's highest utilization rates. The factories are believed to set
the standard for capacity utilization and manufacturing cost,
demonstrating how American manufacturing can effectively compete
globally.
First Solar also stands apart from the competition for its early
embrace of a distributed manufacturing strategy. Enabled by its easily
replicable manufacturing template, the company took the decision to
site new manufacturing capacity close to demand to accelerate the speed
at which it could deliver solar panels to its customers without the
risk of relying on transoceanic shipping.
Respect for People and the Planet
First Solar has long understood its responsibility towards the planet,
the community, and its customers. The company places sustainability at
the heart of everything it does, setting its sights on exceeding
industry standards, not merely meeting them. Today, First Solar has a
long history of establishing benchmarks in recycling, supply chain
transparency, the carbon and water footprint of PV technology, and
health and safety.
First Solar's solar technology has the lowest environmental footprint
in the industry. Its Series 7 module has a carbon and water footprint
that is nearly four times lower than conventional crystalline silicon
modules manufactured in China and an energy payback time that is
approximately five times faster.
The company pioneered recycling of solar panels and its proprietary
process allows it to recover approximately 90% of materials from each
processed module. In fact, a kilogram of CdTe can be recycled 41 times
to produce electricity for 1,200 years before it stops being effective.
Crucially, First Solar has led the industry in taking a stance of zero
tolerance for forced labor in solar supply chains. The company is one
of the only solar manufacturers not to have any exposure to the Chinese
province of Xinjiang, where state-sponsored forced labor is reportedly
used to support elements of c-Si value chains, including the production
of polysilicon.
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METHODOLOGY
Approach and Assumptions
In addition to the direct expenditures and employment of a company, or
other grouping of economic activities, economic impact assessments
capture the broader set of economic activities generated by an initial
infusion of new dollars into the economy. When new economic activity
occurs, businesses will purchase additional inputs and workers will
have additional dollars for purchasing goods and services. The total
economic effect accounts for indirect spending by businesses and
induced spending by workers benefiting from additional dollars.
In general, these studies focus on new dollars entering a regional (or
national) economy. On a national scale, this framework would consider
money paid by foreign customers or investments by foreign companies as
new dollars entering the national economy. In the present context, all
of First Solar's activities are considered new to the national economy
because in the absence of First Solar, it is likely that demand for
solar panels would be met by a foreign company given the concentration
of solar manufacturing overseas, especially in China.
Economic impact analysis provides the tools to quantify the full impact
of the indirect and induced effects within a regional economy due to an
initial round of spending using jobs, earnings, value added, and output
multipliers. This methodology is based on measuring inter-industry
linkages across the economy and relies on the commonly used input-
output method developed by Wassily Leontief. While input-output models
have advanced considerably over time, the same fundamental principles
apply.
To analyze the economic impact of First Solar's expected economic
impact in 2023 and following the expansion currently underway, this
report accounts for the one-time expenditures involved in the
construction of new facilities in Ohio, Alabama, and Louisiana and the
ongoing domestic operational expenditures across the company once the
new facilities have been commissioned. The study includes an analysis
of First Solar's economic multipliers compared to various industries
across the United States and in the State of Ohio. These benchmarks
provide a gauge as to how First Solar's economic activity truly impacts
the economy in comparison to other common industries.
About the Study
The Kathleen Babineaux Blanco Public Policy Center at the University of
Louisiana at Lafayette serves as a hub for research and education on
critical policy issues in Louisiana and beyond. Named after the state's
first female governor, the center honors her legacy by addressing key
challenges facing the region, including education, health care, and
economic development. Through collaboration with policymakers,
community leaders, and academics, the center aims to inform evidence-
based policy solutions that promote the well-being and prosperity of
Louisiana's citizens.
The Researchers
To lead and produce the study referenced in this report, First Solar
commissioned Dr. Stephen Barnes, Executive Director of the Kathleen
Babineaux Blanco Public Policy Center at the University of Louisiana at
Lafayette and an Associate Professor of economics in the B.I. Moody III
College of Business Administration.
Dr. Barnes serves as the independent economist on the Louisiana Revenue
Estimating Conference, a forecasting panel that sets income projections
used to create the state budget. He has collaborated with federal and
state agencies, industry partners and advocacy groups as well as
scholars in more than a dozen disciplines on research addressing many
aspects of the economy and population of Louisiana.
Dr. Barnes has publications spanning the economics of education,
environmental risks, health and health care, and transportation. Dr.
Barnes holds a bachelor's degree in economics from Louisiana State
University and a master's and Ph.D. in economics from the University of
Texas at Austin.
Dr. Barnes was assisted by Andrez Joseph, a Research Associate at the
Kathleen Babineaux Blanco Public Policy Center. Joseph is originally
from Roseau, Dominica, an island in the Caribbean, where he began his
undergraduate studies in Mathematics and Physics prior to moving to the
United States. Upon arrival in 2017, he completed his Bachelor of
Science in Mathematics from the Louisiana State University at
Alexandria and continued his education at the University of Louisiana
at Lafayette where he attained a Master of Science in Applied
Mathematics.
______
Submitted by Hon. Catherine Cortez Masto,
a U.S. Senator From Nevada
National Mining Association
101 Constitution Ave., NW, Suite 500 East
Washington, DC 20001
Phone: 202-463-2600
February 9, 2024
Internal Revenue Service
CC:PA:01:PR (REG-107423-23)
Room 5203
PO Box 7604, Ben Franklin Station
Washington, DC 20044
Re: Comments on Proposed Regulations on Section 45X Advanced
Manufacturing Production Credit.
The National Mining Association (NMA) appreciates the opportunity to
comment on proposed regulations (``proposed regulations'') for the
Section 45X Advanced Manufacturing Production Credit (REG-107423-23).
The NMA appreciated Congress' inclusion in the Inflation Reduction Act
of 2022 of tax credits for certain critical minerals. The proposed
Internal Revenue Service (IRS) rule, however, deviates from
congressional intent by omitting availability of the credit for mining
extraction costs.\1\
---------------------------------------------------------------------------
\1\ 88 Fed. Reg. 86844 (Dec. 15, 2023).
America's mining industry supplies the essential materials necessary
for nearly every sector of our economy--from technology and healthcare
to energy, transportation, infrastructure, and national security.
Headquartered in Washington, DC, the NMA has a membership of more than
250 companies and organizations involved in every aspect of mining,
---------------------------------------------------------------------------
from producers and equipment manufacturers to service providers.
The NMA is the only national trade organization that serves as the
voice of the U.S. mining industry and the hundreds of thousands of
American workers it employs before Congress, the federal agencies, the
judiciary and the media, advocating for public policies that will help
America fully and responsibly utilize its vast natural resources. We
work to ensure America has secure and reliable supply chains, abundant
and affordable energy, and the American-sourced materials necessary for
U.S. manufacturing, national security, and economic security, all
delivered under world-leading environmental, safety and labor
standards.
These comments focus on the aspects of the Sec. 45X credits that will
stimulate U.S. production, processing and availability of critical
minerals as Congress intended. Congress has articulated a bipartisan
interest in addressing our increasing mineral import reliance and
fragile supply chains. The U.S. is currently at a strategic
disadvantage. Over the years, the U.S. has watched as geopolitical
rivals and close allies alike have taken the lead in minerals
production. In 1995, the U.S. was 100 percent import reliant for only 8
minerals. Today, that number has nearly doubled to 15. Of the 50
critical mineral commodities the U.S. Geological Survey lists as
essential for U.S. economic and national security, China is the top
producer or top supplier for 30 of them.\2\ Over the same period, the
U.S. has seen the necessary processing and refining capabilities of
minerals steadily drift overseas, with substantial processing now
occurring in China.
---------------------------------------------------------------------------
\2\ U.S. Geological Survey, Mineral Commodity Summaries, 2023,
https://www.usgs.gov/centers/national-minerals-information-center/
mineral-commodity-summaries.
The risks inherent with that growing vulnerability are masked when
trade agreements are secure and global supply chains are working. But
recent lockdowns and closed borders significantly and adversely
impacted the global supply chain. The need for expanded sources of
critical minerals was apparent when, on a July 2020 earnings call,
Tesla CEO Elon Musk all but begged miners for more nickel, saying,
``Tesla will give you a giant contract for a long period of time if you
mine nickel efficiently and in an environmentally sensitive way.''\3\
The U.S. currently has only one nickel mine, with the mine's useful
life ending as early as 2026; however, in September 2023, the
Department of Defense awarded $20.6 million to developers of the
proposed Talon nickel mine.\4\
---------------------------------------------------------------------------
\3\ Mining.com, Elon Musk pledges ``giant contract'' for
responsible nickel miners, July 2020, https://www.mining.com/tesla-
offers-giant-contract-to-responsible-nickel-miners/.
\4\ See, Associated Press, ``Defense Department awards $20.6
million to support nickel prospecting in Minnesota and Michigan''
(Sept. 12, 2023).
Trade tensions and political instability also play a role. The U.S. and
China have been in a state of flux for the last several years, with
China using its minerals dominance to limit the world's rare earths
supply as a significant bargaining chip. In 2018, the Democratic
Republic of the Congo (DRC) nearly tripled the royalty rate on cobalt.
And Indonesia, once the world's biggest nickel exporter, banned exports
---------------------------------------------------------------------------
recently in the hopes of expanding its domestic smelting industry.
Section 45X, as added by the Inflation Reduction Act of 2022, provides
a key incentive for U.S. domestic mineral production. Section 45X
generally provides a tax credit for various types of ``eligible
components'' produced by the taxpayer and sold to an unrelated person,
but only if the production and sale is in a trade or business of the
taxpayer and only if the eligible components are produced in the U.S.
or in a U.S. possession.
For purposes of section 45X, eligible components include, among other
items, ``applicable critical minerals.'' The section 45X credits apply
to eligible components produced and sold after December 31, 2022.
Unlike other types of eligible components, applicable critical minerals
are not subject to a credit phaseout for sales after 2029.
Section 45X provides the following list of 50 minerals that, when
converted or purified to specified purities, are considered an
``applicable critical mineral'' for purposes of the Sec. 45X credit:
aluminum, antimony, arsenic, barite, beryllium, bismuth, cerium,
cesium, chromium, cobalt, dysprosium, erbium, europium, fluorspar,
gadolinium, gallium, germanium, graphite, hafnium, holmium, indium,
iridium, lanthanum, lithium, lutetium, magnesium, manganese, neodymium,
nickel, niobium, palladium, platinum, praseodymium, rhodium, rubidium,
ruthenium, samarium, scandium, tantalum, tellurium, terbium, thulium,
tin, titanium, tungsten, vanadium, ytterbium, yttrium, zinc, and
zirconium. With respect to an applicable critical mineral, the section
45X credit is equal to 10 percent of the costs incurred by the taxpayer
with respect to the production of such mineral.
Section 45X(d)(2) provides that the only sales taken into account under
section 45X are for eligible components produced within the United
States or a U.S. possession.
Under the proposed section 1.45X-4(3), the only critical mineral
production costs eligible to be counted for purposes of the tax credit
are those for chemical conversion and purification (i.e., processing);
direct or indirect material costs or costs related to the extraction or
acquisition of raw materials would not count.\5\ This limitation fails
to implement the intent of Congress and is simply nonsensical since the
cost to mine a listed critical mineral is often 50 percent or more of
the total cost of producing the mineral in its ultimate purified state.
And, of course, critical minerals cannot be produced in their purified
form without first being extracted from the ground. By limiting the
type of production costs eligible to be counted, the proposed
regulations would deny the domestic mining industry the benefits of the
section 45X tax credit and thus frustrate the Congressional goal of
stimulating new and improved domestic mines and domestic supply chains
for critical minerals.
---------------------------------------------------------------------------
\5\ 88 Fed. Reg. at 86868.
The preamble to the proposed regulations apparently recognizes this
crucial flaw and notes ``that a wide range of costs are incurred in the
production of applicable critical minerals.'' Rather than providing for
these costs, the preamble asks for comments on ``whether and how
extraction and other similar value-added activities in the production
of raw materials used in applicable critical minerals should be taken
into account.'' The preamble says Treasury and the IRS are
``considering'' including extraction and similar costs in critical
mineral production costs, but would do so only if the IRS could
administer such an approach and it would not lead to multiple crediting
of the same costs. NMA believes the final regulations absolutely must
include extraction and other raw material costs in creditable
production costs under section 45X. Congress tasked the IRS to
implement the credit. Treasury and IRS have the authority and expertise
to determine a path forward and have had more than a year to do so.
They have promulgated similar rules with respect to section 30D and the
bonus credits for domestic content. NMA would like to work with
Treasury and the IRS to develop appropriate rules to take extraction
and related costs into account under section 45X. One proposed
---------------------------------------------------------------------------
methodology is described below.
The proposed regulations essentially say that only the processor of the
critical minerals is eligible to claim the credit unless the processor
is acting as a contract manufacturer and has a written agreement with
the other contract parties as to who will claim the credit. This
concept would not accommodate the vast majority of situations in which
a miner extracts the minerals and then transfers them to another
(likely unrelated) party who refines or further refines them. While
there is unlikely to be multiple crediting of the same costs in a
vertically integrated company, mining and refining activities are not
typically vertically integrated or done in partnership between miners
and refiners. To make the section 45X credit work in the real world, it
must permit each party in the U.S. supply chain from extraction through
refining to claim a tax credit on the value-added costs the party
incurs, provided the mineral ultimately reaches the requisite purity.
NMA believes that parties incurring extraction costs can be made
eligible for the section 45X tax credit without resulting in duplicate
credit claims for the same costs. For example, a U.S. miner of critical
mineral ore could use any reasonable method for tracing through the
supply chain the minerals it extracted and could claim the tax credit
in the year it receives a certification from the refiner that the
minerals it originally extracted were refined to the requisite purity
and sold to an unrelated party. The miner would claim the credit only
for its extraction costs, while the refiner would claim the credit for
the processing, transportation, and other costs it bears (but not the
extraction/material costs). Refiners could be required to provide the
necessary certification to their U.S. ore/raw material suppliers. Such
certification process would require cooperation between otherwise
unrelated miners and processors to take full advantage of the section
45X credit, which would also improve transparency.
As another example, a party extracting (or recycling) minerals and
holding title to them throughout the entire extraction and refining
process should be able to claim the section 45X tax credit on all its
production costs, including extraction. In such a case, there would be
no duplication of costs since no other party (including parties
providing contracted refining services) would economically bear costs
or be eligible to claim the tax credit. A contract manufacturer without
title to the processed minerals would not legally be permitted to sell
them to an unrelated party and, therefore, could not be an eligible
credit claimant.
The preamble to the proposed regulations asks for comment on whether
``extraction'' should be defined consistent with proposed regulation
section 1.30D-3(c)(8). Under that section, ``extraction''
means the activities performed to extract or harvest minerals
or natural resources from the ground or a body of water,
including, but not limited to, by operating equipment to
extract or harvest minerals or natural resources from mines and
wells, or to extract minerals or natural resources from the
waste or residue of prior extraction. Extraction concludes when
activities are performed to convert raw mined or harvested
products or raw well effluent to substances that can be readily
transported or stored for direct use in critical mineral
processing. Extraction includes the physical processes involved
in refining. Extraction does not include the chemical and
thermal processes involved in refining.
NMA believes proposed section 1.30D-3(c)(8) is a reasonable definition
of extraction for use in permitting extraction costs to be counted
under the section 45X tax credit.
The section 45X tax credit is intended to stimulate domestic mining and
production of critical minerals. Accordingly, if the final regulations
permit extraction costs to be taken into account, they should count
only the costs of extraction that occurred in the United States (or in
a U.S. possession). To do otherwise would support foreign production
because U.S. processors would be able to claim the credit on their
extraction costs when the raw materials are extracted overseas. The
section 45X tax credit for domestic production of critical minerals
should not be available with respect to the costs of raw materials
extracted in foreign countries or, in the case of recycling, sourced in
foreign countries.
The critical minerals production paradigm contemplated in the proposed
regulations must be significantly modified to address real-world
domestic mining and processing activities without forcing the creation
of artificial business arrangements. To stimulate new and improved
domestic critical mineral supply chains, the section 45X tax credit
should count all of the costs of domestic production and processing of
critical minerals.
Respectfully submitted,
Rich Nolan
______
United States Senate
washington, dc 20510
February 14, 2024
The Honorable Janet Yellen
Secretary
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Dear Secretary Yellen,
We are writing in response to the notice of proposed rulemaking for the
Section 45X Advanced Manufacturing Production Tax Credit. We request
that the U.S. Department of the Treasury (Treasury) make revisions to
the proposed rule to align the rule with the intent of Congress and to
ensure the credit properly incentivizes the entirety of the domestic
supply chain for applicable critical minerals and eligible components,
including mineral extraction and electric vehicle battery production.
As you know, Congress passed the Inflation Reduction Act (IRA) in part
to support the domestic extraction and production of critical minerals
and materials, as well as the manufacturing of batteries and their
components. Recognizing our increasing foreign dependence on these
materials, often from hostile nations, the section 45X credit provides
a credit for taxpayers who produce certain critical minerals as well as
various energy related products.
We are concerned that Treasury's proposed rule for the 45X tax credit
explicitly excludes direct and indirect material costs for taxpayers
seeking to claim the credit. Treasury writes in the proposed rule that
``Direct material costs as defined in Sec. 1.263A-1(e)(2)(i)(A), or
indirect material costs Sec. 1.263A-1(e)(3)(ii)(E), and any costs
related to the extraction or acquisition of raw materials'' are not be
included in production costs. The proposed rule goes on to say ``. . .
the cost of acquiring the raw material used to produce the electrode
active material, the cost of materials used for conversion,
purification, or recycling of the raw material, and other material
costs related to the production of the electrode active material would
not be taken into account.''
The clear purpose of section 45X was to encourage investment in the
United States and to build a reliable and resilient domestic supply
chain for critical minerals right here at home. The section 45X credit
was designed to support responsible domestic mining and processing of
these minerals. As members of the U.S. Senate we want to clarify that
the blanket exclusion of materials costs is not consistent with the
intent of Congress and should be expeditiously revised. Section 45X
provides for a 10 percent credit for the production costs of applicable
critical minerals, and raw materials costs were never intended to be
excluded from this calculation. This exclusion is not aligned with the
intent of Congress and significantly weakens the tax credit as the cost
of extracting raw materials essential for renewable energy, battery
technologies, and other critical materials are a significant portion of
overall costs.
Additionally, this exclusion weakens the credit's intended goal to
strengthen the New Clean Vehicle Credit, established under Section 30D
of the tax code. The 30D credit is designed to counter influence by any
``Foreign Entity of Concern'' (FEOC) over clean vehicle supply chains.
Key to the success of the 30D credit are the 45X credit's incentives
for domestic mineral extraction and processing. A final rule that
excludes materials costs will substantially impact critical minerals
supply, increasing the challenges for vehicle producers looking to
manufacture clean vehicles in the United States.
Private companies are ready and willing to invest in extraction and
production of raw materials right here in the United States, and do so
in a safe and responsible manner through developed environmental
protection and labor standards. However, by excluding the majority of
the production costs from the 45X credit, Treasury would disincentivize
investment in the United States, and also increase our reliance on
countries that do not share our democratic or geopolitical values. This
result would be contrary to the intent of the legislation and
detrimental to our national and energy security.
We appreciate Treasury's caution and intent, noted in the proposed
rule, to mitigate the risk of double counting and fraud. However, as
proposed, the credit eliminates the ability to even single count direct
and indirect materials costs and extraction costs, which significantly
weakens the credit's primary purpose of developing a domestic critical
mineral supply chain. The risk of double counting production costs can
be mitigated using similar basis reduction mechanics and documentation
requirements Treasury and IRS require to calculate the value of
investment tax credits under sections 48 and 48C. Similarly, IRS is
well equipped with the experience and tools necessary to understand and
administer the deduction of expenses related to extraction and can
apply these to the 45X credit. Additionally, we believe the statute,
which directs the credit to be claimed for components ``produced by the
taxpayer,'' provides flexibility for Treasury to establish other
safeguards, such as audit and claw back measures, to prevent any type
of fraudulent behavior.
We appreciate your attention to these matters and look forward to
working with you as you implement the Inflation Reduction Act.
Sincerely,
Catherine Cortez Masto John Hickenlooper
United States Senator United States Senator
Jacky Rosen Joe Manchin III
United States Senator United States Senator
Mark Kelly Laphonza Butler
United States Senator United States Senator
Kyrsten Sinema Robert P. Casey, Jr.
United States Senator United States Senator
Patty Murray
United States Senator
______
February 5, 2024
The Honorable Janet Yellen
Secretary
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Dear Secretary Yellen,
We write to express our support for the renewed focus on securing
America's economic competitiveness and national security by
strengthening the domestic manufacturing sector for innovative energy
technologies such as battery energy storage systems and electric
vehicles (EVs). The onshoring of these critical industrial capabilities
will not only benefit U.S. workers, their families, and communities but
also comes at a vitally important time when more domestic investment is
needed to remain competitive with our global adversaries.
The undersigned organizations collectively represent every step of the
supply chain for battery storage and electric vehicle manufacturing.
Our operations are significant economic contributors that create
thousands of high-paying jobs, millions of dollars in state tax revenue
to fund essential community services, and research and training that
ensures the U.S. remains globally competitive.
We write today to urge the Department of the Treasury and the Internal
Revenue Service to consider that direct and indirect material costs and
costs related to the domestic extraction of raw materials are value-
added activities and should be eligible to claim the Section 45X
Advanced Manufacturing Production Tax Credit (45X).
Critical Mineral Production Under 45X
To date, the Biden-Harris Administration has worked to invest in
America--from assessing our inherent vulnerability within mineral
supply chains essential to modern renewable energy technologies to
supporting domestic mine processing projects through once-in-a-
generation public-private funding partnerships. Through these actions,
a solid foundation for a new era of American manufacturing is being
laid. The Inflation Reduction Act (IRA) of 2022 (Pub. L. 117-169)
includes landmark programs essential to reducing our outsized reliance
on imported minerals from countries that do not share our democratic
values or align with the United States' globally leading environmental,
labor, and safety standards.
In December 2023, the U.S. Department of the Treasury and the Internal
Revenue Service (IRS) issued draft guidance (88 FR 86844) to implement
45X, a provision whose effective implementation underpins the success
of the IRA and the clean energy transition.
Section 45X creates a new tax credit that provides $35 per kWh for each
battery cell, $10 per kWh for each battery module, and covers 10
percent of the costs of production of the applicable critical
materials, which will significantly drive down the costs of domestic
clean energy manufacturing. Unlike other eligible components,
applicable critical minerals are not subject to a credit phaseout after
2029, underscoring Congressional intent that the IRA incentivizes the
onshoring of the critical minerals supply chain.
If implemented thoughtfully, the 45X credit will ensure the success of
current American industrial policy over the next decade by facilitating
the deployment of domestically produced clean energy technologies--
particularly electric vehicles. However, the proposed guidance states
that the only critical mineral production costs eligible to be counted
toward the production tax credit are the downstream value-added
activities that include chemical conversion and purification (i.e.,
processing). This concept would not provide a tax credit for the costs
of domestic extraction of critical minerals, a key part of onshoring
the supply chain. Nor would it address situations in which an entity
extracts the minerals and transfers them to another likely unrelated
party who refines or chemically processes the raw mineral.
45X and Clean Vehicle Incentives
The Section 30D New Clean Vehicle Tax Credit (30D) was modified by the
IRA and reduces the cost of new EVs by $7,500, provided the vehicle
purchaser and manufacturer meet the necessary qualifications. For
manufacturers, this means meeting increasingly stringent domestic
content requirements that require sourcing battery components and
critical minerals either domestically or from free trade agreement
(FTA) countries. Because both requirements must be met for an EV to be
eligible for the 30D credit, significant investment will continue to be
necessary to scale domestic battery manufacturing and critical mineral
production capacity and maximize the impact of the 30D credit.
Thoughtful implementation of the 45X credit recognizes its role as a
key enabling tool to meet 30D sourcing requirements and is central to
the success of broader U.S. industrial strategy.
The clean vehicle and manufacturing incentives in the IRA have two key
policy objectives: to increase EV deployment and to counter foreign
influence by building domestic clean energy supply chains. Designed to
complement each other, the Section 30D New Clean Vehicle Tax Credit and
the Section 45X Advanced Manufacturing Production Tax Credit will be
the main drivers of these policy outcomes. As proposed, the 45X
guidance will achieve neither and, in fact, could serve as a hindrance
to the success of both credits. Without a robust, secure supply of
domestic critical minerals and battery components, increasingly
stringent sourcing requirements tied to 30D eligibility could make
fewer vehicles eligible over time. The decision to deny the 45X credit
for raw materials costs will curtail future domestic supply, worsening
an increasing minerals bottleneck rather than alleviating it.
We appreciate Treasury and IRS's concerns about preventing double
counting and reducing fraud, waste, and abuse and strongly support the
need for upholding the integrity of the 45X credit. We also share
Treasury and IRS's goals of ensuring the value of the credit is
retained domestically. However, as proposed, 45X would eliminate the
ability to even single count direct and indirect materials costs and
extraction costs, amounting to a missed opportunity to incentivize the
development of a domestic critical minerals supply chain.
Collectively, the undersigned organizations have serious concerns
regarding the proposed guidance. As proposed, the impact of the 45X
credit is significantly reduced. Further guidance must permit each
party in the U.S. supply chain, including extraction and refining, to
claim a tax credit on the value-added costs the party incurs, provided
the mineral ultimately reaches the requisite purity.
Congress intended the 45X tax credit to work in tandem with the clean
vehicle credit's sourcing requirements to stimulate domestic production
of critical minerals and reduce the United States' reliance on imported
minerals. To stimulate greater security of our domestic critical
mineral supply chains and unlock the intended impact of the statute,
the undersigned organizations urge the Department of the Treasury and
the IRS to consider that direct and indirect material costs and costs
related to the domestic extraction of raw materials are value-added
activities and should be eligible to claim the 45X credit.
We appreciate your attention to this important issue and look forward
to the agency's expeditious update to address the shortcomings in the
draft guidance.
Sincerely,
Zero Emission Transportation
Association (ZETA) National Mining Association (NMA)
Alaska Miners Association American Critical Minerals
Association
American Exploration & Mining
Association American Lithium Corp.
American Rare Earths Ltd. Arizona Mining Association
Battery Materials & Technology
Coalition (BMTC) Coeur Mining
Colorado Mining Association Lundin Mining--Eagle Mine
First Mode GraphiteOne
General Motors Hecla Mining
Idaho Mining Association Ioneer USA
Jervois Liebherr
Lithium Americas Materion Natural Resources
Metallic Minerals Corporation Mining Minnesota
Montana Mining Association MP Materials
Nevada Battery Coalition Nevada Mining Association
NewRange Copper Nickel NioCorp
Nyrstar Perpetua Resources
Piedmont Lithium Ramaco Resources
Rio Tinto Sibanye Stillwater
Society for Mining, Metallurgy, and
Exploration South32
Talon Metals Teck Resources
TerraVolta Tesla
The Women's Mining Coalition U.S. Battery Machine Builders
Coalition
USA Rare Earth, LLC. Utah Mining Association
CC:
U.S. House of Representatives Committee on Ways and Means
U.S. House of Representatives Committee on Natural Resources
U.S. Senate Committee on Energy and Natural Resources
U.S. Senate Committee on Finance
______
Prepared Statement of Hon. Mike Crapo,
a U.S. Senator From Idaho
During last Thursday's State of the Union address, using ``fair
share'' rhetoric, President Biden laid out his plans for making
American manufacturers more competitive: tax them more. President
Biden's proposed 28-percent corporate rate--about 32 percent when
including State taxes--would leave the U.S. with one of the highest
rates in the developed world.
It gets worse: Biden would also hike the Democrats' book minimum
tax--a fundamentally flawed proposal which harms American
manufacturers--by 40 percent to 21 percent. Contrast that vision with
what Republicans actually did in 2017.
Prior to the Tax Cuts and Jobs Act (TCJA), the U.S. had one of the
highest corporate income tax rates among developed countries. In 2017,
Republicans lowered the rate and broadened the base, putting a stop to
corporate inversions. It led to one of the strongest economies in
generations prior to the pandemic: unemployment dropped to a 50-year
low, economic gains flowed to all demographic groups and income levels,
and American businesses reported record R&D investment.
In the words of former President Obama's economic advisor, Jason
Furman, ``taxes actually do matter.'' In response to a recent study on
the impact of the TCJA's policy changes on domestic investment, Furman
stated: ``These are the most convincing estimates of the response of
investment to corporate tax rates that I've ever seen.''
I agree--tax rates actually do matter. A competitive tax system is
instrumental in manufacturers' decision of where to invest. Reducing
business tax rates, paired with progrowth policies like immediate
expensing of capital investments, drove historic growth in the
manufacturing sector. According to the National Association of
Manufacturers, in 2018, the year immediately following TCJA's
enactment, manufacturing had the best year for job creation in 21
years; manufacturing wages grew at the highest level in 15 years;
manufacturing capital investment grew by 4.5 percent; and manufacturing
production grew 2.7 percent, with December 2018 being the best month
for manufacturing output since May 2008.
Stability of tax policy is also key to maintaining strong
manufacturing in the United States. We must protect the TCJA's
progrowth tax policies and seek to make them permanent before they
expire in 2025. We should also look to improve and build on those
policies to ensure U.S. companies and workers can continue to compete
globally.
Another area of continued bipartisan interest is bolstering the
domestic supply chain of semiconductors. American semiconductor
manufacturers, represented here today by onsemi, are operating in an
increasingly competitive market. While we must be circumspect when
considering industry-specific tax incentives, bolstering domestic
manufacturing of semiconductors is vital to safeguarding national
security.
Chairman Wyden and I have worked closely over the years on
proposals to strengthen the U.S. semiconductor supply chain. The
Advanced Manufacturing Investment Credit (AMIC) is the result of that
bipartisan effort and has already led to increased investment across
the U.S. In my home State of Idaho, Micron announced that it will
construct a new memory chip plant, the first new memory semiconductor
manufacturing fab built in the U.S. in the last 20 years. This
expansion ensures the semiconductor industry will continue to innovate
and develop new technologies that keep Idaho on the leading edge for
research and development.
In contrast to this bipartisan effort, the costs of the Inflation
Reduction Act (IRA) energy incentives have quickly mushroomed from the
original JCT score of $270 billion over 10 years to a June 2023
estimate of $663 billion. One of our witnesses today will discuss his
experience with how the administration is proposing to implement these
incentives in a way that bolsters China and foreign manufacturing.
Unfortunately, he is not alone: hundreds of domestic stakeholders
have provided formal comments to various proposed energy incentive
rulemakings which express significant concerns with the implementation
of those energy incentives, including two other witnesses here today.
Congress should closely scrutinize a law that both costs much more than
promised and also fails to achieve key goals, like making the U.S. less
reliant on our adversaries.
I look forward to discussing how we can continue to encourage
domestic manufacturing activity, including addressing the global
semiconductor shortage and supply chain issues.
______
Prepared Statement of Anna Fendley, Director of Regulatory
and State Policy, United Steelworkers (USW)
On behalf of the members of the United Steelworkers (USW) union, I
would like to thank Chairman Wyden, Ranking Member Crapo, and the
members of the committee for holding this hearing today and for
inviting me to testify.
My name is Anna Fendley, and I am the director of regulatory and
State policy for USW, the largest manufacturing union in North America.
Our members supply almost every sector of the economy and produce a
wide array of products, including paper, glass, ceramics, cement,
chemicals, aluminum, oil, rubber, and, of course, steel. They do so in
some of the most advanced, most efficient, and most environmentally
friendly facilities in the world, and their jobs are the sort of good,
family-supporting jobs that built the middle class in this country.
These are the jobs that must be retained and created if America is to
maintain its position in the global economy.
We appreciate that this committee has spent many years considering,
developing, and overseeing implementation of initiatives to grow U.S.
manufacturing through the tax code. Over the last several years and
through multiple pieces of legislation, Congress has enacted a once-in-
a-generation investment in onshoring and growing the manufacturing base
in this country using both supply- and demand-side drivers to
incentivize growth. While I will only discuss a few of them in my
testimony--those relevant to the tax code--they are only a handful of
the interlocking series of policies all being simultaneously
implemented by the Biden administration. USW is supportive of the work
Congress has done--in a mostly bipartisan fashion--and is excited about
the progress that has been made through executive action in
implementation of the Bipartisan Infrastructure Law, the CHIPS and
Science Act, and the Inflation Reduction Act (IRA).
The efforts by Congress have already led to a boom in spending on
manufacturing construction, reaching approximately $225 billion in new
spending in January.\1\ U.S.-based companies like making investments in
their facilities, such as Blue Bird Bus expanding capacity to allow
USW-members to make up to 5,000 buses annually.\2\ Notably, foreign
companies are also now choosing to make massive investments in the
United States. For example, about a year ago Q-Cells, owned by South
Korean company Hanwha, announced plans to invest approximately $2.5
billion to expand its solar module manufacturing capacity in
Georgia.\3\
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\1\ Federal Reserve Economic Data, ``Total Construction Spending:
Manufacturing in the United States,'' accessed March 7, 2024, https://
fred.stlouisfed.org/series/TLMFGCONS.
\2\ Electrive, ``Blue Bird to Produce 5,000 Electric School Buses
Per Year,'' May 26, 2023, https://www.electrive.com/2023/05/26/blue-
bird-lays-foundations-to-produce-5000-zev-school-buses-a-year/.
\3\ https://www.georgia.org/press-release/qcells-more-double-
production-georgia-create-2500-new-jobs.
We have worked hard with Congress, the administration, our employer
partners, and other stakeholders to help develop and implement these
policies and will continue to do so. This is an ongoing process, and
the continued focus of the Finance Committee on ensuring success is
very much appreciated, as is the committee's continued interest in the
perspective of labor unions like USW.
section 45x advanced manufacturing production credit
The first provision I would like to highlight is the section 45X
Advanced Manufacturing Production Credit that was enacted in the
Inflation Reduction Act. Section 45X provides a tax credit for the
domestic production and sale of certain clean energy products,
components, and critical minerals. USW strongly supported, and
continues to support, this provision because it presents huge potential
to help build the critically needed stable and resilient domestic
supply chains for an array of clean energy technologies that will allow
American workers to rapidly scale the deployment of these technologies
while protecting our energy security.
Our union was particularly supportive of congressional efforts to
create this tax credit to reshore solar manufacturing capacity after
the majority of it was lost to China over decades; to use tax
incentives to ensure that a new domestic offshore wind industry is
supplied by U.S.-made components; and to boost the production of
critical minerals in this country. As the largest mining union, our
members are particularly keen to see responsible mining and mineral
processing grow in this country to ensure we are supplying our own
needs.
We have provided input to the Department of the Treasury (Treasury)
since the passage of the IRA in its ongoing regulatory process to
implement section 45X. USW is grateful for the careful work being done
by the Internal Revenue Service (IRS) to implement this provision so
far, including the efforts by the agency to solicit public input on
certain key questions in the notice of proposed rulemaking. Although
like all iterative regulatory processes in an interim stage, there are
certain outstanding and occasional new issues that arise that require
more consideration before rulemaking is complete.
An example of what I mean is in the definition of aluminum under
45X, which is of great importance to USW, the primary union in the
aluminum industry. USW was one of several stakeholders that sought
clarification about the wording of the IRA statutory language that, if
interpreted one way, could have inadvertently excluded most primary
aluminum production from eligibility. In its proposed rule, the IRS
both cleared up some of that confusion while, potentially, introducing
a different bit of confusion. Clearly, the IRS had the correct goal in
its guidance, which stated that the relevant definition of aluminum
``should be interpreted in light of the dynamics of the aluminum
industry and the role that critical materials like aluminum play in the
renewable energy and energy storage industry.'' As such, it clarifies
the intent of Congress that eligibility should encompass both aluminum
oxide (i.e., alumina) and commodity-grade aluminum.
This is a welcome clarification for USW members who work at the
only remaining domestic alumina refinery in Gramercy, LA, and for the
USW members who work at primary aluminum facilities owned by Alcoa and
Century Aluminum in Kentucky, New York, and Indiana.\4\ Although, even
then, there are still anomalies. For example, the rule states both that
``commodity-grade aluminum'' means primary production of unwrought
aluminum forms, and that it be ``in a form sold on international
commodity exchanges.'' This creates a different potential ambiguity
because while commodity-grade aluminum is produced and sold in several
unwrought forms (ingots, t-bars and sows, slab, billet, etc.), only one
of those forms (P1020 ingot) is typically sold on the primary
international commodity exchange for aluminum (the London Metal
Exchange), so if read overly literally this could be restrictive in a
way that neither the IRS, nor Congress, intended.
---------------------------------------------------------------------------
\4\ AL Circle, ``Atlantic Alumina welcomes the advancement of 45X
advanced manufacturing credits,'' January 23, 2024, https://
www.alcircle.com/press-release/atlantic-alumina-welcomes-the-
advancement-of-45x-advanced-manufacturing-credits-105692.
I raise this once again to note the fact that the implementation of
this important credit is an iterative, as-yet-incomplete, process. USW
is pleased that Treasury and the IRS seem to agree with our
recommendation that the definition of primary aluminum include all
unwrought primary aluminum smelted from aluminum oxide and that primary
aluminum producers should be allowed to include all of their costs of
---------------------------------------------------------------------------
production when calculating the credit.
Getting this right really matters to the domestic aluminum industry
and USW members. This industry has struggled significantly in recent
years due to low-cost imports, high costs of electricity, and other
factors that have resulted in the loss of domestic capacity and jobs.
This is not news, and governmental support for this critical industry
has taken many forms. We continue to work on all of them, and are
especially focused on helping the IRS and Treasury get it right with
regard to 45X. This credit can be a huge help in re-growing this
industry in the United States after decades of predatory trade
practices, and other issues, have destroyed so much domestic capacity.
The example of aluminum is just one of several things that are
going on in this rulemaking process, many of which USW has also
commented on directly with the IRS and Treasury. We have urged Treasury
to seek alignment with the Made in America office on methodology to
develop clear and transparent origin requirements for the ``produced in
the United States'' aspect of 45X. This is critically important for the
credit to achieve the intent of Congress to build a domestic supply
chain for these products, components, and minerals.
To that end, we applaud the definition that Treasury has proposed
to ensure that eligible components are substantially transformed into a
distinct component that will function differently from that, which
would result from assembly or superficial modification. This will
prevent credit for activities, such as simply painting blades for wind
turbines or conducting other superficial work, that do not bring the
bulk of the economic activity and job gains to U.S. workers.
However, we have also encouraged further clarification to ensure
that there are not unintended consequences, such as improperly
excluding critical mineral processors who constitute the bulk of the
transformation, but send product to customers without completing the
final step of refining.
We have also urged Treasury to consider incorporating direct and
indirect material costs, as well as the costs related to critical
mineral extraction and mining in the definition of production costs.
This is important to achieving the goals of both Congress and our
union's many members in mining, that this credit can grow responsible
domestic extraction and recycling of critical minerals, and ensure
competitiveness of the domestic industry in a global market.
Finally, we have urged Treasury to ensure that there are strong
enforcement procedures. We have suggested a risk-based audit model to
prevent abuse of this credit.
All this is to say, USW is very excited about the prospect of this
credit to help build U.S. domestic manufacturing and supply chains for
clean technologies. The transition to a clean energy economy will
result in lots of jobs somewhere in the global economy, and we look
forward to continuing to work with Congress and Treasury to ensure that
these jobs are good, family-supporting, union jobs for American
workers.
section 48c qualifying advanced energy project credit
USW also strongly supported the revival of the section 48C
Qualifying Advanced Energy Project Credit. We supported 48C when it was
originally enacted in 2009 as part of the American Recovery and
Reinvestment Act (ARRA), and like many others, were disappointed that
it was not replenished when its initial tranche of funding ran out
years ago.
The IRA's revival and expansion of 48C provides an exciting
opportunity to advance decarbonization efforts through the domestic
manufacture of an expanded list of energy technologies and their
components, processing of critical minerals, and direct efforts to
decarbonize industrial processes.
These efforts will both help build sustainable supply chains in the
United States and promote the retention and growth of manufacturing
jobs for American workers, although, again, the challenge is again in
the implementation. We want these investments to achieve the greatest
bang for the buck, which requires that applications outline technology,
benefits, and risks that are clear, understandable, and predictable.
The appetite for this credit has been as huge as expected, and the
first round of applications for the first $4 billion in credit
availability attracted concept papers from applicants seeking $42
billion in funding across all the various categories of projects for
which 48C can now apply. Needless to say, competition is fierce.
This is not a surprise given how oversubscribed 48C was in its
original incarnation under ARRA. Since then, the demand for this credit
has only grown and it already seems that the $10 billion authority for
48C in the IRA is not nearly enough.
The IRA's 48C helpfully directs 40 percent of the available funding
to designated energy communities, which will ensure that the benefits
of the transition to a clean energy economy accrue to those communities
that may suffer the most harm from the loss of fossil-fuel-related
jobs. Those communities are responding with $11 billion worth of
projects in energy communities applied for the first $1.6 billion set
aside for projects there. This is both due to the extensive outreach
done by the administration in those communities and an increasing
understanding that these communities are poised to lead the way into
the clean energy economy with the right governmental support.
Because awarding of the 48C credit functions more like a grant
process than a typical tax credit, I would be remiss not to mention the
important role that the Department of Energy (DOE) to assist the IRS in
managing the selection process. Our union strongly supports the work
that DOE has done to include Community Benefits Plans into the scoring
criteria for funding opportunities, including 48C. These plans are
based on the following four elements to ensure that government support
for a project is broadly shared: (1) engaging communities and labor;
(2) investing in America's workers through quality jobs; (3) advancing
diversity, equity, inclusion, and accessibility through recruitment and
training; and (4) implementing Justice-
40.\5\
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\5\ U.S. Department of Energy, ``About Community Benefits Plans,''
accessed March 7, 2024, https://www.energy.gov/infrastructure/about-
community-benefits-plans.
The implementation of this scoring mechanism shows that there is
widespread potential for projects that can catalyze clean energy
manufacturing, critical minerals processing, and industrial
decarbonization while simultaneously engaging with communities and
labor organizations, putting quality jobs first, and helping
---------------------------------------------------------------------------
communities that need assistance.
Our union was proud to support some project applications by USW-
employers seeking to make significant investments in the long-term
viability and efficiency of their facilities in the first round of
applications for 48C funding. The process outlined by DOE helped drive
productive conversations between our members and their employers on the
shared goal of ensuring that their jobs are there for many decades to
come.
Unfortunately, this hearing is being held prior to the announcement
of selectees under the first tranche of $4 million of the 48C credit
from the IRA. I wish we could collectively celebrate the selected
projects specifically today, but that will have to wait to do that
until a date in the future.
demand-side drivers
The credits I have discussed, 45X and 48C, are both excellent
examples of one aspect of how Congress can grow U.S. manufacturing
through the tax code, but both work by driving the supply side of the
equation. These will help producers build supply chains in clean
energy, critical minerals, and drive industrial decarbonization, but in
order to be fully effective, producers need certainty that making these
investments will be worth it. Even with a tax credit, these projects
are not free and undertaking them entails risk for producers.
That risk can be mitigated by ensuring strong demand-side drivers
to give producers confidence that, if they make the necessary
investments, they will be rewarded with a strong and stable market for
their products. These demand-side drivers for American made products
are somewhat new to the tax code, but there are a few already being
enacted now. For example, the IRA also included a bonus credit for
clean energy projects that use American iron, steel, and manufactured
goods, and the section 30D tax credit now includes requirements for
vehicle assembly in North America and provisions around critical
mineral and battery production.
We strongly support these provisions, which are a critical piece of
the puzzle that will unlock the potential for companies to take
advantage of the supply-side tax credits and to garner private
investment.
To illustrate the importance of demand-side drivers and a
comprehensive tax and trade agenda, I'll reference back to testimony
that USW member Joe Wrona gave before this committee almost exactly 3
years ago in a hearing titled, ``Fighting Forced Labor: Closing
Loopholes and Improving Customs Enforcement to Mandate Clean Supply
Chains and Protect Workers.''\6\ In his testimony, Joe told this
committee about the $35 million investments that his employer,
Ferroglobe, planned to make in their Niagara Falls plant in 2009 to
increase production of metal silicate, largely for polysilicon
production for solar panels. They expected strong demand from the solar
manufacturing industry that never materialized because the growth of
China's industry undercut global prices and ultimately harmed workers,
like Joe and his colleagues.
---------------------------------------------------------------------------
\6\ U.S. Senate Finance Committee, ``Fighting Forced Labor: Closing
Loopholes and Improving Customs Enforcement to Mandate Clean Supply
Chains and Protect Workers,'' March 18, 2021, https://
www.finance.senate.gov/hearings/fighting-forced-labor-closing-
loopholes-and-improving-customs-enforcement-to-mandate-clean-supply-
chains-and-protect-worker.
The solutions to these problems require a range of policy actions
under the Senate Finance Committee's jurisdiction from improved trade
enforcement to manufacturing tax credits. We applaud this committee for
hearing testimony like Joe's and ensuring that the legislation that
followed both helps stand up production capacity and creates a demand
for it. Measures such as these ensure that government dollars are not
wasted and private investment is not lost.
path forward
This is a very exciting time for American manufacturing, and tax
policies are key drivers of that excitement. Still, there is a lot of
work to be done.
These and other IRA provisions are not yet fully finalized and
operational, and more outreach needs to be done in order to educate
producers of their benefits and fully implement these credits. Small
and mid-sized manufacturers, in particular, have not yet been fully
brought into these programs as much as they can be. There needs to be a
dedicated outreach strategy to those producers in particular.
The Senate Finance Committee, in its legislative role, should also
build on these tax credits. Congress should continue to ensure that our
tax code follows our values, like limiting foreign countries of concern
use of tax credits, creating demand for American products, and
guaranteeing American workers access to their federally guaranteed
labor rights without employer interference. The union urges Congress to
consider conditioning tax credits to ensure that credit dollars are not
used to fight workers' choice to form a democratic union.
We look forward to continuing to work with Congress and the
administration as they further the implementation of the IRA, build and
expand these outreach efforts, and think about the next generation of
policies that can grow American manufacturing, both through the tax
code and otherwise. Again, thank you to the committee for allowing us
to be a constructive partner in these efforts, and for inviting me to
testify today.
______
Questions Submitted for the Record to Anna Fendley
Question Submitted by Hon. Mike Crapo
Question. The United Steelworkers recently provided comments on
proposed rulemaking related to ``foreign entities of concern'' that
three times called upon the administration to ``strengthen'' the
proposed rule that ``falls short'' of key Inflation Reduction Act (IRA)
goals.
What will the impact to U.S. manufacturing be if the administration
fails to strengthen this proposed rule as you request?
Answer. The foreign entity of concern (FEOC) rule is an important
piece of the industrial policy in the Inflation Reduction Act. Failing
to strengthen the FEOC provisions from the proposal will result in
vulnerabilities for U.S. manufacturers in relation to competition with
China.
______
Question Submitted by Hon. Benjamin L. Cardin
Question. As you may know, U.S. Wind won a major new Federal grant
of $47.7 million to support a plan to establish an offshore wind and
manufacturing hub called Sparrows Point Steel in Baltimore County. This
grant was provided through the U.S. Maritime Administration's Port
Infrastructure Development Program. The site was once the home of
Bethlehem Steel when it was the largest steel production facility in
the world. It is estimated that this project will produce around 500
Steelworker jobs, and a total labor income of $1,019,056,500 could be
generated over 20 years.
U.S. Wind is a Baltimore-based offshore wind developer that holds
the lease rights to a Federal lease area off the coast of Ocean City,
MD. The lease area, about 80,000 acres in size, has the capacity to
generate 1,800 megawatts (MW) of offshore wind energy, which is enough
clean electricity to power more than half a million homes each year.
In 2021, U.S. Wind announced that it would be establishing an
offshore wind manufacturing facility, Sparrows Point Steel, at
Tradepoint Atlantic in Baltimore County. The site is almost 100 acres
in size. Sparrows Point Steel will produce the towers, foundations, and
other steel components needed for U.S. Wind's first two Maryland
offshore wind products--MarWin and Momentum Wind--and have the
capabilities to service the entire U.S. offshore wind market on the
east coast.
Could you speak about the importance of establishing Sparrows Point
Steel in Maryland and what it means for the resurgence of the steel
industry and the growth of the renewable energy market in Maryland?
Additionally, could you speak on the relationship between an increase
in good union jobs an increased investment in renewable energy
manufacturing in the United States?
Answer. The historic unionized jobs at Bethlehem Steel in Sparrows
Point built the middle class in that community. When the steel mill
closed, that community suffered greatly, not just with the loss of jobs
but also cuts to pensions for retirees. The siting of Sparrows Point
Steel on the footprint of an iconic former steel mill demonstrates the
opportunity of offshore wind to bring manufacturing jobs back to port
communities.
The vast majority of jobs that will be created in offshore wind
will be in manufacturing the many components for these projects,
meaning that a core goal of renewable energy policy should be to
capture those jobs for American workers. We applaud Congress for
creating the 45X tax credit in the Inflation Reduction Act as a way to
incentivize domestic manufacturing of offshore wind foundations and
towers, like those that will be made at Sparrows Point Steel.
Importantly, these new clean energy manufacturing jobs should be
union jobs due to the vast benefits that unions provide to workers and
communities. Last year, the U.S. Treasury Department outlined many of
those benefits including higher wages, higher job satisfaction, and
more equity in the workplace.\1\ Congress and the administration must
work to ensure that companies, particularly those receiving Federal
funding, respect workers' rights to organize and collectively bargain.
---------------------------------------------------------------------------
\1\ https://home.treasury.gov/news/featured-stories/labor-unions-
and-the-us-economy.
______
Prepared Statement of Peter R. Huntsman, Chairman, President,
and Chief Executive Officer, Huntsman Corporation
why i am here today
Chairman Wyden, Ranking Member Crapo, members of the committee,
thank you for this opportunity to appear before the committee to
testify on how to best calibrate the tax code to grow U.S.
manufacturing. It is an honor. I take very seriously our First
Amendment right to engage directly with elected officials and
policymakers of both parties to help educate and inform them about how
Huntsman Corporation and American chemical manufacturers manage risk,
make capital decisions, grow our employee base, return capital to
shareholders, and safely deliver the products that make modern life
possible.
The primary reason I am here today is to share my observations on
policy, political, business, and cultural forces that are shaping
investment decisions by U.S. manufacturers, especially those that are
energy intensive. I am not a tax expert; I rely heavily on our company
finance and tax teams to help me understand the complexity of the tax
code. However, after 4 decades in the chemical industry, I do
understand how the tax code--and other inputs--incentivize or
disincentive manufacturing investment decisions in the United States.
I hope members of the committee come away with the following
conclusions from my testimony:
1. American manufacturing dominance, prosperity, security, and
power are based predominantly on access to cheap, abundant, and
reliable energy, primarily in the form of hydrocarbons.
2. The safe and environmentally secure extraction, processing,
and transportation of hydrocarbons makes modern life possible.
That is not hyperbole. It is physical, immutable reality.
3. Under existing technology, organizing the American economy
and government to entirely eliminate greenhouse gas emissions
will create scarcity of the chemical building blocks of modern
life, increase the costs of all goods and services, inhibit
U.S. economic growth, and weaken America in the world.
4. To enable society to reduce greenhouse gas emissions, tax
policy should be calibrated to increase U.S. natural resource
extraction, material refining capacity, and chemical
manufacturing more efficiently and productively here in the
United States, where we have the strongest, risk-based
environmental laws and regulation in the world. It is the
chemical sector that develops the molecules that allow
individuals and society collectively to lower their greenhouse
gas emissions.
5. Long-term taxpayer subsidy of intermittent and unprofitable
electricity production is already creating market distortions
across the entire manufacturing value chain and supplanting
reliable and profitable sources of energy.
6. Only when EVs become affordable and reliable to buyers and
profitable for manufacturers will there be meaningful EV
adoption.
7. If the threat of climate change is existential to humanity,
the U.S. Congress should directly finance or incentivize the
construction of emissions free nuclear energy facilities across
the entire Nation.
the huntsman story
The Huntsman story is the story of American manufacturing.
Through the vision and tenacity of my father, Jon Huntsman, Sr.,
and supported by tens of thousands of employees over a half century,
Huntsman Corporation today is a New York Stock Exchange (NYSE) traded
company headquartered in The Woodlands, TX with 2023 revenues of
approximately $7 billion, 6,000 employees, and operations in 25
countries. My father's life began in 1937 in a Blackfoot, ID home with
no indoor plumbing. By the end of his life in 2018, he had donated
nearly $1 billion dollars to endow the Huntsman Cancer Institute (HCI)
at the University of Utah in Salt Lake City. Today, HCI is the leading
cancer hospital in the Mountain West region and has saved tens of
thousands of lives through world leading cancer treatment.
After dropping out of college, I started my career in 1983 as a
truck driver delivering oil across the Intermountain West. In 2000, I
became president of the company and in 2017 chairman and CEO. As our
company grew from a small California packaging company into a
multinational chemical company, I have witnessed boom and bust business
cycles, mergers and acquisitions, multiple iterations of ``peak oil,''
the collapse of the Soviet Union, reunification of Europe, the rise of
China, the creation of the Internet, and the transformational impact of
hydraulic fracturing, among others. Today, I am eager watch how
artificial intelligence changes the chemical industry and world. I have
also observed the tax policy and regulatory environment impacting U.S.
manufacturing ebb and flow across Democrat and Republican
administrations and Congresses. Our company and the chemical industry
have played a role in all of it.
raw materials, feedstocks, chemical manufacturing, and innovation
I want to provide a basic primer on what chemical companies do
because chemicals are the building blocks of all American
manufacturing. In the most basic form, we take atoms and molecules,
break them apart and then put them back together to make the building
blocks of virtually everything you see and touch in modern life.
Automobiles, passenger airplanes, solar panels, wind blades,
smartphones, computers and televisions, residential and commercial
buildings, pharmaceuticals, missiles, fighter planes, clothing, soap,
shampoo, shoes, clean drinking water, and crop fertilizer are just a
few examples of modern miracles made possible by chemical
manufacturing.
The most utilized starting atoms, or ``feedstocks,'' for chemical
manufacturing are hydrocarbons derived from petroleum, natural gas,
natural gas liquids and coal, otherwise known as fossil fuels. Without
abundant access to fossil fuel feedstocks, we cannot manufacture
chemicals. Without chemicals, virtually all U.S. manufacturing would
cease.
The scientists and engineers in the American chemical sector go to
work in laboratories across the country every day and work to improve
existing molecules and develop new ones. When commercially viable,
their laboratory innovations move to manufacturing plants and into the
marketplace. While abstract to the average person, that molecular
innovation ultimately manifests itself in our sustainable modern
lives--lighter airplanes and cars, longer lasting clothes, stronger
building materials, clean drinking water, new medicines and cancer
treatments, and larger crop yields. Human lives are enriched and
lengthened through chemical sector innovation and manufacturing.
lack of understanding of how things are made
I am increasingly concerned that many government and business
leaders lack an understanding of how ``things'' are made. In the post-
Cold War era of globalization, the United States underwent a low-level
form of deindustrialization as the appeal of cheap labor and growth
markets in Asia pushed supply chains out of North America. Two examples
of this trend in the 1990s and 2000s were the Pennsylvania steel
industry and textiles in North Carolina, among others. Wall Street
became the highest paying sector in the 1990s and 2000s. It was then
followed by Silicon Valley and the tech boom. Quite simply, ``making
things'' went out of vogue because it was done ``out of sight and out
of mind.''
Looking back with the benefit of hindsight, I believe the post-Cold
War manufacturing exodus led many policymakers and business leaders to
simply forget how things are manufactured at the most basic molecular
level or, as we say in the chemical industry, ``upstream.'' This trend
is best encapsulated by Apple's famous ``Designed in California
Assembled in China'' label on their products. To most people, the
iPhone is a supercomputer we use every few seconds connecting us to the
entire world. As a chemical industry leader, I see a device consisting
of minerals and elements extracted from the Earth and refined thousands
of times over into chemicals, plastic, glass, and materials brought to
market via one of the most sophisticated supply chains ever developed.
The same is true of millions of other products we use in our daily
lives.
natural resource extraction is the base of american
manufacturing and the american way of life
One of the biggest threats to American manufacturing power,
security, prosperity is the belief that we can choose not to extract
our natural resources and convert them into the materials that enable
our citizenry to thrive. Since the beginning of recorded history to the
modern-day international system, human beings and nation-states have
used natural resources to survive, prosper, trade, and project power.
This has been an invariable part of human nature and will always be so.
In the current policy, political and business arenas, opposition to
natural resource extraction manifests itself in the idea that American
society--and the world--can somehow ``transition'' away from fossil
fuels and their derivative materials, including chemicals, and somehow
maintain our way of life. Until the advent of new technology or a
massive expansion of nuclear power, this is simply untrue and not
physically possible. To believe so is both naive and dangerous. Serious
countries and people understand this reality. On the issue of fossil
fuel extraction, I fully align myself with J.P. Morgan Chase & Co.
chairman and CEO Jamie Dimon when he testified in the U.S. House of
Representatives in September 2022 that stopping capital investment in
fossil fuel development would be ``the road to hell for America.''
Until relatively recently, the notion that we could eliminate
fossil fuels while still sustaining modern society was mostly a fringe
idea and dismissed by serious leaders in government and industry. Over
the last 2 decades, as seemingly well-intentioned policy proposals
developed to attempt to manage an ever-changing climate, anti-
fossil-fuel-extraction policy has become normalized in Europe and, more
recently, in the United States. Many governments have organized
themselves around stopping natural resource extraction in the name of
reducing greenhouse gas emissions to ``net zero.'' In the business
community, many companies have made ``commitments'' that may (or may
not) come to reality in less than 3 decades.
``net zero'' and german deindustrialization
The most notable example of the danger of ``net zero'' government
policy is Germany. Through a series of government decisions over 2
decades and exacerbated by Russia's invasion of Ukraine, Germany finds
itself a cold winter or supply chain disruption away from having to
choose between allowing industry to operate or permitting its citizens
to warm their homes. Without a policy course correction around energy
and natural resource extraction, Germany may be on the cusp of a once-
in-a-century deindustrialization that will have enormous global
impacts, including in the United States.
Just 2 years ago, it would have been inconceivable that the
birthplace of the chemical industry could be deindustrializing. Yet
here we are, waiting to see whether one of the most advanced economies
and societies in modern history will be able to provide cheap,
reliable, and abundant heat and electricity to power its economy. I
encourage all U.S. elected officials to study deeply the policy
decisions Germany made as it presents a real-life example of how not to
organize manufacturing, natural resource, energy, and industrial
policy.
the chemical sector enables society to lower greenhouse gas emissions
If the goal of government and business is to reduce carbon dioxide
emissions across society, U.S. Government tax policy should be
calibrated to increase domestic natural resource extraction and
chemical manufacturing more efficiently and productively. It is the
chemical sector that develops the molecules that allow individuals and
society collectively to lower their emissions. This is evident in
almost every sector across the economy. In the aerospace sector, fossil
fuel derived carbon composite airplanes fly longer distances using less
fuel than their aluminum predecessors. Automobiles are constructed
using carbon fiber material versus steel in years past. Modern homes
include insulation materials that create a building envelope, securing
the valuable hot and cold air inside the home. The world population
recently reached 8 billion people and, for the most part, everyone has
access to food. The mass starvation that we witnessed as recently as
the mid-1980s in sub-Saharan Africa is virtually obsolete. This is a
new phenomenon in human history and has been made possible only by
chemical fertilizer and cold chain storage. Simply stated, a vibrant
chemical industry means it is within our ability to lower emissions,
grow the economy, and improve lives.
energy efficiency and modern building technology
One product Huntsman manufactures is called methylene diphenyl
diisocyanate (MDI), which is a hydrocarbon-based ``polymer of
prosperity.'' MDI has versatile uses, including as a component of spray
foam insulation. Spray foam insulation is by far the most efficient and
effective way to insulate a building and can reduce energy consumption
by up to 50 percent.
We worked closely with Senators Maggie Hassan (D-NH), Susan Collins
(R-ME) and other members of the committee on legislation that
modernized and updated the standards and definitions in the Energy
Efficient Home Improvement Tax Credit (25C). These updates were
subsequently included in the Inflation Reduction Act of 2022 and help
ensure that government support for energy efficiency will favor modern
insulation technology versus outdated and less energy efficient
technology.
electrification of the u.s. transportation sector
and the battery supply chain
Huntsman Corporation manufactures products for automakers all
around the world. We defer to automakers on whether consumers want to
drive electric vehicles (EVs) or internal combustion engines (ICE)
cars. We will manufacture the products needed by car companies to meet
their market goals and technology specifications.
The IRA committed hundreds of billions of taxpayer dollars to
incentivize American consumers to purchase electric vehicles with the
goal of creating a U.S. EV supply chain. Simply put, a car battery is
an amalgamation of refined elements, minerals, and chemicals. When
developing the legislation, policymakers seemingly failed to consider
that the global battery supply chain is almost totally controlled by
China. As a result, the IRA directly subsidizes the extraction and
refinement of battery materials and chemicals from China. Thus, any
increased adoption of EVs in the United States will increase our
Nation's dependence on China in the automotive industry.
Despite tens of billions of announced investments in battery
assembly in the United States since the IRA passed, almost 100 percent
of the battery raw materials we need will continue to be sourced from
China for the foreseeable future. If the U.S. wants to ensure battery
supply chain security and resilience, Federal, State and local
governments must collectively enable a massive expansion of mining and
chemical refining in the United States. These changes must come to pass
if American companies are to have any hope competing against lower cost
Chinese labor, Chinese coal based manufacturing and Chinese pricing
actions in the global marketplace.
thwarted huntsman investment in u.s. ev supply chain
Huntsman is the only North American manufacturer of a EV battery
input called ethylene carbonate (EC), a chemical that is central to the
production of electrolyte for EV batteries. You simply cannot have an
EV battery without an electrolyte, and you cannot have an electrolyte
without EC.
Before the IRA became law, Huntsman made the decision to invest $50
million at our Conroe, TX manufacturing plant to increase our U.S. EC
production capacity by 530 percent to supply the domestic EV battery
supply chain. Almost immediately after the IRA passed, Chinese
producers slashed prices of EC by 75 percent to a point far below
Huntsman's cost of production in the United States. Unfortunately, I
had to suspend this project expansion until prices stabilize and the
investment makes economic sense for Huntsman shareholders to whom I owe
a clear fiduciary duty.
tax policy, permitting, and overregulation
U.S. tax policy can only incentivize capital investment and unleash
American manufacturing if companies are also able to obtain permits to
put shovels in the ground to build and regulatory approvals to sell
what we make. In the chemical sector, it takes almost 3 years to get a
new molecule approved by the U.S. Environmental Protection Agency (EPA)
for sale in the marketplace based on bipartisan legislation passed in
2016.
For example, if Huntsman were to develop a new material or chemical
that would enable the transportation sector to massively reduce the
weight of trucks and cars and simultaneously lower tailpipe emissions,
it would take at least 3 years to be approved by EPA. If it takes 3
years to get a new chemical approved by EPA, how can an American
chemical company ever commit capital to increase large scale
manufacturing of the product? What is the impact on greenhouse gas
emissions while a new chemical awaits EPA approval?
american manufacturers welcome strong,
effective, and risk-based regulation
The United States has the strongest and most effective
environmental laws governing clean air and water in the world. It was
not always that way and industry has made mistakes. However, when you
compare the environment in the developed world today to even 1980, the
progress is staggering. The water in the Potomac River, the air in Los
Angeles, and our rivers and streams throughout the United States are
all cleaner. This is due to the combination of strong government
regulation, corporations being held legally accountable for wrongdoing
and because wealthy nations have the financial resources to prioritize
the environment. The more prosperous a society becomes, the better it
can manage the environment.
Every single day the chemical sector manufactures, handles, stores,
transports, and sells hazardous materials across the world. To deliver
the products that make modern life possible does incur risk. We spend
billions of dollars on environmental, health, and safety of our
employees and in the communities where we operate. Safety is a deeply
ingrained value and our license to operate. In my 40 years in the
industry, I can state unequivocally that we have greatly improved our
safety record. As in all human endeavors, mistakes and failures occur.
Our safety record demonstrates we constantly strive to learn and
improve as a company and industry.
complex industrial systems, ``transitions,'' and policies that do no
harm
The United States possesses the most sophisticated energy
production and electricity delivery system in the world. It also has
the world's best automotive manufacturing sector with an enormous
supply chain supporting it, including the chemical sector. Every day,
the energy system delivers electricity to 330 million people so they
can power their businesses and lives. Every single American has on-
demand access to refined petroleum products to fuel their automobiles.
Together, the energy and automotive sectors employ millions of
Americans and generate hundreds of billions of dollars in wealth for
Americans.
They are two bedrocks of American manufacturing strength. They are
also two of the most amazingly complex manufacturing systems in human
history. They are the envy of every other nation in the world, and
their processes have been refined over 150 years through efficiency and
human innovation. Yet, we take them for granted and often fail to
appreciate how easily they can be irreparably harmed by bad government
policy and improperly incentivized business decisions.
I encourage the committee members to consider that, over the last
decade, European and U.S. Governments have collectively committed
trillions of taxpayer spending to ``transition'' away from energy
sources that successfully power modern economies to energy sources that
cannot do so. European and U.S. Governments have subsidized a
``transition'' to passenger vehicles for which no mass market demand
exists and the electricity generation needed to fuel them is not
possible. In both cases--maybe for the first time in modern American
history--we are investing a huge portion of American productive
capacity into duplicative and parallel energy and transportation
systems that will do very little to improve lives or lift people out of
poverty. We already have the best energy system and automotive sectors
in the world. Why are we spending trillions of dollars of public and
private capital to try and replicate the exact same system?
Today, government and business leaders talk about ``transitions''
of the U.S. energy system and automotive sector as a forgone conclusion
that will just happen without massive financial, human, and reliability
costs. Complex systems that profitably mass produces materials society
wants and needs are very hard to ``transition'' away from because they
represent the essence of free market capitalism. An energy or
automotive ``transition'' will only happen when new, undeveloped
technology is scaled to meet mass market demand at a profit. No amount
of government spending can supplant these systems without enormous
damage to American manufacturing and American lives.
As committee members consider changes to the tax code to spur
American manufacturing, I encourage you to examine what has worked
consistently over time and ``do no harm'' when harnessing the power of
government on large, complex industrial systems.
looking ahead
I am highly optimistic about the future. The United States, with
its combination of freedom, capitalism, scientific inquiry, deep
capital markets, legal protection, and entrepreneurial spirit,
possesses the power to solve humanity's problems. As the geopolitical
tides churn and countries reassess their priorities in a more dangerous
world, regionalized supply chains will take precedence.
Government policy around natural resources, self-sufficiency, and
manufacturing have returned to the forefront of policymaking.
Industrial policy, regulatory decisions, and capital expenditures made
today by government and business leaders will impact America and the
world for generations to come. We don't need to look far to see the
damaging impact of bad public policy around taxes, natural resources,
energy, chemicals, and material innovation.
History shows that such policy decisions determine the fate of
nations and societies.
I look forward to your questions.
______
Questions Submitted for the Record to Peter R. Huntsman
Question Submitted by Hon. Mike Crapo
Question. President Biden recently released his budget, and he once
again called for tax increases on America's job creators. Under
President Biden's budget, the corporate tax rate would increase to 28
percent. When combined with State and local taxes, many companies would
face an income tax rate far higher than China's and Europe's.
Would raising the corporate income tax rate make the U.S. a more or
less competitive place to invest?
Answer. The reduction in the corporate rate enacted as part of TCJA
helped to make the U.S. a more competitive market to invest in.
Huntsman operates in a global market makes decisions on where to deploy
capital across different countries. Tax rates are a factor in that
analysis. Further, if Huntsman needs to pay higher taxes it will need
to find that money somewhere. That means raising prices to our
customers or cutting jobs or other costs or both.
______
Question Submitted by Hon. Bill Cassidy
Question. Your company employs over 700 people in Geismar, LA, my
home State. With innovative hydrogen technologies like those produced
by Huntsman and Federal policy like the section 45V tax credit, cleaner
energy sources are around the corner that will allow America to lead.
Huntsman is the only company that produces carbon nanotubes and
hydrogen at the same time. However, Biden's Treasury has proposed a 45V
rule that is counter to unleashing these investments and instead
creates uncertainty in the market. The proposed section 45V clean
hydrogen production tax credit from the Department of Treasury risks
stifling innovation and impeding the success of critical Federal
initiatives like the Regional Clean Hydrogen Hubs.
If a final rule is crafted properly and hydrogen investment is
unleashed, what types of economic benefits will Huntsman bring to the
South?
How is this delay in final rules impacting companies like yours?
How could the 45Q final rules create better certainty for CCUS and
DAC project developers and help America lead the way in this industry?
On investment in carbon capture technologies, what specific
provisions or clarifications do you hope to see in the final rules to
provide greater clarity and incentives for project developers?
Considering the importance of the 45Q tax credit in fostering
innovation and investment in carbon capture technologies, what specific
provisions or clarifications do you hope to see in the final rules to
provide greater clarity and incentives for project developers?
Answer. Huntsman supports the expansion of the scope of the 45Q tax
credit to ensure that methane pyrolysis qualifies for the tax credit.
______
Question Submitted by Hon. John Thune
Question. Can you please speak to how your company has benefited
from the 2017 tax reform bill and what provisions you believe are most
important for Congress to make permanent, or at the very least extend,
next year to give your business and other businesses in the chemical
industry certainty?
Answer. The international tax reform included in TCJA enabled
Huntsman to repatriate significant income from overseas back to the
U.S. Huntsman was able to use some of this income to invest in our
production operations in Louisiana. Additionally, Huntsman benefited
from the 100-percent expensing provision in TCJA to also help enable
these investments. Making the 100-percent expensing provision permanent
is very important. When Huntsman makes investment decisions it does so
over a 30- to 40-year time horizon. Permanently addressing these
provisions will provide certainty and remove risks that would otherwise
cause capital to sit on the sidelines. If that provision were
permanent, Huntsman would have the certainty to make investments that
will benefit its associates, customers, and the products we produce.
______
Prepared Statement of Shannon M. Janis,
Vice President of Global Tax, onsemi
Chairman Wyden, Ranking Member Crapo, and members of the committee,
thank you for the invitation to testify today. My name is Shannon
Janis, vice president of global tax at onsemi. I am here today to share
what we do at onsemi and discuss how U.S. tax policy shapes our
decisions regarding domestic manufacturing.
onsemi is a Fortune 500 semiconductor company with over 4,000
employees in the U.S. and 31,000 employees worldwide. We are
headquartered in Scottsdale, AZ and specialize in delivering industry-
leading intelligent power and sensing solutions that greatly improve
the safety, sustainability, and power efficiency of end-products in the
automotive and industrial markets.
In the automotive market, our products enable lighter and longer
range EVs, increased gas mileage in traditional vehicles, deploy
automatic emergency braking and pedestrian detection systems, and
adaptive headlights to reduce blinding drivers in oncoming traffic, to
name a few.
With respect to the industrial market, our products are used to
enable highly efficient energy storage and renewable energy systems, EV
charging infrastructure, industrial automation, smart cities and
buildings, motor control and robotics, hearing health, and diagnostic
therapy and monitoring for chronic disease such as diabetes.
We also manufacture products used in end-use applications related
to computing, consumer networking and communications such as 5G base
stations and smart phones.
To support these applications, we offer a robust portfolio of
semiconductor products and technologies that include silicon carbide,
image sensors, power modules, wireless connectivity, and more. These
applications help our customers create
cutting-edge products that solve challenging problems, enhance safety
standards and support the transition to electrification for a more
sustainable future.
manufacturing and site operations at onsemi
We operate 19 manufacturing sites across 8 countries worldwide--
including the United States; these sites consist of front-end materials
and wafer fabrication facilities (known as fabs) as well as back-end
assembly and test site factories.
In the U.S., our materials and fab operations are located in five
States; Oregon, Idaho, Pennsylvania, New York, and New Hampshire. Each
of these factories are an integral part of onsemi's in-house global
manufacturing network.
gresham, or
onsemi's Gresham wafer fab is the third largest fab globally,
employing more than 600 people. Over 50 percent of Gresham's volume
supports the automotive market with over 35 different technologies
manufactured at this site. This fab has been accredited by the U.S.
Defense Department as a Category 1A Trusted Foundry and is ITAR
registered.
nampa, id
The Nampa wafer fab employs over 260 people and supports our award
winning and lifesaving image sensor business. Image sensors are a key
component in machine vision cameras, including digital cameras and
security cameras. Today, onsemi is a leading producer of image sensors,
inductive and ultrasonic sensors used in advanced safety, Advanced
Driver Assist Systems (ADAS), and Autonomous Vehicle (AV) technologies.
mountain top, pa
Our Mountain Top fab employs over 240 people making power
semiconductors for automotive and other applications and is the only
union fab in the U.S.
east fishkill, ny (efk)
EFK is onsemi's largest manufacturing facility in the U.S.
employing over 1,000 people and it is the only 12-inch power discrete
and image sensor fab in the U.S.
hudson, nh
Our Hudson facility is the cornerstone to onsemi's silicon carbide
products. Through a rigorous proprietary process, crystals are
converted to valuable silicon carbide boules which are further
processed at other factories into silicon carbide power devices for use
in high-power and high-efficiency applications. Today, onsemi is the
only U.S.-based company that has fully integrated end-to-end silicon
carbide manufacturing.
And Why Is This Important?
Silicon carbide semiconductors play a pivotal role in enabling the
transition to electric vehicles and renewable energy systems.
Manufacturing silicon carbide semiconductors is more complex than
traditional silicon semiconductors due to higher temperatures,
specialized equipment and unique expertise. We are proud that our New
Hampshire site enables our network of factories to deliver the end-to-
end silicon carbide power solutions from crystal growth to fully
integrated power modules necessary for EVs, hybrid vehicles and
renewable energy.
In addition to our fabs, we have Solution Engineering and Design
Center operations in nine U.S. States that include Arizona, California,
Idaho, New York, Oregon, Pennsylvania, Rhode Island, and Texas, as well
as design centers located in 18 other countries.
workforce talent at onsemi
The importance of hiring and retaining a skilled workforce in the
semiconductor industry cannot be overemphasized. At onsemi we
proactively seek new candidates and talented individuals to enrich our
innovative, diverse and inclusive work environment. To achieve this, we
developed an extensive U.S. workforce strategy that includes:
Outreach Programs: We engage with high schools, community
colleges, universities and other organizations, including our
military.
Country-wide and Local Initiatives: Our talent acquisition
efforts extend beyond traditional channels. We operate both
country-wide programs as well as local programs near our
facilities.
University Collaboration: We collaborate closely with
university faculties, particularly those in semiconductor-
related fields. Through workshops, capstone projects, and
student events, we actively engage students and recruit
graduating students through career fairs and online
advertisements.
Investing in Education: Recently, we announced a commitment
to donate $500,000 over 10 years to Rochester Institute of
Technology in New York. This investment supports semiconductor
educational programming and research, benefiting both students
and faculty with increased co-op opportunities and new research
initiatives.\1\
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\1\ onsemi to donate $500,000 to RIT to further semiconductor
educational initiatives, RIT, https://www.rit.edu/engineering/news/
onsemi-donate-500000-rit-further-semiconductor-educational-initiatives.
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importance of the chips act and its incentives for the u.s.
As this committee is aware, the steady decline in United States-
based semiconductor manufacturing capacity poses a risk to America's
supply chain and national security. This decline has been decades in
the making and will require persistent attention to achieve a
sustainable reversal. A key contributing factor to the decline has
largely been due to the substantial manufacturing incentives provided
by the governments of our global competitors. These incentives have
placed the U.S. at a competitive disadvantage in attracting new
construction of semiconductor manufacturing facilities.\2\
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\2\ See ``Government Incentives and US Competitiveness in
Semiconductor Manufacturing,'' by Antonio Varas, Raj Varadarajan, Jimmy
Goodrich, and Falan Yinug, September 2020, available at https://
www.semiconductors.org/wp-content/uploads/2020/09/Government-
Incentives-and-US-Competitiveness-in-Semiconductor-Manufacturing-Sep-
2020.pdf.
Although the U.S. has taken the initial steps to curb this decline,
other countries both within the European Union as well as countries
such as South Korea, Japan, and China are significantly increasing
their investments in the semiconductor industry and its workforce. Many
of these countries have legislation similar to the CHIPS Act to support
their domestic companies as well as incentivizing other companies to
invest in their regions. The CHIPS Act, and in particular the section
48D advanced manufacturing tax credit has played a critical role in
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enhancing the global competitiveness of the U.S.
However, there is a noteworthy disparity: Federal investments in
semiconductor research have historically remained flat as a share of
GDP. While other country governments have prioritized investments in
R&D initiatives to strengthen their semiconductor capabilities, our
U.S. R&D tax incentives lag behind those of our international
counterparts.
Semiconductor companies carefully evaluate multiple factors in
making investment decisions. These include overall business conditions,
regulatory environmental compliance, supplier networks, site
availability, infrastructure, and the access to a skilled workforce.
Given this, rebuilding the semiconductor supply chain in the U.S. is
not an easy task. The complex technology, and advanced process of
designing and manufacturing semiconductors requires high levels of
sustained investment in people, fabs, and equipment due to the
sophistication of the technology and the rigorous and exacting
standards needed for construction, equipment, and infrastructure.
Additionally, the cost of a fab can range from $1 billion to $20
billion depending on the type and scale of the project plus it can take
anywhere from 2 to 5 years to complete construction. Furthermore, fab
construction requires a highly skilled workforce to build and install
support systems and advanced structures that deliver high purity gases,
ultra-pure water, and state-of-the-art air recirculation systems. With
the U.S. workforce talent being more expensive than other low-cost
countries, incentives are critically needed to help offset these costs
and enable competitive pricing.
On another crucial front, the U.S. has set aggressive targets to
reduce greenhouse gas emissions by 50 percent by 2030 and achieve net-
zero economy-wide by 2050. Meeting these timelines will require the
U.S. to make significant investments in clean energy and power
efficiency--all dependent on semiconductors that go into the design of
electronic applications. With the government's support, onsemi will
continue to drive innovation across our portfolio of products and
increase the energy-efficiency and reduce carbon emissions in key
sectors that extend from electricity generation, transportation,
industry and agriculture--which all play a pivotal role in helping the
U.S. achieve these goals.
Preliminary reports appear to indicate that investments from the
industry, facilitated by incentives under the CHIPS Act, are working to
grow domestic semiconductor manufacturing and strengthen the resiliency
of our supply chains. With the help of the U.S. CHIPS Act, the U.S. is
expected to attract roughly one-quarter of total global semiconductor
investment. But areas of vulnerability in the ecosystem remain and
additional work is needed to maintain this momentum and further
strengthen key areas of the chip supply chain. Policymakers in the
United States and elsewhere should consider additional measures to
maintain momentum in strengthening the semiconductor supply chain and
ensuring increased resilience in the future.
in conclusion
As a U.S.-based company, onsemi welcomes the opportunity to expand
and bring new domestic production onshore. We are committed to
implementing projects that will keep onsemi competitive in the long
term--which is a core responsibility to our shareholders, employees,
suppliers, communities, and other stakeholders.
The enactment of the CHIPS and Science Act was a landmark step
towards reinvigorating domestic semiconductor manufacturing and
innovation. The mission is clear: establishing our leadership role is
vital for the U.S. to win the global technology race in the
semiconductor industry. Ongoing support from the CHIPS Act with its
section 48D advanced manufacturing tax credit will enable companies
like onsemi to continue to invest in the U.S., compete with companies
that are located offshore, and strengthen the resiliency of our
critical supply chains.
Mr. Chairman, I appreciate your calling for this hearing and this
committee's support of the U.S. semiconductor industry. Thank you for
the opportunity to testify at today's hearing.
______
Questions Submitted for the Record to Shannon M. Janis
Question Submitted by Hon. Mike Crapo
Question. The Tax Cuts and Jobs Act (TCJA) sought to move away from
industry-specific incentives in favor of a competitive domestic tax
rate and broader progrowth tax policies to incentivize domestic
manufacturing. However, there are certain situations that may call for
a targeted tax incentive to put U.S. manufacturers on a more even
playing field with their foreign competitors.
One example is strengthening the U.S. semiconductor supply chain,
because it not only affects American jobs and workers but also impacts
our economic and national security. The Advanced Manufacturing
Investment Credit (AMIC) was enacted to bolster domestic investment in
this vital industry.
Can you discuss how the AMIC has impacted onsemi's domestic
investment decisions?
Answer. onsemi conducts a comprehensive cost and gap analysis when
evaluating potential investment locations. This analysis compares costs
across various jurisdictions to identify promising investment
opportunities. While not the sole determinant, the gap cost analysis
influences our decision-making process. The Advanced Manufacturing
Investment Credit (AMIC) has played a pivotal role in narrowing the
cost disparity between U.S. investments and those in other countries.
Although U.S. companies prioritize domestic investment due to its
robust technology infrastructure, intellectual property protections,
and skilled workforce, cost disparities--especially related to labor,
construction, and utilities--remain. The AMIC contributes to leveling
the playing field among jurisdictions by addressing these cost
disparities.
The AMIC is an important incentive that addresses key supply chain
gaps and vulnerabilities for manufacturing semiconductors and
semiconductor equipment. These facilities will require ongoing
investments to remain competitive, and additional facilities will need
to be built to further strengthen the semiconductor ecosystem in the
U.S. Stability in the U.S. tax code is important for long-term
investments. Extending the credit beyond 2026 will provide needed
certainty and a competitive investment climate to sustain new U.S.
manufacturing capacity.
______
Questions Submitted by Hon. Maria Cantwell
Question. I worked closely with Senators Wyden and Cornyn, among
others, to include their 25-percent semiconductor manufacturing tax
credit in the final CHIPS and Science Act.
This tax credit will encourage companies to build and expand
domestic semiconductor manufacturing facilities, which is incredibly
important in the State of Washington and in the Pacific Northwest more
broadly, a region which accounts for 15 percent of the Nation's
semiconductor workforce.
The Department of Treasury guidance released last June would not
include eligibility for the manufacturing of materials critical to the
semiconductor ecosystem like polysilicon. I am concerned that as these
companies look to reshore and strengthen domestic facilities,
uncertainty around their eligibility is delaying investments and
expansions.
Do you agree that in order to ensure our domestic semiconductor
companies remain internationally competitive, we must make sure that
companies from all parts of our ecosystem are confident in their
ability to benefit from both the Department of Commerce manufacturing
incentive programs and the tax incentive?
Answer. Ensuring confidence among ecosystem participants regarding
access to benefits from the Department of Commerce manufacturing
incentive programs and tax incentives is pivotal for our domestic
semiconductor companies' global competitiveness. Moreover, maintaining
certainty in these incentives, along with preserving the current
benefit levels, is essential. When expanding the ecosystem eligible
under the credit, we must also safeguard the effectiveness of these
incentives to ensure a sustainable competitive edge for the U.S.
semiconductor industry. Striking the right balance is crucial.
To ensure integral activities are covered under the advanced
manufacturing investment credit, we encourage the Department of
Treasury to revise the definition of ``semiconductor manufacturing'' by
including (1) the production of semiconductor-grade polysilicon and
compound semiconductor substances, such as silicon carbide (SiC), used
in the production of wafers; and (2) the full range of steps in the
process of manufacturing wafers, like crystal/boule growth. These
highly complex manufacturing processes are integral to the
semiconductor manufacturing process and comprise the first steps in
manufacturing a semiconductor device. Put another way, the production
of silicon carbide and similar substances are the ``semiconductor'' in
the finished semiconductor device. Through crystal/boule growth, the
ingot will be imbued with the final semiconductor parameters such as
diameter, crystal orientation, resistivity, and supporting elements
such as oxygen, nitrogen, and carbon, all of which are defining aspects
of final chip performance.
Question. What will be the impact on fabrication facilities like
yours if materials suppliers aren't able to fully take advantage of the
CHIPS Act 48D tax credit?
Answer. The worldwide demand for silicon carbide materials is
currently outpacing supply, with many suppliers investing heavily in
low-cost regions such as China to develop lower-cost materials. The
omission of these integral activities in the semiconductor
manufacturing process from the definition of semiconductor
manufacturing under section 48D of the Internal Revenue Code poses
challenges. Specifically, excluding the production of silicon carbide
and crystal/boule growth from being eligible for the 48D credit creates
uncertainty for onsemi seeking to invest in domestic facilities. onsemi
conducts a comprehensive cost and gap analysis when evaluating
potential investment locations. This analysis compares costs across
various jurisdictions to identify promising investment opportunities.
While not the sole determinant, the gap cost analysis influences our
decision-making process.
Our Hudson, NH facility is the cornerstone of onsemi's production
of silicon carbide products. Through a rigorous proprietary process,
crystals are converted to valuable silicon carbide boules which are
further processed at other factories into silicon carbide power devices
for use in high-power and high-efficiency applications. Silicon carbide
is a fundamental material for advanced semiconductor production
enabling the sustainability ecosystem including electrification,
alternative energy and factory automation. Silicon carbide reduces
system cost while offering higher efficiency and simpler cooling
mechanisms.
As the regulations are currently proposed, the activities at this
facility may not be eligible for the credit. Excluding the production
of silicon carbide from being eligible for the IRC 48D credit causes
U.S.-based silicon carbide production to be uncompetitive to foreign
locations, including China.
______
Questions Submitted by Hon. Todd Young
Question. As I mentioned during the hearing, restoring full and
immediate expensing under section 174 of the Internal Revenue Code is
critical to maintaining American competitiveness. As you know, the
shift to amortization of research and development (R&D) investments
comes at a time when countries across the globe are increasing the
generosity of their R&D incentives. For example, companies conducting
R&D in the United States are forced to amortize their R&D expenses over
5 years while companies conducting those same activities in China are
receiving a 200-percent super-deduction.
Can you please explain the importance of R&D incentives in
maintaining U.S. global competitiveness in the semiconductor industry?
Answer. Making the U.S. an attractive destination for semiconductor
companies to grow their research and development (R&D) will spur
economic activity and support U.S. national security, supply chain
resilience, and technology leadership. U.S. semiconductor companies
invest heavily to innovate and maintain technology leadership by on
average reinvesting 20 percent of revenue into R&D--with $58.8 billion
invested in 2023.
As the U.S. incentives for R&D fail to keep pace with global
competitors, we risk our industry leadership. To remain a competitive
place to conduct R&D, at a minimum, the U.S. must restore the full and
immediate expensing of all R&D expenditures on a permanent basis. As
you know, the shift to amortization of research and development
investments comes at a time when countries across the globe are
increasing the deductibility as well as providing increased funding of
R&D initiatives in their jurisdictions. For example, companies
conducting R&D in the United States are forced to amortize their R&D
expenses over 5 years while companies conducting those same activities
in China are receiving a 200 percent super deduction.
Question. How has the expiration of immediate R&D expensing
impacted companies like onsemi?
Answer. For onsemi, a leader in semiconductor solutions focused on
enabling the sustainability ecosystem, the immediate expensing of R&D
is a catalyst for innovation. The ability to deduct expenses in the
same tax year they were incurred allowed for increased cash flow to put
towards capital and R&D investment activities. The expiration of this
provision means that onsemi must now spread the deduction of these
expenses over several years, reducing the funds available for
reinvestment in R&D and slowing down the pace of innovation.
This also highlights a critical ripple effect of the expiration of
immediate R&D expensing. The financial strain extends beyond primary
companies like onsemi to our suppliers and the broader semiconductor
ecosystem. This policy change has slowed the overall pace of innovation
within the semiconductor industry. This interconnected impact
underscores the urgency for policy measures that reinstate and make
permanent immediate R&D expensing to bolster innovation and sustain the
industry's growth.
Question. My Republican colleagues and I are closely tracking the
Treasury Department's negotiations of the OECD's Global Anti-Base
Erosion Model Rules (``Pillar 2''). We are concerned that the agreed-
upon framework threatens U.S. domestic tax incentives championed by
both Republicans and Democrats.
How have the current OECD Pillar 2 negotiations jeopardized the
effectiveness of U.S. domestic research and development tax incentives?
Answer. It is important that the U.S. continues to engage at the
OCED as these new international tax regimes are implemented.
While we are encouraged by the reports that the Treasury Department
intends to provide relief for the nonrefundable R&D credit in the
context of Pillar 2, as currently drafted, Pillar 2 presents a
challenge to the efficacy of domestic research and development tax
incentives. Specifically, it negates the advantages of U.S. R&D credits
if a taxpayer's effective tax rate, influenced by these credits, dips
below the 15-percent global minimum set by Pillar 2. Furthermore, the
Under-Taxed Payment/Profit Rule (UTPR) within Pillar 2 allows other
nations to levy taxes on the benefits derived from U.S. R&D credits.
So, under Pillar 2, an R&D credit received in the U.S. can be taxed by
a foreign jurisdiction; the U.S. company and its affiliated companies
would then lose additional capital that could be invested in research
and development and undermines the intent of the U.S. tax code.
Pillar 2 poses a significant risk to U.S. research and development
incentives because it will reduce the amount of tax revenue that the
U.S. receives. This reduction in tax revenue will further limit the
U.S.'s ability to offer R&D incentives (or support other important
business and social programs). The approach taken by the OECD, as
drafted, has negative consequences on the United States' interests.
Under the rules devised by the OECD, Pillar 2 requires all countries to
tax subsidiaries of all large multinational companies in their
jurisdiction (these are the Qualified Domestic Minimum Top-up Taxes or
QDMTTs), and then the OECD prioritized these QDMTTs even though this
same income was being already taxed by the U.S. under its Global
Intangible Low-Taxed Income regime (``GILTI''). The OECD could have
developed rules consistent with or respecting the U.S. GILTI regime but
chose not to. Rather, Pillar 2 is a direct override of U.S. taxing
rules and taxing rights in a manner that the JCT estimates will give
rise to a loss of greater than $100 billion in tax revenue over a 10-
year period.\1\
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\1\ Joint Committee on Taxation, ``Possible effects of adopting the
OECD's Pillar Two, both worldwide and in the United States,'' June
2023.
Finally, Pillar 2 undercuts the effectiveness of U.S. domestic R&D
incentives because it causes our incentives to become vastly inferior
to the state subsidies and the qualified refundable tax credits
(referred to collectively as ``subsidies'') generally provided by the
People's Republic of China and the European Union. Pillar 2 imposes no
penalties or limitations on these subsidies even though academic
articles and analytical tools currently used by the U.S. and scores of
other countries have shown that subsidies and U.S.-style incentives are
economically equivalent.\2\ The structural failure to treat subsidies
and U.S. incentives as economically equivalent is a gaping hole in the
logic of Pillar 2 and provides a competitive advantage to European
countries and China that primarily support R&D through subsidies. In
fact, publicly available information shows that some Chinese companies
receive subsidies greater than their annual revenue, and yet the OECD
seems preoccupied by nonrefundable U.S. R&D credits that decrease a
U.S. company's rate below 15 percent. Ultimately, the inexplicable
decisions of the OECD to punish U.S. incentives and ignore subsidies
hollows out the effectiveness of U.S. R&D credits as it creates an
obvious advantage to Europe and China to support R&D and related
innovation in their countries.
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\2\ See, Noam Noked, ``From Tax Competition to Subsidy
Competition,'' University of Pennsylvania, Vol. 42:2, (2020); Mindy
Herzfeld, ``Who Wins Out in the Latest Pillar 2 Guidance?'' Tax Notes,
posted Feb. 13, 2023; Stephen Bonovich, ``The U.S. as the Biggest
Casualty of Pillar 2's Fatal Flaw--the Bias for State Subsidies,'' Tax
Notes International, September 18, 2023; Alan Cole, The Fatal Flaw of
Pillar Two, The Tax Foundation, posted February 27, 2024.
Question. The CHIPS Act established a 25-percent Investment Tax
Credit (ITC) for certain ``qualified property'' which includes advanced
manufacturing facilities--for which the primary purpose is the
manufacturing of semiconductors--or semiconductor manufacturing
equipment. The purpose of the ITC is to incentivize investment in the
United States, strengthen our global competitiveness, and bolster our
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national security.
The U.S. Department of Treasury and the Internal Revenue Service
(IRS) published the first Notice of Proposed Rulemaking for the ITC on
March 23, 2023, just shy of 1 year ago. Yet, Treasury and the IRS have
not decided on what constitutes a ``qualified property.''
How has the administration's failure to provide timely guidance on
the implementation of the ITC weakened U.S. global competitiveness in
semiconductor manufacturing?
Answer. The lack of prompt guidance on the Investment Tax Credit
(ITC) for semiconductor manufacturing has raised concerns about the
United States' competitiveness in the global market. The absence of
clear criteria and related recapture provisions has created uncertainty
among investors and businesses, leading to hesitation in committing to
advanced manufacturing facilities or semiconductor equipment. This
uncertainty is detrimental to investor confidence, as stability and
predictability are key factors in investment decisions.
Moreover, semiconductors are vital to modern technology, and
countries that offer well-defined incentives for their production are
more likely to attract investment and drive innovation. The U.S. faces
a competitive disadvantage due to the delay in defining ``qualified
property,'' risking its position in an industry that is critical to
consumer electronics and national defense.
The global semiconductor supply chain is already under strain from
shortages and geopolitical tensions. Strengthening domestic
manufacturing is crucial for supply chain resilience. Timely ITC
guidance would encourage investments in U.S. facilities, reducing
dependence on foreign suppliers and enhancing national security.
In conclusion, the administration's delay in providing clear ITC
guidelines has significant implications for U.S. competitiveness in
semiconductor manufacturing. Establishing clear guidelines is
imperative to attract investment, foster innovation, and maintain a
strong position in the global semiconductor industry.
______
Submitted by Hon. James Lankford,
a U.S. Senator From Oklahoma
American Exploration and Production Council (AXPC)
and the Domestic Energy Producers Alliance (DEPA)
March 12, 2024
The Honorable Ron Wyden The Honorable Mike Crapo
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
Washington, DC 20510 Washington, DC 20510
RE: Support for S. 3381, the ``Promoting Domestic Energy Production
Act.''
Dear Chairman Wyden and Ranking Member Crapo,
The American Exploration and Production Council (AXPC) and the Domestic
Energy Producers Alliance (DEPA) are writing to highlight the critical
role of the independent oil and natural gas exploration and production
industry in ensuring the Nation's energy security and economic
prosperity. We appreciate the committee's dedication to holding a
hearing on domestic manufacturing, and urge your support for Senator
Lankford's S. 3381, the ``Promoting Domestic Energy Production Act.''
AXPC is the voice of the leading independent energy producers and
underscores the industry's pivotal contributions to the U.S. economy,
including significant employment opportunities and technological
advancements that enhance both energy efficiency and environmental
stewardship. DEPA is a nationwide collaboration of 39 coalition
associations--from California to West Virginia, Texas to Montana--
representing individuals and companies engaged in domestic onshore oil
and natural gas exploration and production.
Considering the recent enactment of the Corporate Alternative Minimum
Tax (CAMT) as part of the Inflation Reduction Act, AXPC and DEPA seek
to address a pressing issue that undermines the competitiveness of the
domestic energy sector. Our concerns center around the unequal tax
treatment of intangible drilling costs (IDCs), a key investment
mechanism that underpins much of our industry's operations. For these
reasons, AXPC and DEPA strongly support S. 3381, the ``Promoting
Domestic Energy Production Act'' which will ensure parity in the tax
treatment for similarly situated taxpayers.
IDCs represent a substantial portion of the capital expenditure in oil
and gas exploration and production, crucial for maintaining and
expanding domestic energy capabilities. Historically, the ability to
deduct IDCs in the year incurred has facilitated rapid reinvestment in
further development, a practice vital for sustaining energy production
and innovation within the industry.
However, under the current CAMT framework, the lack of explicit
provisions for IDC deductions parallels an unintentional discrepancy,
disadvantaging energy producers compared to other capital-intensive
industries. This disparity not only hampers our ability to invest in
new projects but also contradicts the broader objectives of energy
independence and economic growth.
Therefore, AXPC and DEPA respectfully urge the Senate Committee on
Finance to consider the unique characteristics of the energy sector in
the CAMT's implementation. Senator Lankford's legislation will address
this issue. Additionally, we request guidance from the U.S. Department
of the Treasury that aligns the treatment of IDCs under CAMT with their
handling in traditional corporate income taxation, ensuring a level
playing field across all sectors of the American economy.
Senator Lankford's legislation will support equitable tax policy which
is essential for fostering continued investment in domestic energy
production, which is paramount for achieving long-term economic
resilience and environmental goals.
We appreciate your attention to this matter and look forward to
engaging with the committee to find a solution that supports the
Nation's energy producers and, by extension, the American people.
Sincerely,
Jerry R. Simmons Troy M. Lyons
President & CEO Vice President, Government Affairs
Domestic Energy Producers Alliance American Exploration & Production
Council
______
Prepared Statement of Courtney Silver,
President and Owner, Ketchie, Inc.
Chairman Wyden, Ranking Member Crapo, and distinguished members of
the committee, thank you for holding today's important hearing focused
on how the U.S. tax code impacts manufacturing in America.
My name is Courtney Silver, and I am president and owner of
Ketchie, Inc. located in Concord, NC. Ketchie is a third-generation,
full-service precision machine shop that was established in 1947. Our
mission is to support the entire U.S. manufacturing supply chain by
delivering competitively priced, high-quality machined parts on time.
We invest in machining equipment and technology, people and processes
to make it easy for our customers to focus on what they do best and to
have confidence in their supply chain.
My testimony will focus around one main theme today, and I hope if
members take away anything from me, it is this: manufacturing is a team
sport.
Like any great sports franchise, a team can only excel if every
player is operating at their peak. If not, the team falls apart.
Similarly, the manufacturing supply chain is only as strong as its
weakest link. At the core of any sport are clear, sensible rules that
don't unfairly handicap any players in the game. These rules are
consistent, rather than constantly changing, so that the game does not
devolve into chaos. In this context, the rules of the game are the U.S.
tax code. Our tax code needs to be simple, consistent, and progrowth so
that it supports manufacturing and gives us all a chance to compete to
our fullest potential.
The 2017 Tax Cuts and Jobs Act was revolutionary for the
manufacturing sector. After the legislation was signed into law,
Ketchie experienced the best year in our 7-decade history. I know
others further up our supply chain were booming as well, because I can
clearly remember our typically organized shop floor covered in pallets
of materials in every available space to keep up with orders. My
customers were able to plan facility expansions, introduce new product
lines, invest in R&D and enter into long-term stocking agreements with
Ketchie due to this industry boom. This was great for us too: our sales
revenue increased 25 percent in that first year.
As a result, in 2018, we were able to invest more than $1 million
into capital equipment, which helped us meet the surge of demand as our
customers ramped up production. We expanded our shop floor workforce by
20 percent, developing our team at Ketchie to keep pace with the ever-
evolving manufacturing industry.
When you want to succeed, the only choice is to use your profits
productively and pour them back into your team. We made major
investments in capital, such as new machining equipment and technology,
advanced robotics, tooling, fixtures, HVAC systems for our facilities,
and new security and safety systems for our team members. We were able
to provide 100 percent of our team members, no matter how long they had
been with the company, with pay raises and quarterly bonuses. We
expanded our team members' benefits, including enhanced 401(k)
matching. I was excited to see that because of these choices, our
dedicated team members were buying their families their first homes and
first cars. Ketchie was also able to do more to support our community,
grow our charitable giving and take on more volunteer opportunities.
Ketchie has made a commitment to focus our resources on bringing up
the next generation of manufacturers. In 2023, I created ``Opportunity
Knocks,'' an internship program for high school students that allows
them to shadow experienced machinists in our factory while earning
school credit. The local high school we partnered with consists of 70
percent minority students, and almost 100 percent come from
economically disadvantaged situations. I would not have been able to
establish this program or invest in the machinery and the team members
necessary to make it a success without the TCJA. Because we have been
able to expand and invest in exciting technologies, students are
learning valuable trade skills while also preparing for careers that
will bring them fulfillment and pride.
Members of this committee must understand that small and medium-
sized manufacturers operate on extremely slim profit margins, so all of
these changes--higher wages, investments, increased charitable giving--
were thanks to these progrowth tax reforms.
Of course, our growth trajectory was disrupted during the COVID-19
pandemic like the rest of the world. However, thanks to the TCJA
policies having such an impact on Ketchie in 2018 and 2019, we were
able to withstand the shutdowns and supply chain disruptions, even as
some of our customers went out of business or were unable to pay tens
of thousands of dollars in open invoices for the better part of 2020.
This would not have been possible--and Ketchie might not be here
today--if we didn't have an economic boom in the years prior to the
pandemic.
Small manufacturers across the country realize how significant the
job was for Congress to advance generational tax reform in 2017. The
alterations made to our tax code allowed a small manufacturer like me
to play on a global scale by making it an easier call for my customers
to invest their dollars here rather than in a competitor overseas.
Manufacturers are facing stiff competition around the globe from
countries enticing companies to bring their business out of the United
States. A strong domestic manufacturing sector directly correlates to
increased national security and economic prosperity for all Americans.
Beginning in 2022, the rules of the game began to change making it
much more difficult for manufacturers to thrive in America. Crucial
policies enacted by the TCJA began expiring or phasing out, including
the ability to immediately deduct research and development expenses,
enhanced interest deductibility on business loans and the ability to
deduct the cost of capital investments in the year acquired. These
provisions, along with many others in the TCJA, gave us the confidence
and stability we needed to invest and grow our operations.
Manufacturers rely on stability from our tax code for assurance that we
can make decisions in the short term, but also plan ahead and make
investments that will pay off for decades to come.
Congress enacting progrowth and permanent tax policies allows us to
do all of this and so much more.
a. the tax code must promote certainty for manufacturers
It is imperative that this committee recognizes the fact that all
domestic businesses rely on predictability and stability within the tax
code. Ketchie's experience with the benefits of tax reform was not an
outlier. Following TCJA passage, the manufacturing sector experienced
the best year for manufacturing job creation in the previous 21 years
and the best year for manufacturing wage growth in the previous 15
years.\1\ Manufacturing capital spending grew 4.5 percent and 5.7
percent in 2018 and 2019, respectively.\2\
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\1\ National Association of Manufacturers, ``Competing to Win''
(September 2022), available at https://documents.nam.org/ctw22/
competing%20to%20win%202022%20-%20tax.pdf.
\2\ Id.
Yet today, due to the uncertainty that Congress will address the
expiration of Federal tax incentives related to R&D, interest
deductibility and expensing for capital investments, 40 percent of
manufacturers said they have already been forced to pull back on hiring
and investing.\3\ In the same survey, 94 percent of manufacturers said
that it is important for the Federal tax code to help reduce
manufacturers' costs for conducting R&D, accessing capital via business
loans and investing in capital equipment purchases.
---------------------------------------------------------------------------
\3\ NAM Manufacturers' Outlook Survey, First Quarter 2024 (March 5,
2024), available at https://nam.org/wp-content/uploads/2024/03/Outlook-
Survey-March-2024-Q1.pdf.
Ketchie, like most manufacturers, is a capital-intensive business.
In the years following the TCJA, I was able to make a higher level of
investment because I knew our tax code was going to have a baseline of
certainty. Today, however, I am unable to make these investments
because of the uncertainty that Congress will address the expired TCJA
provisions. This is not unique to Ketchie; I see my customers and
fellow local manufacturers being forced to pull back on expansions or
---------------------------------------------------------------------------
hiring opportunities due to the uncertainty.
I receive a daily reminder of this when I walk on my shop floor. I
have a very large space on my floor reserved for my next significant
machinery investment. This investment will allow Ketchie to operate in
new industry markets, and to inspire and attract the next generation of
top talent who want to work with the most
cutting-edge technology possible.
This investment is on hold due to the phasing out of the
accelerated depreciation levels from 100 percent in 2022 to 60 percent
in 2024. Because I am unable to realize the full deduction of my
investment within the year I purchase it, the investment seems too
risky and irresponsible. Permanent full expensing allows me to invest,
grow, compete and create highly skilled and high-paying jobs. These
positions give people dignity and purpose and change their lives in our
community. If accelerated depreciation is allowed to expire fully in
2027, I truly don't know how we will be able to purchase the equipment
we need to continue to expand our business.
According to the Joint Committee on Taxation,\4\ the manufacturing
sector, and specifically small manufacturers, overwhelmingly utilize
accelerated depreciation more than any other sector. I would like to
thank Senator James Lankford and many members on this committee that
joined him for introducing the Accelerate Long-Term Investment Growth
Now Act, which would make 100-percent accelerated depreciation
permanent. Legislation like this is what allows manufacturers to have
tax-planning certainty for the future.
---------------------------------------------------------------------------
\4\ Joint Committee on Taxation, ``Tax Incentives for Domestic
Manufacturing,'' JCX-15-21 (March 2021), available at https://
www.jct.gov/publications/2021/jcx-15-21/.
Additionally, at the beginning of 2022, the deduction for interest
on business loans was reduced in a manner that disproportionately
affects manufacturers. The maximum deduction allowed under section
163(j) of the tax code was narrowed from 30 percent of earnings before
interest, tax, depreciation, and amortization (EBITDA) to 30 percent of
earnings before interest and tax (EBIT). Excluding depreciation and
amortization would reduce the amount of interest businesses can deduct,
making it more expensive for manufacturers to finance capital equipment
---------------------------------------------------------------------------
purchases.
Because we do not carry as much debt typically, Ketchie may not
experience a direct impact of this tax policy change. However, our
customers up the supply chain certainly do, which means the impact of
this tax policy change makes its way downstream to us. The majority of
my customers buy and sell large pieces of capital equipment that
require debt financing, and their inability to deduct interest makes
borrowing more expensive, threatening Ketchie's economic health and
ability to grow.
Allowing this stricter limitation to continue greatly affects
manufacturers' ability to compete globally. Among the 35 countries that
have a rule that restricts tax deductibility based on a ratio of
interest expense to some measure of earnings, the United States is the
only country that has an EBIT-based rule. Generally, China does not
limit any third-party interest deduction. According to a recent study,
keeping the EBIT standard could cost the U.S. economy 467,000 jobs and
reduce the U.S. GDP by $43.8 billion if Congress does not act.\5\
---------------------------------------------------------------------------
\5\ ``Economic impact of a stricter 163(j) interest expense
limitation,'' EY (September 2022), available at https://
documents.nam.org/tax/nam_interest_deductibility_study.pdf.
I would like to thank Senators Shelley Moore Capito and Kyrsten
Sinema for introducing the American Investment in Manufacturing Act,
which would reverse this harmful policy that disproportionately impacts
---------------------------------------------------------------------------
manufacturers.
Ketchie delivers machining solutions to government and commercial
customers in a wide range of industries, including rail, agriculture,
textile, heavy machinery, industrial equipment, and many specialized
original equipment manufacturers. Our ability to innovate is what keeps
us in the game, and a large part of that for the manufacturing sector
as a whole has been the ability to deduct R&D expenses.
For decades, taxpayers have been allowed to immediately deduct 100
percent of their R&D expenses in the year they incurred. In 2022,
however, the tax code began requiring so-called ``amortization'' of
these expenses, forcing manufacturers to recover only a small portion
of their costs over several years.
Taxing manufacturers' investments in critical R&D expenditures
means that we will have less funds to invest in workers and our future
growth. The private sector accounts for more than 75 percent of total
R&D spending,\6\ with small businesses accounting for approximately $90
billion of all private-sector R&D investments.\7\ This is not a new
issue--the tax code has recognized the importance of R&D spending for
more than 70 years, but with this recent change, Congress has now made
the U.S. one of the two developed countries in the world who require
the amortization of R&D expenses.
---------------------------------------------------------------------------
\6\ National Center for Science and Engineering Statistics,
National Science Foundation, National Patterns of R&D Resources: 2020-
21 Data Update, NSF 23-321 (January 4, 2023), available at https://
ncses.nsf.gov/pubs/nsf23321.
\7\ National Center for Science and Engineering Statistics,
National Science Foundation, InfoBrief, NSF 22-343 (October 4, 2022),
available at https://ncses.nsf.gov/pubs/nsf22343 and InfoBrief, NSF 23-
305 (December 14, 2022), available at https://ncses.nsf.gov/pubs/
nsf23305.
A new report from the European Union found that both the EU and
China gained a significant advantage after the expiration of the TCJA
R&D tax policies.\8\ In 2022, the first full year after immediate
expensing for R&D expired in the United States, EU R&D growth surpassed
the U.S. for the first time in nearly a decade. Even more worrisome,
China's R&D growth tripled that of the United States in 2022. Chinese
companies enjoy a super-deduction on research spending, while American
firms must now compete with weights strapped to their ankles following
the expiration at home. China is not the only country offering better
R&D incentives--17 countries now provide a deduction that is more than
100 percent of eligible R&D expenses, further making the United States
a less attractive place to conduct R&D.
---------------------------------------------------------------------------
\8\ ``EU Industrial R&D Investment Scoreboard'' (2023), available
at https://op.europa.eu/en/publication-detail/-/publication/1e5c204f-
9da6-11ee-b164-01aa75ed71a1/language-en.
At Ketchie, we challenge ourselves to provide our customers with a
good reason to spend their dollars here. At a time of increasingly
fierce global competition for research dollars, Congress must act to
ensure the next R&D dollar is spent in the United States to secure our
global leadership in innovation and strengthen our Nation's economic
and national security. I want to thank Senators Maggie Hassan and Todd
Young for introducing the American Innovation and Jobs Act this
---------------------------------------------------------------------------
Congress to support R&D investments by manufacturers.
Finally, our tax code should be simple. As a small manufacturer,
hiring outside accountants and lawyers to understand and navigate every
piece of the tax code is costly and time-consuming for me. Our tax
system should not be so complicated that small manufacturers don't even
have a chance because we are crushed by red tape and unnecessary
bureaucracy. Congress should craft our tax code so that it enhances
competitiveness and encourages industrial investment here in the United
States.
At the time of this hearing, the Senate has the opportunity to
address these three expired tax provisions. On January 31, 2024, the
House of Representatives passed the Tax Relief for American Families
and Workers Act, which would allow for the TCJA R&D, interest standard
and full expensing provisions to be extended from their expiration
until 2025. If the Senate fails to renew these business provisions,
manufacturers will be playing with one hand tied behind their back for
the foreseeable future. I urge every member of this committee to show
their support for these business provisions so that Ketchie and
manufacturers like us are able to continue the progress we made after
2017.
b. congress must preserve progrowth tax policies
As members of this committee are well aware, a number of other
important tax policies enacted by the TCJA are set to expire at the end
of 2025. These changes represent damaging tax increases for companies,
like Ketchie, which will take effect if Congress does not act.
Ketchie is organized as an S corporation, and therefore is eligible
for a 20-percent deduction on our business income thanks to the section
199A provision created by the TCJA. Pass-through owners see their
business income reflected on their personal tax returns, and this
deduction reduces the amount of pass-through income subject to tax,
allowing us to reinvest. This provision, along with the income tax
rates for individuals, is set to expire at the end of 2025,
dramatically increasing the tax burden on small manufacturers like
Ketchie. This means we will have fewer resources to: create new jobs;
create shadowing programs for our local high school; invest in capital
equipment; improve our security systems and safety measures for our
employees; provide increased health benefits and 401(k) plans; donate
to local Boys and Girls Clubs; increase bonus and pay scales for our
employees; and take chances on new innovations and technology to grow
our business.
If Congress fails to preserve the 20-percent deduction, Ketchie
will be unable to conduct these activities because funds will flow to
the Federal Government instead of back to manufacturers so they can
reinvest. I would like to thank Senator Steve Daines for introducing
the Main Street Tax Certainty Act, which would make the 20-percent
deduction permanent for small manufacturers like Ketchie.
Moreover, if not for the Federal estate tax exemption being
increased in 2017, Ketchie might not be here today. I know firsthand
the struggle that family-owned businesses face when a loved one passes
away. When I lost my husband in 2014 to brain cancer, not only did I
have to worry about keeping the business afloat, but I was so worried
about a looming tax bill that might have forced us to halt production
altogether.
We are a third-generation family-owned company, and we want to
remain a linchpin in Concord for many generations to come. The estate
tax has a significant impact on family-owned manufacturers' ability to
continue to operate after the death of a loved one. The tax has a
disproportionate impact on family-owned manufacturers because their
companies consist largely of illiquid assets that would need to be sold
or leveraged to satisfy the tax burden.
In 2017, the TCJA increased the exemption threshold for the estate
tax, allowing more of a family-owned business's assets to be passed on
to the next generation without incurring a tax burden. The increased
exemption is set to expire in 2026, which will expose more of a family-
owned business's assets to taxation, making it increasingly difficult
for them to continue operating and supporting local jobs following the
death of a loved one. Preserving the TCJA estate tax or outright repeal
would instill the confidence in small manufacturers like Ketchie that
we will be able to continue operating in the event of losing a loved
one.
Additionally, I encourage members of the committee to fully
preserve stepped-up basis, which prevents a business owner's heirs from
being forced to pay a capital gains tax on the asset appreciation that
occurred during the owner's lifetime. A recent study found that taxing
these unrealized gains would cost the U.S. economy 80,000 jobs per year
over the course of a decade and 100,000 jobs per year thereafter.\9\
---------------------------------------------------------------------------
\9\ ``Repealing step-up of basis on inherited assets: Macroeconomic
impacts and effects on illustrative family businesses,'' EY (April
2021), available at https://documents.nam.org/tax/ey-fbetc-
stepupreport.pdf.
Manufacturers fully realize the task ahead for Congress is
monumental. As they say though, the proof is in the pudding. The
business tax policies implemented by the TCJA were rocket fuel for the
manufacturing industry, and policymakers must act to ensure the U.S.
manufacturing sector remains a global leader. Members of this committee
must address the expired business tax provisions and reinstitute them
as quickly as possible. Manufacturers appreciate the focus of this
hearing today, and I hope that members of this committee and every
member of Congress will institute tax policies that support
---------------------------------------------------------------------------
manufacturers and provide tax certainty in 2025.
I want to thank Chairman Wyden and Ranking Member Crapo for giving
me the chance to testify today. Manufacturing truly is the backbone of
our Nation, and I appreciate all members of the committee continuing to
give our industry the attention it deserves. Through sound tax policy,
we will continue to create jobs, innovate, compete globally, and
provide a better future for young Americans.
Manufacturing truly is a team sport, and you are all on that team.
Small companies like mine are counting on you to play with us rather
than against us, and to ensure that our tax code does the same.
______
Questions Submitted for the Record to Courtney Silver
Questions Submitted by Hon. Mike Crapo
Question. Can you discuss which provisions of the Tax Cuts and Jobs
Act (TCJA) you benefitted from the most, and what investments--both in
your employees and your business in general--you were able to make as a
result of those tax savings?
Answer. The 2017 Tax Cuts and Jobs Act was revolutionary for my
business and the manufacturing sector as a whole. Following TCJA's
passage, the manufacturing sector experienced the best year for
manufacturing job creation in the previous 21 years and the best year
for manufacturing wage growth in the previous 15 years.\1\
Manufacturing capital spending grew 4.5 percent and 5.7 percent in 2018
and 2019, respectively.\2\ After the legislation was signed into law,
Ketchie experienced the best year in our 7-decade history.
---------------------------------------------------------------------------
\1\ National Association of Manufacturers, ``Competing to Win''
(September 2022), available at https://documents.nam.org/ctw22/
competing%20to%20win%202022%20-%20tax.pdf.
\2\ Id.
Ketchie is organized as an S corporation, and therefore is eligible
for a 20-percent deduction on our business income thanks to section
199A, which was created by the TCJA. Pass-through owners see their
business income reflected on their personal tax returns, and this
deduction reduces the amount of pass-through income subject to tax,
allowing us to reinvest. This deduction gives smaller manufacturers the
chance to take funds and put them right back to our employees and
---------------------------------------------------------------------------
company.
Ketchie, like most manufacturers, is a capital-intensive business.
In the years following the TCJA, I was able to make a higher level of
investment in capital equipment thanks to the ability to deduct 100
percent of my capital investments in the year acquired (full
expensing). We were able to invest more than $1 million into capital
equipment, which helped us meet the surge of demand as our customers
ramped up production as they utilized the TCJA provisions as well.
All of the TCJA provisions working in concert with each other
allowed other customers and manufacturers in my supply chain to boom.
The ability to immediately deduct R&D expenses, enhanced interest
deductibility on business loans and full expensing, along with many
other provisions in the TCJA like the pass-through deduction and the
globally competitive corporate rate, allowed our industry to experience
unprecedented growth. We expanded our shop floor workforce by 20
percent, developing our team at Ketchie to keep pace with the ever-
evolving manufacturing industry. We created an internship program
focused on manufacturing for our local high school, provided increased
health benefits and 401(k) plans to our team, donated to the local Boys
and Girls Clubs, increased bonus and pay scales for our employees, and
increased security and safety measures in our facilities. None of these
investments would have been possible without the TCJA.
Question. I expect tax legislation to be top of mind in 2025 as a
number of important tax provisions expire. A top priority of mine is
making TCJA's progrowth tax policies--such as full expensing and the
pass-through deduction--permanent, as well as reinstating R&D
expensing.
Can you describe how important certainty in the tax code is to your
business and investment decisions? Would making these progrowth
provisions permanent be helpful for business planning purposes?
Answer. It is imperative that Congress recognize the fact that
domestic businesses rely on predictability and stability within the tax
code. Even when Congress discusses tax changes, it forces small
manufacturers to spend time trying to read the crystal ball on how to
tax-plan for the next several years. Our tax code needs to be simple,
consistent, and progrowth so that it supports manufacturing and gives
us all a chance to compete to our fullest potential.
Due to the uncertainty over whether Congress will address the
expiration of tax incentives related to R&D, interest deductibility and
expensing for capital investments, 40 percent of manufacturers said
they have already been forced to pull back on hiring and investing.\3\
In the same survey, 94 percent of manufacturers said that it is
important for the Federal tax code to help reduce manufacturers' costs
for conducting R&D, accessing capital via business loans and investing
in capital equipment purchases.
---------------------------------------------------------------------------
\3\ NAM Manufacturers' Outlook Survey, First Quarter 2024 (March 5,
2024), available at https://nam.org/wp-content/uploads/2024/03/Outlook-
Survey-March-2024-Q1.pdf.
I receive a daily reminder of this when I walk on my shop floor. I
have a very large space on my floor reserved for my next significant
machinery investment. This investment will allow Ketchie to operate in
new industry markets, and to inspire and attract the next generation of
top talent who want to work with the most
---------------------------------------------------------------------------
cutting-edge technology possible.
This investment is on hold due to the phasing out of the
accelerated depreciation levels from 100 percent in 2022 to 60 percent
in 2024. Because I am unable to realize a deduction for the full cost
of my investment within the year I purchase it, the investment seems
too risky and irresponsible. Permanent full expensing, on the other
hand, would allow me to invest, grow, compete, and create highly
skilled and high-paying jobs. These positions give people dignity and
purpose and change their lives in our community. If accelerated
depreciation is allowed to expire fully in 2027, I truly don't know how
we will be able to purchase the equipment we need to continue to expand
our business.
The pass-through deduction also needs to be a high priority for
Congress next year. The pass-through deduction is set to expire at the
end of 2025 at the same time that the income tax rates for individuals
will increase, dramatically increasing the tax burden on small
manufacturers like Ketchie. Preserving the pass-through deduction and
preventing individual tax rates from increasing must be a priority for
Congress to encouraging domestic manufacturing growth, as should
preserving the TCJA's increased estate tax exemption threshold and
reduced corporate rate.
______
Question Submitted by Hon. John Thune
Question. As you know, the Tax Cuts and Jobs Act doubled the estate
tax exemption level, and your testimony spoke to the importance of
either retaining the TCJA exemption level or repealing the estate tax
in its entirety. I have long been an advocate for the permanent repeal
of the estate tax, more commonly known as the death tax. Last year, I
led 40 of my Senate Republican colleagues in reintroducing the Death
Tax Repeal Act, which would put an end to this punitive tax that not
only burdens and punishes family-run businesses when a death in the
family occurs, but also through costly estate planning.
Could you please expand on the detrimental impact the death tax has
on businesses like yours when a death in the family does unfortunately
occur and its impact on the ongoing operation and longevity of the
business itself?
Answer. Ketchie was established in 1947 to fill the gap of the
local textile industry after World War II. Today, we are a third-
generation family-owned company that has been a pillar in Concord, NC
for nearly 80 years, providing strong manufacturing jobs and giving
back to our community.
Following my husband's passing, I was honored to take over Ketchie
and continue the family legacy. I know firsthand the struggle that
family-owned businesses face when a loved one passes away. When I lost
my husband, not only did I have to worry about keeping the business
afloat, but I was so worried about a looming tax bill that might have
forced us to halt production altogether.
In 2017, the TCJA increased the exemption threshold for the estate
tax, allowing more of a family-owned business's assets to be passed on
to the next generation without incurring a tax burden. The increased
exemption is set to expire in 2026, which will expose more of a family-
owned business's assets to taxation, making it increasingly difficult
for them to continue operating and supporting local jobs following the
death of a loved one. Small businesses should not be forced to spend
countless hours and resources with outside tax planners and accountants
just so we do not have to worry about losing our businesses due to a
tragedy.
Preserving the TCJA estate tax exemption or outright estate tax
repeal would instill the confidence in small manufacturers like Ketchie
that we will be able to continue operating in the event of losing a
loved one.
______
Questions Submitted by Hon. Todd Young
Question. During the hearing, I emphasized the importance of
restoring full and immediate expensing under section 174 of the
Internal Revenue Code and the critical role this provision plays in
maintaining American competitiveness. In particular, amortization of
research and development (R&D) expenses has had a serious impact on
smaller manufacturers such as Ketchie.
How important is full and immediate expensing to companies like
Ketchie?
Can you speak to the urgency of the need for Congress to fix
section 174?
Answer. Ketchie delivers machining solutions to government and
commercial customers in a wide range of industries, including rail,
agriculture, textile, heavy machinery, industrial equipment, and many
specialized original equipment manufacturers. Our ability to innovate
is what keeps us in the game, and a large part of that for the
manufacturing sector has been the ability to deduct R&D expenses.
For decades, taxpayers have been allowed to immediately deduct 100
percent of their R&D expenses in the year they are incurred. In 2022,
however, the tax code began requiring so-called ``amortization'' of
these expenses, forcing manufacturers to recover only a small portion
of their costs over several years.
Taxing manufacturers' investments in critical R&D expenditures
means that we will have less capital to invest in workers and our
future growth. The private sector accounts for more than 75 percent of
total R&D spending,\4\ with small businesses accounting for
approximately $90 billion of all private-sector R&D investments.\5\
This is not a new issue--the tax code has recognized the importance of
R&D spending for more than 70 years, but with this recent change,
Congress has now made the U.S. one of the two developed countries in
the world who require the amortization of R&D expenses.
---------------------------------------------------------------------------
\4\ National Center for Science and Engineering Statistics,
National Science Foundation, National Patterns of R&D Resources: 2020-
21 Data Update, NSF 23-321 (Jan. 4, 2023), available at https://
ncses.nsf.gov/pubs/nsf23321.
\5\ National Center for Science and Engineering Statistics,
National Science Foundation, InfoBrief, NSF 22-343 (Oct. 4, 2022),
available at https://ncses.nsf.gov/pubs/nsf22343 and InfoBrief, NSF 23-
305 (Dec. 14, 2022), available at https://ncses.nsf.gov/pubs/nsf23305.
Congress not only needs to reinstate immediate expensing under
section 174, but manufacturers also need the provision to be
retroactive to its TCJA expiration at the beginning of 2022. We need
permanent and consistent tax policies so that manufacturers do not have
to guess every other year what the tax code might look like. Every day
that goes by and immediate expensing for R&D is not reinstated, we are
losing dollars we could reinvest here in America and losing ground to
---------------------------------------------------------------------------
our global competitors.
Question. The decrease in U.S. R&D incentives comes at a time when
countries across the globe are increasing the generosity of their R&D
incentives. As an example, while companies conducting R&D in the United
States are forced to amortize their R&D expenses over 5 years,
companies conducting those same activities in China are receiving a
200-percent super-deduction.
Since full and immediate expensing of R&D under the Internal
Revenue Code expired at the end of 2021, can you speak to what has
happened to R&D growth in places like the European Union and China
compared to the United States?
Answer. At a time of increasingly fierce global competition for
research dollars, Congress must act to ensure the next R&D dollar is
spent in the United States and not overseas.
A new report from the European Union found that both the EU and
China gained a significant advantage after the expiration of immediate
R&D expensing.\6\ In 2022, the first full year after immediate
expensing for R&D expired in the United States, EU R&D growth surpassed
the U.S. for the first time in nearly a decade. Even more worrisome,
China's R&D growth tripled that of the United States in 2022. Chinese
companies enjoy a super-deduction on research spending, while
manufacturers in America must now compete with weights strapped to our
ankles following the expiration at home. China is not the only country
offering better R&D incentives--17 countries now provide a deduction
that is more than 100 percent of eligible R&D expenses, further making
the United States a less attractive place to conduct R&D.
---------------------------------------------------------------------------
\6\ ``EU Industrial R&D Investment Scoreboard'' (2023), available
at https://op.europa.eu/en/publication-detail/-/publication/1e5c204f-
9da6-11ee-b164-01aa75ed71a1/language-en.
Manufacturers are facing stiff competition around the globe from
countries enticing companies to bring their business out of the United
States. A strong domestic manufacturing sector directly correlates to
---------------------------------------------------------------------------
increased national security and economic prosperity for all Americans.
______
Prepared Statement of Mark R. Widmar,
Chief Executive Officer, First Solar, Inc.
Good morning, Chair Wyden, Ranking Member Crapo, and distinguished
members of the committee. My name is Mark Widmar, and I am the chief
executive officer of First Solar, the largest solar manufacturer in the
Western Hemisphere. I have been with First Solar for 13 years, serving
as the CEO since 2016 and as the chief financial officer before that.
Founded 25 years ago outside Toledo, OH, we operate the largest
solar manufacturing footprint in the Western Hemisphere, with three
existing factories in Ohio that produce thin film solar wafers, cells,
and modules in a single process under one roof. We have two new
manufacturing facilities under construction in Alabama and Louisiana
that are expected to come online in 2024 and 2025, respectively. In
addition, we are expanding our existing Ohio footprint and constructing
a Research and Development (R&D) center as well as a technology
development line intended to produce the next generation of thin film
photovoltaic technology at our Ohio campus. Together, this represents
over $4 billion in investment capital.
First Solar is proud to be America's solar company: we are the only
company out of the world's largest solar module manufacturers to be
headquartered in the United States, and we are on track to have 14
gigawatts (GW) of vertically integrated capacity to produce American-
made solar panels with the support of a uniquely domestic supply chain.
I am honored to represent First Solar today and thank the committee
for convening this hearing on how tax policy impacts domestic
manufacturing in the United States. We believe the Inflation Reduction
Act (IRA) represents America's first durable solar industrial strategy
and, if implemented with a whole-of-
government commitment to onshoring, together with strong and consistent
enforcement of trade laws, it also has the potential to dismantle
China's stranglehold of solar manufacturing value chains. Quite simply,
the IRA paves a viable pathway for the U.S. to secure supply of
critical clean energy technologies, enabling America's energy
independence while capturing value for our economy and creating well-
paying, enduring jobs.
It is difficult to overstate the economic potential that the IRA
can deliver through job creation, labor income, and overall economic
output. As First Solar continues to scale domestic production, we are
proud to share the tangible benefits of onshoring U.S. solar under the
IRA. We believe that the data that follows defines, in real terms, the
value that domestic solar manufacturing delivers to the U.S. economy
and should provide a basis for bipartisan support to establish and
maintain the policies and trade measures necessary to enable a domestic
solar supply chain and a level playing field.
American solar manufacturing creates steady, good-paying
jobs. By 2026, we expect to have more than 4,100 direct
employees in the U.S., making us one of the largest employers
in the sector. Each of our new factories is expected to employ
upwards of 700 people, with an average manufacturing salary of
$80,000 annually. We are transforming the role of the American
solar factory worker--upleveling skills and focusing the scopes
on systems and processes, with less focus on rote, routine
steps.
American solar manufacturing delivers high-value economic
impact. We recently commissioned an analysis conducted by the
University of Louisiana at Lafayette that measured the real
economic impact of First Solar's domestic manufacturing.
The construction activity across our three
expansions in Alabama, Louisiana, and Ohio supported an
estimated 5,765 direct, indirect, and induced jobs in 2023;
represented over $600 million in labor income; and is estimated
to have added over $900 million in economic value to the
country.
In 2026, when we expect to have 14 GW of
annual U.S. capacity, the study projects that:
t First Solar's direct employment of 4,100 people would
support an estimated 30,060 direct, indirect, and induced jobs
across the country.
t Every First Solar job would support 7.3 jobs across
the U.S., together representing an estimated annual labor
income of $2.78 billion, including direct, indirect, and
induced effects.
t First Solar is estimated to add nearly $5 billion in
value and $10.18 billion in economic output to the U.S. economy
in 2026, based on its 14 GW of U.S. operations and the direct,
indirect, and induced effects.
My testimony today will primarily focus on describing how the IRA
is catalyzing First Solar's efforts to scale high-value American solar
manufacturing, which, in turn, creates a vast economic impact from
coast to coast. However, it is imperative that we establish that the
U.S. solar industry cannot be a one-horse race.
While we were not the only American solar manufacturer to come into
existence at the end of the last century, the grim reality is that we
are the only one of scale to remain today. For the IRA to spur U.S.
manufacturing to the scale our country requires to support its energy
independence we must ensure that more companies that are aligned with
U.S. ambitions and are committed to fair competition and innovation can
scale, compete, and prosper. There should be no doubt: we invite
competition, and we invite free trade; all we ask is that this
competition and trade are practiced on a level playing field.
Solar is already the lowest cost form of new electricity generation
capacity. However, less than a third of the 35 GW of new solar panels
installed in 2023 in the U.S. were produced in America. Moreover, not
even one of the crystalline silicon panels installed was assembled with
American-made solar cells. There is no question, the U.S. solar
manufacturing industry remains in a precarious position, despite the
passage of the IRA.
For context, the U.S. exited 2023 with an estimated 30 to 40 GW of
imported oversupply, the vast majority of which came into the country
free of safeguard and Antidumping and Countervailing Duty tariffs.
Nearly all this capacity was produced by China-headquartered companies.
Market conditions show no sign of slowing imports to the U.S.
unless policy and trade law enforcement changes. The relentlessness of
the Chinese subsidization and dumping strategy has caused a significant
collapse in cell and module pricing and threatens the viability of many
manufacturers who may never be able to get off the ground or have the
ability to finance the start-up or growth of their operations.
This is true for those manufacturers serving the domestic utility-
scale sector, as well as those exposed to the residential solar sector,
which operates on a shorter sales cycle. At the same time, questions
remain on how and when the IRA's regulations, particularly those
related to the domestic content bonus, will be finalized. These factors
contribute to painting a challenging investment thesis for new U.S.
manufacturing capacity.
China's dominance of solar energy is well-known and intentional.
The country's strategy to dominate solar supply chains dates to 1985,
when photovoltaic (PV) solar was first mentioned in a Chinese Five-Year
Plan, the recurring outline of its industrial strategy. Unchallenged,
Chinese control of the solar supply chain arms an adversarial nation
with significant geopolitical leverage. We need urgency, tax policy
clarity, and strong and consistent trade enforcement to ensure the U.S.
solar manufacturing sector can scale as Congress intended when drafting
the IRA.
First Solar stands apart from most of the industry in a few
important ways. Our proprietary--and uniquely American--thin film solar
technology was invented and developed in the U.S. and has since evolved
in labs across the country. This technology is a significant enabler of
the operational U.S. utility-scale solar fleet. We manufacture our
panels from start to finish in their entirety within our factory's
walls. Each panel is produced in approximately 4 hours: from
semiconductor to wafer to cell to completed, deployable module--fully
vertically integrated and ready for installation in the field.
Crucially, our U.S. manufacturing capacity has no dependencies on
Chinese crystalline silicon supply chains and is instead enabled by an
American value chain. Our U.S. panels are produced with American-made
glass and steel. The steel value chain that serves our 7 GW of Ohio
production is located within a 100-mile radius of our factories; our
glass is made from Michigan silica and Wyoming-mined soda ash.
By 2026, we expect to have 14 GW of fully vertically integrated
U.S. solar manufacturing capacity capable of serving more than 40
percent of the country's projected utility-scale solar demand with
American made solar, and a total of 25 GW globally.
We began investing in an American supply chain long before the
IRA--our onshoring began shortly after we announced our second Ohio
factory in 2018 in the wake of the solar safeguard measures introduced
by the Trump administration. The safeguard measures, though weakened
substantially over time, gave a brief vision of what a level playing
field can look like, and created a window for growth investment.
But trade tools alone are not enough to deliver clean energy
independence: it is the anticipated durability and scale of the IRA
that has the potential to truly deliver the reshoring of a resilient
U.S. solar supply chain and the creation of an enduring American solar
manufacturing job base. More simply stated: the U.S. tax code has the
power to incentivize domestic investment in significantly growing this
industry, but the ability of those investments to endure is enabled by
a corresponding trade policy.
I would like to draw your attention to two specific sections within
the IRA that set the legislation apart from all previous energy-focused
efforts in a manner that, together, drive the policy punch that has the
power to reshore manufacturing, create well-paying, lasting American
jobs, and build the independent energy infrastructure we seek.
1. the section 45x advanced manufacturing tax credit
As a tax tool, manufacturing incentives have often focused on the
capital expenditure side of setting up manufacturing, not the
operational side of running manufacturing resiliently. This is the case
with the 2009 American Recovery and Reinvestment Act, which invested $2
billion in clean energy manufacturing in the form of capital
expenditure-based tax credits and loans, via the original section 48C
and Department of Energy (DOE) loan program, respectively.
Manufacturing is a capital-intensive sector, and CapEx-based tax
credits certainly play a role in lowering the cost of entry for
starting up a new facility.
Not only did the IRA resurrect section 48C with a larger $10
billion fund, but it took on the more complex challenge of
incentivizing the operational side of manufacturing in strategic clean
energy sectors like solar, wind, and battery storage. By focusing on
the ongoing production, 45X creates a scaffolding of support that
provides manufacturers the momentum needed to scale, to drive down
costs, and to push innovation. For solar manufacturing, the more watts
produced, the greater the overall tax credit. As designed, the law
encourages competitiveness at scale.
Section 45X is equally innovative in its approach across the full
value chain of each strategic sector, looking upstream of the final
product. Thus, the tax policy incentivizes the onshoring of each
critical stage of the solar manufacturing process: critical minerals,
polysilicon, wafer, cell, and module assembly. As designed, 45X
recognizes the criticality of onshoring upstream and downstream
components, benefiting suppliers and OEMs alike.
2. the sections 45 and 48 domestic content bonus
While 45X represents a critical supply-side driver, the IRA also
created a crucial parallel demand-side driver by introducing a bonus to
the investment or production tax credit accessed by solar generation
asset owners if projects procure domestically made content, including
solar panels. While regulations to implement this aspect of the IRA
remain pending, the expectations are great that the domestic content
bonus will create a durable market pull for solar produced via high-
value domestic manufacturing.
I firmly believe the best form of American manufacturing is one in
which the maximum value is captured and retained in the U.S.,
reinvested to spur cycles of innovation to maintain American
technological leadership, and used to attract and retain a durable
workforce.
It must be noted, however, that without a fix, there is great risk
that the largest beneficiary of the IRA's solar energy tax credits may
be China. While well-intended to incentivize every step of the solar
panel value chain, there are no restrictions in place preventing
companies controlled by, owned by, or subject to the jurisdiction of
the Chinese Government from benefitting from, and receiving,
significant amounts of American taxpayer dollars.
Moreover, Chinese solar companies already have come to dominate the
solar supply chain in part through an opaque system of subsidies that
is believed to include low-cost financing, highly subsidized coal
electricity, free land and buildings, and, horrifyingly, access to
forced labor in provinces like Xinjiang, an abomination Congress sought
to address with its passage of the Uyghur Forced Labor Prevention Act
(UFLPA). We must ensure that the IRA's 45X Advanced Manufacturing Tax
Credits are not added to the list of benefits that enable China's
mission to fully eviscerate American solar manufacturing. Put simply:
we cannot line China's pockets with U.S. taxpayer dollars.
When the tax code is structured to address such an unintended
potential outcome and paired with proper trade enforcement, they can
serve as a powerfully effective set of tools to achieve the twin aims
of rebuilding American manufacturing able to compete on its own merits,
and counter China's unfair dominance of critical supply chains.
First Solar is enabled by thousands of hardworking people across
the country: soda ash miners in Wyoming; silica miners in Michigan;
copper miners in Utah; steelworkers in Alabama, Louisiana, and Ohio;
glassworkers in Illinois, Ohio, and Pennsylvania; woodworkers in
Indiana; and a nationwide network of truckers, railroad workers, and
many more. These are jobs that, in turn, are enabled by the tax
incentives I noted earlier. We believe this demonstrates that the tax
code can and is growing U.S. manufacturing, which in turn benefits
American workers and helps catalyze our country's prosperity.
However, industrial-sized scaling of the solar industry in America
remains at risk without guardrails applied to the tax code. As a recent
article in The New York Times titled ``How China Came to Dominate the
World in Solar Energy'' noted, ``Chinese companies increasingly do the
initial, high-value stages of solar panel manufacturing in China, and
then ship the components to overseas factories for final assembly.''
In recent years, these overseas factories have been located in
``Belt and Road'' member countries, primarily in Southeast Asia, some
of which have recently been determined to be circumventing U.S. trade
laws. As things stand, we are at risk of adding Ohio, Texas, Arizona,
and other U.S. States to the list of locations that host China's
overseas final assembly facilities, in many cases set to use imported
components to assemble into modules in potentially temporary, leased
facilities. It's not unrealistic that these facilities, and their
associated jobs, will disappear once the 45X tax credits expire and
American taxpayer dollars are extracted.
Congress must ensure that the U.S. does not become a de facto
extension of China's Belt and Road initiative, serving as a mere
assembly outpost for China's state-subsidized solar manufacturing
industry, while paying for the privilege with U.S. taxpayer dollars.
We must respond to the challenge China poses with legislative
solutions and final regulations aligned with our values and designed to
shore up the commitment to creating a robust, resilient American solar
manufacturing base across the supply chain. These solutions must
account for the fact that China is a nimble rival that is quick to
exploit opportunities, loopholes, and vulnerabilities.
With the right guard rails, the IRA can help ensure that our
manufacturing sectors grow in a resilient and durable manner while
allowing the United States to capture the economic value and expand
American manufacturing jobs in the process.
I, on behalf of First Solar, am pleased to be here today to
participate in these important discussions. We are proud of our
American manufacturing capabilities and our past, current, and future
contributions to the U.S. economy. We believe that the IRA will
significantly advance efforts to grow our country's economy, create
enduring jobs, and contribute to our Nation's energy security.
Thank you, and I would be happy to answer any questions you may
have.
______
Questions Submitted for the Record to Mark R. Widmar
Question Submitted by Hon. Mike Crapo
Question. I understand that your company has made several comments
with respect to Inflation Reduction Act (IRA) implementation guidance,
including some that express concerns with potential rules allowing
foreign interests to benefit from the incentives.
Your comments also note the need to ``address the inequalities
associated with Chinese competition.'' My colleagues and I are likewise
concerned that IRA incentives will further entrench anticompetitive
foreign interests.
If the administration does not adopt robust rules to level the
playing field with foreign competition, what will the impact be to the
U.S. solar industry and your company?
Answer. As it relates to the IRA, and as I noted in my comments,
the best form of American manufacturing is one in which the maximum
value is captured and retained in the U.S., reinvested to spur cycles
of innovation to maintain American technological leadership and used to
attract and retain a durable workforce.
It is common knowledge that Chinese solar companies have come to
dominate the solar supply chain, in part through an opaque system of
subsidies that is believed to include low-cost financing, highly
subsidized coal electricity, free land and buildings, superdeductions
for research and development expenses, and, horrifyingly, access to
forced labor in provinces like Xinjiang.
It would be a strategic misstep to add the IRA to the list of
benefits and subsidies that Chinese companies already have access to.
Not only would this allow them to unfairly benefit from American
taxpayer dollars simply by establishing assembly outposts here, but it
would defeat the fundamental thesis of reinvesting in American
innovation and technological leadership and retaining value in the U.S.
This is as much about the impact on the industry as it is on our
country's ability to challenge China's dominance and lead the world in
clean energy technology innovation and manufacturing.
There is no doubt in my mind that the IRA will significantly
advance efforts to grow our country's economy, create enduring jobs,
and contribute to our Nation's energy security. However, we need the
proper guardrails to ensure that our manufacturing sectors grow in a
resilient and durable manner while allowing the U.S. to capture long
term economic value and expand American manufacturing jobs in the
process.
More broadly speaking, we must think of government policy in the
context of clean energy manufacturing in terms of a three-legged stool:
the first leg is industrial policy, such as the 45X Advanced
Manufacturing Tax Credit, which incentivizes investments in American
manufacturing. The second leg is demand and
demand-side drivers, such as the IRA's domestic content bonus, which
incentivizes the procurement of domestically made content, including
solar panels when made with domestically made components.
The third leg is a level playing field that addresses
anticompetitive, market-
distorting behavior such as dumping and circumvention. While industrial
policy such as the IRA has the power to incentivize domestic investment
in significantly growing this industry, the ability of those
investments to endure is enabled by a corresponding trade policy. This
level playing field ensures that domestic manufacturing investments,
incentivized by American taxpayer dollars, are incubated as they scale.
Take away any one of the legs, and you render the whole apparatus
unusable, undermining America's potential to lead the world in clean
energy technology innovation and manufacturing.
______
Questions Submitted by Hon. Maria Cantwell
Question. You have been an advocate for solar manufacturers to
onshore every step of the supply chain, from polysilicon through
modules. This would allow U.S. solar manufacturers to bring down costs
and enable domestic innovation and supply chain control.
As you have said, a major part of your company's success is its
independence from risky international supply chains. Congress passed
the IRA's 45X Advanced Manufacturing Production Credit to address
exactly this critical supply chain exposure.
Do you think the 45X credit has already begun to reinvigorate the
domestic production of clean energy components, including REC Silicon
and other companies in my state?
Do you agree that 45X and its ``domestic content bonus'' provision
should be implemented to incentivize all levels of the domestic supply
chain, including all components of solar panels, like polysilicon and
wafers?
Answer. We have seen firsthand the benefits of operating an
American supply chain. Every mile a raw material or component must
travel from source to factory represents risk. The further away your
suppliers--and this is especially true in the case of international
supply chains--the greater a manufacturer's exposure to the risk of
disruption. Our focus on domestic supply chains has allowed us to offer
our customers the certainty they value, while supporting tens of
thousands of direct, indirect, and induced jobs across the country, and
the creation of billions of dollars in economic value.
As it relates to your first question, there's no doubt in my mind
that the 45X has been a much-needed catalyst for our industry to invest
in growth. REC Silicon's decision to restart its Moses Lake facility
was a tremendous achievement and an essential first step in breaking
China's stranglehold over polysilicon supply chains.
That being said, China is already responding and allegedly dumping
unprecedented volumes of solar panels in the U.S. at prices that are
believed to be below the cost of production. Unfortunately, we are not
yet in a position to proclaim success, and there is still work to be
done to safeguard domestic manufacturing investments from China's use
of anticompetitive, market-distorting behavior.
We must think of government policy in the context of clean energy
manufacturing as a three-legged stool: the first leg is industrial
policy, such as the 45X Advanced Manufacturing Tax Credit, which
incentivizes investments in American manufacturing. The second leg is
demand and demand-side drivers, such as the IRA's domestic content
bonus, which incentivizes the procurement of domestically made content,
including solar panels when made with domestically made components. The
third leg is a level playing field that addresses the anti-competitive,
market-
distorting behavior I referenced earlier.
While industrial policy such as the IRA has the power to
incentivize domestic investment in significantly growing this industry,
a corresponding trade policy enables those investments to endure. This
level playing field ensures that domestic manufacturing investments,
incentivized by American taxpayer dollars, are incubated as they scale.
With regard to your second question, in an ideal scenario, we would
see the entire crystalline silicon value chain reshored in the U.S. The
reality, however, is different. As even lower-value investments, such
as those in module assembly, falter in the face of China's use of
economic warfare against the IRA, the more urgent need is to safeguard
the non-Chinese investments catalyzed by 45X while maintaining the
demand-side drivers for at least PV solar cells and modules in the form
of the domestic content bonus without adding additional complexity.
______
Question Submitted by Hon. Bill Cassidy
Question. Last year, First Solar broke ground on a new solar
manufacturing plant in Iberia Parish in Louisiana that will become one
of the largest solar factories in the U.S., with over 700 jobs. I have
been a proud supporter of bringing high-quality manufacturing jobs to
Louisiana.
Can you tell me about what led to your solar manufacturing
expansion, and what role the tax code played in your expansion?
You call for consistent trade enforcement to ensure that the U.S.
solar manufacturing sector can scale and compete internationally on a
level playing field. Can you elaborate on how sound trade policies can
complement the tax code to advance U.S. manufacturing internationally?
Answer. First Solar is proud to be investing in the State of
Louisiana. The new $1.1-billion Louisiana facility, like its sister
facilities in Ohio and Alabama, represents First Solar's investment in
our country's future. Furthermore, solar manufacturing solidifies the
Gulf Coast's position as America's energy production hub. It
exemplifies the ``all-of-the-above'' approach to energy security while
creating good-paying jobs and driving economic growth.
Our investments in expanding our domestic manufacturing footprint
were driven by unprecedented customer demand for American-made products
and catalyzed by the Inflation Reduction Act.
We think of government policy in the context of clean energy
manufacturing in terms of a three-legged stool: the first leg is
industrial policy, such as the 45X Advanced Manufacturing Tax Credit,
which incentivizes investments in American manufacturing. The second
leg is demand and demand-side drivers, such as the IRA's domestic
content bonus, which incentivizes the procurement of domestically made
content, including solar panels when made with domestically made
components. The third leg is a level playing field that addresses
anticompetitive, market-distorting behavior such as dumping and
circumvention. While industrial policy such as the IRA has the power to
incentivize domestic investment in significantly growing this industry,
the ability of those investments to endure is enabled by a
corresponding trade policy. This level playing field ensures that
domestic manufacturing investments, incentivized by American taxpayer
dollars, are incubated as they scale.
Take away any one of the legs, and you render the whole apparatus
is at risk of becoming unusable, undermining America's potential to
lead the world in clean energy technology innovation and manufacturing.
______
Prepared Statement of Hon. Ron Wyden,
a U.S. Senator From Oregon
There's a lot for the Finance Committee to discuss on the topic of
manufacturing this morning. I want to start off with a bit of recent
history on key manufacturing priorities.
On infrastructure, it became a running joke during the Trump
administration that every week was infrastructure week. The big
infrastructure bill was always a few days away. But it never came. It
was the Biden administration that finally got a major infrastructure
bill passed. And now there are shovels in the ground all over the
country working on rebuilding our roads and bridges, highways, ports,
and airports.
On energy, Trump talked a big game on energy independence. If he
wanted, he could have pushed for big investments in wind and solar and
batteries and electric vehicles. He did not. Democrats got that done in
the Inflation Reduction Act.
The United States is now producing more energy than ever before.
We've reached a greater level of energy independence than we've had
since the days when millions of Americans had big piles of coal
shoveled into their basements. Consumers are saving money. Putin and
OPEC have a whole lot less influence over our energy prices than they
did when Donald Trump was in the White House.
On semiconductors--the chips that Americans interact with from the
time they wake up in the morning and check their cell phones to the
time they go to bed at night setting an alarm--once again, Donald Trump
sat on the sidelines. He could have pushed for more chips investment to
bring a vital high-tech manufacturing industry back home, giving us a
greater competitive edge with China. He didn't get it done. The CHIPS
and Science Act, passed on a bipartisan basis under this
administration, is getting it done.
Nobody would blame Americans for having grown tired and frustrated
after decades of empty political promises about bringing manufacturing
jobs back to this country. Every shuttered factory, every job shipped
overseas, was a wound to those who were left behind in communities that
took pride and found identity in the things they made with their labor.
Donald Trump talked an awful lot about bringing back manufacturing
jobs. He failed to deliver. In fact, the manufacturing sector went into
a recession in 2019, after his tax law went into effect and before the
pandemic clobbered our economy.
Well, the cycle of empty promises has ended. The U.S. is in a
manufacturing boom, thanks in large part to this landmark legislation
passed under the Biden administration, much of which came from this
very committee.
Manufacturing investment in clean energy in 2023 was triple the
level from before Congress passed the IRA. The running total of clean
energy and chips investments announced in the last few years is now
more than $350 billion. That's more than a quarter-million jobs
created.
The CHIPS Act and the IRA also go farther than any laws in recent
memory to buy American and cut our dependence on China. That's a big
reason why so many foreign governments were upset after Democrats
passed the IRA. With one single piece of legislation, the U.S. lapped
the pack in terms of investment in clean energy and clean
transportation.
So that's all great news about the state of manufacturing in
America. Here's the big concern: Donald Trump wants the IRA repealed.
House Republicans voted to gut nearly the entire IRA energy package.
It's not because they've got a better idea for energy or manufacturing
in America. It's just because they want to score a political win, no
matter the cost. And in this case, the cost would be hundreds of
thousands of jobs in America. It would be higher costs for consumers,
greater dependence on foreign oil, and surrendering to China and other
countries when it comes to clean energy innovation and jobs.
That must not happen. For the first time in a long time, the future
of manufacturing in America--and manufacturing jobs--looks bright.
Congress absolutely must do everything it can to build on this
progress.
On that topic, the Senate is in the middle of a debate on a bill
that pairs tax cuts for businesses, including for R&D expenses, with an
expansion of the Child Tax Credit. I introduced the bill with Chairman
Smith of the House Ways and Means Committee 2 months ago. The House
passed it 6 weeks ago with 357 votes in favor, and I don't think you
can get 357 members of the House to agree that 1 plus 1 equals 2.
The Senate needs to get this done. As I've said for weeks and
weeks, I will talk to anybody who wants to work in good faith to move
this forward quickly, because 16 million low-income kids who stand to
benefit shouldn't be forced to wait. And I've heard from small business
owners that there will be real damage done if the Senate sits on this
until 2025. A lot of innovative small businesses will fail if this bill
doesn't pass.
Some of my colleagues understand the urgency here. And let's
understand that this set of policies isn't going to be on the table in
2025 if this bill stalls out. So I hope the Senate is able to move
soon.
______
MACROECONOMIC ANALYSIS OF H.R. 7024,
THE ``TAX RELIEF FOR AMERICAN FAMILIES AND
WORKERS ACT OF 2024'' AS ORDERED REPORTED
BY THE COMMITTEE ON WAYS AND MEANS,
ON JANUARY 19, 2024
Prepared by the Staff
of the
Joint Committee on Taxation
January 23, 2024
JCX-6-24
INTRODUCTION
Pursuant to House Rule XIII(8)(b), this document,\1\ prepared by
the staff of the Joint Committee on Taxation (``Joint Committee
staff''), provides an analysis of the macroeconomic effects of H.R.
7024, the ``Tax Relief for American Families and Workers Act of 2024,''
as ordered reported by the Committee on Ways and Means on January 19,
2024. The basis for this analysis is the projected change in tax
revenues as estimated by the Joint Committee staff.\2\
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\1\ This document may be cited as follows: Joint Committee on
Taxation, Macroeconomic Analysis of H.R. 7024, the ``Tax Relief for
American Families and Workers Act of 2024'' as ordered reported by the
Committee on Ways and Means, on June 19, 2024 (JCX-6-24), January 23,
2024. This document can also be found on the Joint Committee on
Taxation website at www.jct.gov.
\2\ For projected changes in revenue by provision, see Joint
Committee on Taxation, Estimated Revenue Effects of the Chairman's
Amendment in the Nature of a Substitute to H.R. 7024, the ``Tax Relief
for American Families and Workers Act of 2024,'' Scheduled for Markup
by the Committee on Ways and Means on January 29, 2024 (JCX-5-24),
January 18, 2024 at www.jct.gov.
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MACROECONOMIC ANALYSIS OF H.R. 7024
This report provides an analysis of the macroeconomic effects of a
proposal to reform the Internal Revenue Code (``Code''). Specifically,
the proposal analyzed here is summarized in JCX-2-24, Description of
H.R. 7024, The ``Tax Relief for American Families and Workers Act of
2024,'' as ordered reported by the Committee on Ways and Means on
January 19, 2024.\3\ The Joint Committee staff finds that it is
impracticable to report changes to Gross Domestic Product (``GDP'')
from this proposal because they are estimated to be so small relative
to the size of the economy and the degree of uncertainty associated
with the estimate as to be negligible over the 10-year budget window.
As a result, the revenue feedback resulting from this proposal is also
estimated to be negligible.
---------------------------------------------------------------------------
\3\ Joint Committee on Taxation, Description of H.R. 7024, the
``Tax Relief for American Families and Workers Act of 2024'' Scheduled
for Markup by The Committee on Ways and Means (JCX-2-24), January 19,
2024; and Joint Committee on Taxation, Description of The Chairman's
Amendment in the Nature of a Substitute to H.R. 7024, the ``Tax Relief
for American Families and Workers Act of 2024'' (JCX-4-24), January 18,
2024. These documents can also be found on the Joint Committee on
Taxation website at www.jct.gov.
The following discussion describes the proposal and explains why
the macroeconomic effects and revenue feedback that would result are
estimated to be negligible. The Joint Committee Staff used three
macroeconomic simulation models to analyze the effects of the proposal:
(1) the Joint Committee staff's Macroeconomic Equilibrium Growth Model
(``MEG'');\4\ (2) The Joint Committee staff's Overlapping Generations
Model (``OLG'');\5\ and (3) the Joint Committee staff's Dynamic
Stochastic General Equilibrium Model (``DSGE'').\6\ A brief description
of the models appears in the Appendix to this document.
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\4\ A detailed description of the MEG model may be found in Joint
Committee on Taxation, Macroeconomic Analysis of Various Proposals to
Provide $500 Billion in Tax Relief (JCX-4-05), March 1, 2005, and Joint
Committee on Taxation, Overview of the Work of the Staff of the Joint
Committee on Taxation to Model the Macroeconomic Effects of Proposes
Tax Legislation to Comply with House Rule X.III.3(h)(2) (JCX-105-03),
December 22, 2003.
\5\ A detailed description of the OLG model may be found in
``Macroeconomic Implications of Modeling the Internal Revenue Code in a
Heterogeneous-Agent Framework,'' Economic Modelling, vol. 87, April
2020, pp. 72-91, in Rachel Moore and Brandon Pecoraro, ``A Tale of Two
Bases: Progressive Income Taxation of Capital and Labor Income,''
Public Finance Review, vol. 49, no. 3, May 2021, pp. 335-391, and in
Joint Committee on Taxation, An Overview of a New Overlapping
Generations Model with an Example Application in Policy Analysis (JCX-
22R-20), October 22, 2020.
\6\ A description of an earlier version of the DSGE model may be
found in: Joint Committee on Taxation, Background Information about the
Dynamic Stochastic General Equilibrium Model Used by the staff of the
Joint Committee on Taxation in the Macroeconomic Analysis of Tax
Policy, JCX-52-d06, December 14, 2006. There is no description
available for the current version of the DSGE model.
The Joint Committee staff estimates that H.R. 7024 will reduce
Federal revenues by about $399 million over the budget window on a
conventional basis, and that macroeconomic effects do not additionally
increase or decrease this estimate.
Proposal
H.R. 7024 (``the bill'') includes 13 provisions organized under six
subtitles, which are briefly described in this section.
The first subtitle includes one provision that modifies the child
tax credit in several ways, each of which expire at the end of calendar
year 2025. First, the per-child calculation of the additional child tax
credit phase-in is adjusted while the maximum amount of the additional
child tax credit per qualifying child is increased to $1,800 and $1,900
in calendar years 2023 and 2024, and increased to the full amount of
the child tax credit for 2025. Second, the $2,000 per-child amount of
the child tax credit is temporarily indexed for inflation in 2024 and
2025. Lastly, taxpayers are temporarily allowed to elect to use earned
income of the preceding year for purposes of calculating the credit,
and there is a special rule for early-filed 2023 tax returns that may
entitle the taxpayer to an additional credit or refund amount. Overall,
these modifications have the effect of temporarily increasing the
generosity of the child tax credit and the additional child tax credit.
The Joint Committee staff estimates this provision will result in a
$33.5 billion revenue loss over the budget window.
The second subtitle includes three provisions that temporarily
increase business deductions through the end of calendar year 2025. The
deduction for research and experimental expenditures for taxable years
beginning after December 31, 2021 is temporarily modified by allowing
taxpayers to immediately deduct amounts paid or incurred during the
taxable year instead of capitalizing and amortizing such expenditures
over a 5-year period.\7\ A second provision temporarily extends the
ability of taxpayers to compute adjusted taxable income for purposes of
the section 163(j) interest limitation without regard to deductions
allowable for depreciation, amortization, or depletion in taxable years
beginning after December 31, 2022. This modification has the effect of
increasing the deductible amount of business interest expense during
the taxable year. A third provision temporarily extends the allowance
of a 100-percent bonus depreciation deduction for qualified property
placed into service after December 31, 2022. Subtitle III also includes
a fourth provision that permanently increases the limitation on
expensing of depreciable assets. The Joint Committee staff estimates
that these provisions will result in a $32.8 billion revenue loss over
the budget window.
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\7\ For expenditures outside of the United States, the current law
allows for a 15-year amortization period.
The third subtitle entitles qualified residents of Taiwan to
receive certain benefits with respect to U.S. source income. The Joint
---------------------------------------------------------------------------
Committee staff estimates this provision to have no revenue effect.
The fourth subtitle includes three provisions that provide
assistance for disaster-impacted communities. First, certain disaster-
related personal casualty losses attributable to major disasters
beginning any time after the date of enactment of Division EE of Public
Law 116-260, the Taxpayer Certainty and Disaster Tax Relief Act of 2020
(the ``2020 Disaster Act'') and through the date of enactment of the
provision are provided the same treatment as qualified disaster-related
personal casualty losses under the 2020 Disaster Act. The second
provision provides an exclusion from gross income for amounts received
as qualified wildfire relief payments, and is effective for payments
received during taxable years beginning after December 31, 2019, and
before January 1, 2026. The third provision treats East Palestine, OH
train derailment payments as qualified disaster relief payments for
purposes of section 139(b). As a consequence, the payments are excluded
from gross income. The Joint Committee staff estimates the fourth
subtitle to result in a $4.9 billion revenue loss over the budget
window.
The fifth subtitle includes two provisions related to the low-
income housing tax credit. The first increases the State housing credit
ceiling for calendar years 2023 through 2025. The second temporarily
lowers the 50-percent bond-financing threshold requirement for certain
buildings placed in service after 2023. These two provisions are
estimated to result in a $6.3 billion revenue loss over the budget
window.
The last subtitle includes two provisions related to tax
administration. The first increases the threshold for requiring
information reporting, and results in an estimated revenue loss of $1.5
billion over the budget window. The second provision is related to the
enforcement of rules applicable to the employee retention tax credit
(``ERTC''), and allows penalties for certain misleading behavior
related to ERTC claims. This provision also provides that no credit or
refund of the ERTC shall be allowed or made after January 31, 2024,
unless such claim for such refund or credit is filed on or before that
date. This provision is estimated to result in a $78.6 billion revenue
gain over the budget window.
As a result of the relative magnitude of revenue effects across
subtitles, the macroeconomic effects resulting from the bill are
primarily due to the provisions in the first two subtitles. Under the
first subtitle, the increase in the rate at which the refundable
additional child tax credit phases in with earned income decreases the
effective marginal tax rate on labor income, particularly for low-
income taxpayers, but increases the effective marginal rate for some
others because of the shortened phase-in region. This causes competing
labor supply incentives for different taxpayers. For all taxpayers
affected by the overall increase in generosity of the credit, there
will be a positive income effect that decreases desired labor supply.
The increase in the business deductions included in the second
subtitle temporarily decreases the after-tax cost of capital investment
for both corporations and pass-through businesses, resulting in a
temporary increase in the after-tax rate of return on business
investment. Because these provisions expire after calendar year 2025,
there is an incentive for businesses to increase investment and shift
the timing of already planned investment forward. In addition, while
the retroactivity created by effective dates prior to the date of
enactment increases businesses' current cash flow, it implies that some
of the revenue loss has limited effect on incentives for new investment
because the after-tax rate of return is not directly affected.
EFFECTS ON ECONOMIC ACTIVITY AND REVENUES
The estimates of the effects of this proposal on economic activity
and revenues were produced using an average of those effects generated
by the OLG, MEG, and DSGE models, each with equal weights. This
weighting scheme was chosen because no model has a clear advantage over
the other in terms of modeling the provisions included in the bill.
The estimated macroeconomic effects of the bill on GDP are so small
relative to the size of the economy and the degree of uncertainty
associated with the estimate as to be insignificant within the context
of a model of the aggregate economy. While the temporary business
provisions in the second subtitle decrease the cost of capital and
encourage investment in the first 3 years after enactment, some of this
increased investment reflects a forward timing shift of planned
investment rather than additional investment that would only occur upon
enactment of the bill. In addition, the retroactive component of these
provisions only has an inframarginal effect on business activity. After
these provisions sunset at the end of calendar year 2025, the after-tax
rate of return to investment returns to its present-law value. The
Joint Committee staff estimates that while the bill would increase the
aggregate stock of capital relative to the baseline forecast over the
first half of the budget window, the size of the effect is too small to
be significant over that period as well as on average over the budget
window.
While the increase in productive capital increases labor demand
over the first half of the budget window under the bill, and the
proposed expansion of the Child Tax Credit on net increases labor
supply, the increase in after-tax household income has a small,
offsetting income effect that reduces labor supply. Therefore, the
Joint Committee staff estimates that the increase in aggregate
effective labor supply \8\ relative to the baseline forecast is too
small to be significant. Similarly, while household income is estimated
to increase slightly and temporarily because of an increase in after-
tax wages and returns on investment during the first half of the budget
window, the Joint Committee staff estimates no significant effect on
consumption in any part of the budget window.
---------------------------------------------------------------------------
\8\ Effective labor supply is aggregate productivity-weighted
equilibrium labor employed, and does not directly correspond to a
standard measure of labor hours.
The estimated macroeconomic revenue feedback is related to the
degree of productive capital response in each model. However, because
the estimated changes in aggregate variables are impracticably small to
report, the overall estimated revenue feedback effect is estimated to
be so small as to be negligible over the 10-year budget window.
Second and third decade effects
Because the major provisions of the bill expire at the end of
calendar year 2025, any macroeconomic and revenue effects projected
beyond the first decade are too small to estimate with a reasonable
degree of certainty.
APPENDIX: DATA, MODELS, AND ASSUMPTIONS
USED IN THE ANALYSIS
The Joint Committee staff analyzed the proposal using the Joint
Committee staff MEG, DSGE, and OLG models. While the models are based
on economic data from the National Income and Product Accounts, taxable
income in the models is adjusted to reflect taxable income as measured
and reported on tax returns. All three models start with the standard,
neoclassical production framework in which the amount of output is
determined by the quantity of labor and capital used by firms, and the
productivity of those factors of production. Both individuals and firms
are assumed to make decisions based on observed characteristics of the
economy, including wages, prices, interest rates, tax rates, and
government spending levels. In particular, labor supply is determined
by individuals' preferences and expectations, as well as current and
future after-tax income and wealth. Similarly, the capital stock is
determined by investors' expectations (or knowledge if perfect
foresight) of after-tax returns to capital, which depend on anticipated
gross receipts, costs of factor inputs, and tax rates that affect those
factors. The underlying structure of the MEG model relies more on
reduced-form behavioral response equations, while the OLG and DSGE
models are built on theoretical microeconomic foundations.
The degree to which the Joint Committee staff relies more heavily
on the results of one model versus the others depends on the specifics
of the proposal being analyzed. The MEG model aggregates four separate
types of labor, using separate marginal and average tax rates for all
major individual and business income tax sources. The availability of
investment capital to firms is determined by individuals' savings
decisions, which depend on the after-tax rate of return on investment
as well as on foreign capital flows. Monetary policy conducted by the
Federal Reserve Board is explicitly modeled, with delayed price
adjustments to changes in economic conditions allowing for the economy
to be temporarily out of equilibrium in response to fiscal and monetary
policy. The myopic expectation framework in the MEG model represents
the extreme case of the degree of foresight individuals have about
future economic conditions, in which individuals assume in each period
that current economic conditions will persist permanently.
At the other end of the foresight spectrum, in the OLG model,
individuals are assumed to make consumption, labor supply, and
residential decisions to maximize their expected lifetime well-being
given the resources they can foresee will be available to them. They
are assumed to have complete information, or ``perfect foresight,''
about economic conditions, such as wages, prices, interest rates, tax
policy, and government spending, while they have uncertainty over their
length of life. The OLG model represents a class of models with
``micro-foundations'' and life-cycle effects modeled separately for 76
``generations,'' each with two household types (married or single),
eight labor productivity types, and 10 wealth endowment types.
Individuals in each household optimally choose their labor supply from
a discrete set of options--unemployed, part time, or full time. For
married households, that labor supply decision is made jointly by
primary and secondary earners. This indivisible labor assumption
implies that the aggregate labor supply elasticity is endogenous and
depends on the distribution of reservation wages \9\ across households.
Tax liability on household income is determined by an internal tax
calculator that incorporates key aspects of income tax law. The OLG
model includes a business sector with distinct corporate and non-
corporate entities that produce output at profit maximizing levels
under perfect foresight by choosing the optimal amount of labor and
private capital to be used in production. The OLG model is a large
open-economy model where foreign entities purchase a portion of new
debt issued by the Federal Government, thereby reducing the crowding-
out effect relative to that of a closed-economy model. Although debt
may be held abroad, there is no additional income or investment
shifting beyond what is estimated conventionally.
---------------------------------------------------------------------------
\9\ A ``reservation wage'' is the lowest after-tax wage at which an
individual is willing to work.
The DSGE model has a stochastic feature that captures some of the
effects of uncertainty about future fiscal policy on the modeling
outcome, representing a less extreme foresight assumption than either
of the other models. In any given period agents within the model are
assumed to know policy variables 4 years into the future, and believe
policy variables will slowly return to their steady state values
thereafter. In the DSGE model, there are two types of households who
make decisions about labor supply, ``savers'' and ``non-savers,'' where
only the former has the ability to make investment decisions. As in the
OLG model, these two types of households make consumption and labor
supply decisions to maximize their discounted present value of lifetime
well-being. Labor supplied by each household type differs in
productivity, but is substitutable in the production process. As with
the MEG model, the DSGE model incorporates a monetary policy reaction
function, which responds to deviations in output and inflation from
their long-run values. It also features nominal rigidities in goods
prices, allowing for the equilibrium quantity of goods purchased to be
relatively more demand-determined in the short run than in a flexible
---------------------------------------------------------------------------
price model.
In the OLG and DSGE models, the ability of agents to foresee
changes in fiscal conditions means that the agents in the models will
be unable to make optimal economic decisions if they can foresee a
permanently unstable economic future, thus preventing the models from
``solving''--or completing their simulations. This problem arises in a
situation where deficits or surpluses are expected to indefinitely
increase faster than the rate of growth of GDP, which is a
characteristic under present law as well as the bill. Thus, it is
necessary to make counter-factual ``fiscal balance'' assumptions about
the expected path of debt for these models. In the MEG model, however,
agents are assumed not to foresee that eventually the growing
government debt-to-GDP ratio under present law will become so large
that it becomes unsustainable, and the model can generate forecasts up
until that point.
For models that require a fiscal balance assumption, imposing the
fiscal balance assumption outside the budget window can have effects
inside the window, because agents can foresee that it will occur. This
``anticipation effect'' is stronger the closer in time it is to agents'
decision-making. In recent years, developmental work on the OLG model
has allowed the fiscal balance assumption to be made decades after the
budget window, thus reducing the effect of this assumption on behavior
inside the budget window.\10\ For purposes of the simulations in this
report, fiscal balance is achieved in the OLG model by allowing
government consumption to adjust in 2057 as necessary to stabilize the
debt-to-GDP ratio. Fiscal balance is achieved in the DSGE model by
allowing government consumption to slowly begin adjusting in 2043 to
eventually stabilize the debt-to-GDP ratio in the long run.
---------------------------------------------------------------------------
\10\ See Rachel Moore and Brandon Pecoraro, ``Dynamic Scoring: An
Assessment of Fiscal Closing Assumptions,'' Public Finance Review, vol.
48, no. 3, April 2020, pp. 340-353.
The estimate of the impact of the growth effects from this proposal
on its budget effects was produced using an average of those effects
generated by the MEG, OLG, and DSGE models with equal weights. As
described above, each model provides a somewhat different perspective
on savings/investment and labor responses. The MEG model allows
simulation of the proposal as drafted, with no offsetting fiscal
balance assumption, and it models cross-border capital flows that can
partially offset the effects of a growing deficit on interest rates.
The OLG model provides detailed focus on household heterogeneity and
allows for the purchase of domestic government debt by foreign
entities. The DSGE model, which does not model cross-
border capital flows, captures the variation in behavioral responses by
savers and non-savers. It also adds imperfect foresight to the
analysis, an assumption sitting between the perfect foresight
---------------------------------------------------------------------------
assumption of the OLG model and the myopic foresight in the MEG model.
Each major tax bill potentially presents a unique combination of
changes in the definition of the taxable base for different sources of
income, as well as changes in tax rates on different sources of income.
Because the Joint Committee staff uses these models to facilitate
analysis of tax policy, and to estimate the revenue consequences of the
macroeconomic effects of tax policy, the Joint Committee staff has
devoted a considerable amount of time and attention to modeling the
specific types of income flows affected by proposals, to the extent
allowed by other sets of assumptions within each macroeconomic model.
Information about the effects of the proposal on average tax rates and
effective marginal tax rates on each source of income, and on after-tax
returns to capital and labor, is obtained from various Joint Committee
staff tax models \11\ (used in the production of conventional revenue
estimates) to characterize the effects of the bill within the each of
the models.
---------------------------------------------------------------------------
\11\ Descriptions of the Joint Committee staff's conventional
estimating models may be found in JCX-46-11, Testimony of the Staff of
the Joint Committee on Taxation before the House Committee on Ways and
Means Regarding Economic Modeling, September 21, 2011, JCX-75-15,
Estimating Changes in the Federal Individual Income Tax: Description of
the Individual Tax Model, April 24, 2015, and other documents at
www.jct.gov under ``Estimating Methodology.''
Table 1. Key Parameters in the MEG Model
------------------------------------------------------------------------
------------------------------------------------------------------------
Household Income Substitution
Labor Supply Elasticities
Low income primary -0.1 0.2
Other primary -0.1 0.1
Low income secondary -0.3 0.8
Other secondary -0.2 0.6
Wage-weighted population -0.1 0.2
average
Annual rate of time preference 0.015
Intertemporal elasticity of 0.350
substitution
Production
Business Capital share 0.412
------------------------------------------------------------------------
Table 2. Key Parameters in the OLG Model
------------------------------------------------------------------------
------------------------------------------------------------------------
Household
Annual rate of time preference 0.060
Aggregate leisure share of time endowment 0.309
Intratemporal elasticity of substitution (consumption and 0.487
housing)
Production
Private Capital share 0.355
Public Capital share 0.078
------------------------------------------------------------------------
Table 3. Key Parameters in the DSGE Model
------------------------------------------------------------------------
------------------------------------------------------------------------
Household
Annual rate of time preference 0.030
Intertemporal elasticity of substitution 0.500
Frisch elasticity of labor supply 0.400
Fraction of non-Ricardians 0.233
Production
Capital share 0.360
Intermediate firm markup 0.111
------------------------------------------------------------------------
______
Communications
----------
Acena Consulting, LLC
340 N Westlake Blvd, Suite 100
Thousand Oaks, CA 91362
American Made: Growing U.S. Manufacturing Through the Tax Code
Honorable Senator Wyden:
I am writing to express my strong appreciation for the hearing
conducted to highlight the importance of U.S. manufacturing and the
ability to impact its growth through the tax code. While many
provisions of the tax code were discussed, including the new tax
credits under Section 45, comments made by the witnesses highlighted
the critical importance of returning full expensing of Section 174
costs and providing support to families in need through the Child Tax
Credit (CTC).
Throughout the hearing, it was noted that the witnesses had a broad and
deep view of the impact of tax incentives for their respective
industries and the disruption caused by temporary incentives that
expire. In particular, the difficulty presented when making long-term
investment decisions and needing a clearer picture of how investments
will be impacted positively or negatively by tax law changes.
As noted by Ms. Courtney Silver, the impact of the capitalization of
research expenditures on small businesses has been incredibly
detrimental to their ability to grow and invest in their business and
customers. Manufacturing is a team sport, as Ms. Silver pointed out,
and the impact of capitalizing R&D expenditures not only impacted her
business negatively but also the company she uses for software to run
her company. As Ms. Silver pointed out, the change in the accounting
treatment of R&D expenses reduced the ability of the company to improve
its software with new functionality and strained its cash flow.
I would like to add a real-life example of the catastrophic impact of
capitalizing R&D expenditures on small businesses.
Example: ABC Company
Facts: ABC Company is a designer and manufacturer of capital equipment
based in Arizona. As a small business, ABC Co. generated $1.4 million
in revenue in 2022 and has a taxable income of $75,000. As with most
capital equipment manufacturing companies, a substantial portion of the
company's operating expenses are the materials used to develop and
build prototypes for testing. In 2022, the qualified R&D expenses for
the company were $850,000 of the operating costs or 61% of the revenue.
In addition to these expenses, Section 174 requires that payments
incurred ``in connection with'' the R&D activities must be included in
the total expenses of Section 174 to be capitalized. Under current IRS
guidance, other expenses to be included are payroll taxes, benefits,
rent, utilities, and other ancillary expenses. For this example, we
will assume that 15% of the direct expenses for the additional payroll
taxes, benefits, and other expenses must be included. Section 174
expenses under this example would total $977,500 ($850,000 x 115%).
Capitalizing the R&D Expenditures
Under the capitalization requirements, the taxpayer must capitalize the
Section 174 expenses and amortize them over 60 months. In the initial
year, the amortization is determined using a half-year convention,
meaning only half of a full year's amortization is allowed (10% rather
than a full-year 20% of the total expenses capitalized).
Returning to our example, our taxpayer, ABC Company, had gross receipts
of $1,400,000 and taxable income of $75,000 before the requirement to
capitalize R&D expenditures under Section 174. The result of this
accounting change is to increase taxable income by $879,750 ($977,500-
$97,750 year-one amortization).
ABC Company's taxable income is now $954,750.
From a cash flow perspective, ABC Company has already paid $977,500 for
these expenses and will now pay the tax on $954,750. The amount of tax
due will now vary depending on whether ABC Company is organized as a
pass-through entity or C-Corporation.
The Small Business Innovation Penalty
Most small businesses like ABC Company are organized as pass-through
entities. This means the entity does not pay federal income tax; the
income or loss from the business (as well as credits and other tax
items) passes through the entity to the company's owners. The tax is
paid at the shareholder or partner (individual) level rather than at
the corporate level. Pass-through entities are typically organized as S
Corporations, LLCs (Limited Liability Corporations), or partnerships.
Publicly traded companies cannot be organized as pass-through entities;
instead, they pay a corporate-level tax as a C corporation.
The top individual tax rate in 2023 is 37%, while the top corporate tax
rate for a C Corporation is 21%.
The tax due from ABC Company as a pass-through entity would be
significant. With the capitalization of the R&D expenses, taxable
income would rise to $954,750 (Original Taxable Income of $75,000 +
$977,500 of capitalized expenses - $97,750 first-year amortization).
The tax due would be $353,257 ($954,750 37%). As a reminder, ABC
Company's cash outlay for operating expenses is $1,325,000 ($1,400,000
revenue less $75,000 taxable income). When adding in the tax due from
the capitalization of R&D expenses, the total cash required for
operations and taxes becomes $1,678,257, resulting in a negative cash
flow of $278,257.
If ABC Company is a C Corporation, the tax due would be $200,497
($954,750 21%). The total cash outlay for operations and taxes for
ABC Company as a C Corporation would be $1,525,497, resulting in a
negative cash flow of $125,497.
In either case, the risk of conducting R&D activities results in an
unsustainable business model.
The Credit for Increasing Research and Development Activities
Under Internal Revenue Code Section 41, qualifying R&D activities
generate a federal tax credit to reduce the tax due by the company
conducting the activities. These are typically the same activities that
result in the capitalized expenses discussed above under Code Section
174.
Let's return to our example and see how the R&D tax credit impacts the
overall tax due and cash flow for ABC Company.
The direct R&D expenditures totaled $850,000 (wages, supplies, and
contract research expenses). Please note that under Section 41, only
direct expenses can be included in the tax credit calculation formula.
Expenditures ``in connection with'' are not included in the
calculation. The R&D tax credit would be calculated in our example to
be $85,000 (the credit is a 20% credit but is limited to 50% of the
qualified expenses).
As a pass-through entity, ABC Company's additional tax due to
capitalization was $353,257. Subtracting the R&D credit of $85,000
would bring the taxes due down to $268,257. The total cash required
(after taking into account the R&D tax credit) would be $1,593,257
($1,325,000 operating expenses plus $268,257), resulting in a negative
cash flow of $193,257.
As a C-corporation, ABC Company's additional tax due to capitalization
was $200,497. Subtracting the R&D credit of $85,000 would bring the
taxes due down to $115,497. The total cash required (after taking into
account the R&D tax credit) would be $1,440,497 ($1,325,000 plus
$115,497), resulting in a negative cash flow of $40,497.
The Impact of the federal R&D tax credit does not mitigate the damage.
The Capitalization of R&D Expenditures Is Not a Timing Difference
One of the factors proponents lean on when discussing the impact of R&D
expenditure capitalization is that the taxpayer will recoup the
expenses over 60 months. As we have discussed, the initial year of
expenditure results in only 10% of the expenditures being amortized
into taxable income. This means the negative impact is spread over 6
years rather than 5 years. Additionally, if the taxpayer continues to
grow their revenue (which would be expected), the expenses related to
R&D activities would also grow. While the incremental amount
capitalized would decrease (each year would include 20% of the prior
year as amortization, reducing the overall amount capitalized), the
amount capitalized on the balance sheet would continue to increase
rather than decrease over time.
The taxpayer would not ``catch up'' until they halted R&D activities,
assuming they grew at greater than 10% yearly. This creates a no-win
scenario for taxpayers to spend capital to improve, innovate, or
develop new products, software, techniques, formulas, or inventions.
Congress has made it impossible for U.S. businesses to compete
globally.
This real-life example is typical of small manufacturing companies that
rely on innovation to compete in a global market.
Full expensing of R&D costs encourages companies to invest in
innovation, leading to the development of new products, processes, and
technologies that drive economic growth and enhance our global
competitiveness. By allowing businesses to deduct these expenses
immediately, we can stimulate investment in R&D, spur job creation, and
fuel productivity gains across industries.
The Inherent Connection
I also want to underscore the importance of the CTC and its inherent
link to the business provisions in the Tax Relief for American Families
and Workers Act. The CTC is a critical component of our tax policy that
supports families that need assistance. The fewer families that need
the CTC, the stronger our economy is.
Our goal as a nation is less reliance on the federal government for
programs such as the CTC and more accountability on the private sector
to provide employment.
As manufacturing, technology, and other industries grow, they provide
more opportunities for employment and career growth. As more jobs are
created, fewer families will need the support of the CTC. However,
handcuffing American innovation with current tax policies that drain
cash flow will not provide the growth and job creation needed to
support our economy.
Therefore, please prioritize the bipartisan discussion and successful
resolution of the Tax Relief for American Families and Workers Act. By
doing so, we can unleash the innovative potential of American
businesses, strengthen our economy, and secure a brighter future for
generations to come.
Thank you for your attention to this critical issue. I stand ready to
support efforts to promote policies that encourage innovation, drive
economic growth, and create opportunities for all.
Sincerely,
Randall M. Eickhoff, C.P.A.
Founder & Head Coach
______
Acoustic Range Estimates, LLC
5235 S Harper Ct., 9th Floor (shipping)
5140 S Hyde Park Blvd. #17H (billing)
Chicago, IL 60615
Phone: (414) 745-6577
March 13, 2024
Senator Elizabeth Warren
309 Hart Senate Office Building
Washington, DC 20510
Dear Senator Warren,
Subject: Section 174--2017 changes disincentivize research, H.R. 7024
(title II) helps.
Although you are not my Senator, I've been a fan--until yesterday's
Finance Committee hearing.
As a former scientist at GE's R&D facility in Niskayuna, NY, I
appreciate your concern about retroactively giving R&D tax ``breaks''
to just a few large corporations.
However, that scenario misrepresents the situation of small companies,
particularly those that work at the behest of the Federal Government.
We cannot claim tax credits for funded research, and now we cannot
immediately deduct specified research or experimental (SRE) expenses.
In 2018, I organized a LLC dedicated to developing a specific medical
device. Acoustic Range Estimates, LLC won SBIR funding. Last year, ARE
had gross income of $732,000 and incurred over $500,000 of SRE costs.
Because we can only expense 10% of that $500,000 I'll jump to the
highest tax bracket and owe approximately $180,000 which is $30,000
more than my/ARE's net income. Amortizing over 5+ years stinks when
project duration is only 2-3 years.
Right now, I see only two ways to cover my 2023 tax bill: accept angel/
impact investment which will dilute my ownership stake or incur capital
gains taxes to pay income taxes. Owners who don't have these options
will be forced out of business, further exacerbating wealth gaps in US
society. Losing small businesses that develop technology for the
Department of Defense will weaken national security.
Please work to stimulate research and development, rather than stifle
it. If you cannot support HR 7024 as written, please get to work to
propose an alternative.
Sincerely,
Sarah K. Patch, Ph.D.
Cc: All members of the US Senate Finance Committee
______
American Chemistry Council
655 New York Ave., NW
Washington, DC 20001
(202) 249-7000
https://www.americanchemistry.com/
March 25, 2024
The Honorable Ron Wyden
Chairman
Committee on Finance
United States Senate
219 Dirksen Senate Office Building
Washington, DC 20510
The Honorable Mike Crapo
Ranking Member
Committee on Finance
United States Senate
219 Dirksen Senate Office Building
Washington, DC 2051
Re: Comments on Senate Finance Committee Hearing American Made:
Growing U.S. Manufacturing Through the Tax Code
Dear Chairman Wyden and Ranking Member Crapo:
The American Chemistry Council (ACC) represents the leading companies
engaged in the multibillion-dollar business of chemistry. ACC members
apply the science of chemistry to make innovative products,
technologies and services that make people's lives better, healthier
and safer.
ACC appreciates the opportunity to submit comments in response to the
Committee's hearing on March 12, 2024, on growing U.S. manufacturing
through the tax code. What follows are some of the key tax provisions
that matter to ACC members given their impact to U.S. manufacturing.
Tax Relief for American Families and Workers Act
U.S. economic growth requires sound tax policies that incentivize
capital investment, job creation and global competitiveness of U.S.
businesses. Immediate R&D expensing, the pre-2022 Section 163(j)
interest expense deduction limitation, and full expensing of capital
equipment purchases are all tax policies that allow U.S. businesses to
thrive, create jobs, and strengthen the U.S. economy.
As we have been advocating for years, ACC urges Congress to take action
now to restore immediate R&D expensing, revert to pre-2022 Section
163(j) interest deduction limitation based on EBIDTA and extend the
full expensing provision. Taking such action through passage of the Tax
Relief for American Families and Workers Act has bipartisan support and
has the support of U.S. manufacturers including ACC members.
Similarly, the proposals outlined by the Administration as part of the
FY 2025 budget have ACC members very concerned. Raising the corporate
tax rate, increasing the CAMT rate and many other proposals that raise
taxes indiscriminately (e.g., the repeal of foreign derived intangible
income and changes to the interest limitation rules) choke U.S.
manufacturers, diverting dollars for investment and workers.
Superfund Tax
The Infrastructure Investment and Jobs Act reinstated the Superfund
Tax, imposing an excise tax on the sale or use of taxable chemicals and
taxable substances. The U.S. chemical industry supports a vast supply
chain, and with $639 billion worth of shipments in 2022, accounts for
11% of the worlds chemical production.
The U.S. chemical industry, which is already facing supply chain
challenges, foreign competition and slim margins, opposed the
reinstatement of the Superfund Tax given its negative impact. The
Superfund Tax increases the costs of U.S. chemical manufacturers and
their customers that will, in turn, lead to a decline in U.S.
manufacturing activities. For these reasons we urge repeal of this tax.
Inflation Reduction Act Incentives
ACC is seeing increased interest in establishing and expanding U.S.
manufacturing as a result of the tax credits included in the Inflation
Reduction Act (IRA), in particular manufacturing to support the
production of clean hydrogen (Section 45V), clean vehicles (Section
30D), and to domestically produce critical minerals and electrode
active material (Section 45X). Unfortunately, while the statute was
designed to onshore U.S. manufacturing and end reliance on foreign
sourcing, the guidance implementing the IRA has created barriers to
this goal.
For example, recently the U.S. Department of the Treasury (Treasury)
and the Internal Revenue Service (IRS) issued proposed regulations
under Section 45X, the Advanced Manufacturing Production Tax Credit.
The statute provides the tax credit shall be ``10 percent of the costs
incurred by the taxpayer with respect to production.'' Notwithstanding
this unambiguous statutory language, the proposed regulations excluded
from the calculation direct and indirect material costs and any costs
related to the extraction, production, or acquisition of raw materials.
Such a limited interpretation significantly impacts the value of the
anticipated tax credit.
Unfortunately, this narrow reading has already caused some companies to
change course and pause their investment activities in the U.S. It is
likely that this ``pause'' will transition to a termination of
investments if materials costs (including raw materials) remain
excluded from the calculation of the credit. ACC will continue to work
with the Treasury and the IRS in an effort to revise the guidance, but
urges Congress to continue to monitor implementation to ensure
congressional intent is being met.
In addition ACC is very concerned over the proposed regulations issued
under Section 45V, the Clean Production Tax Credit. Similar to the
Section 45X proposed regulations, and as outlined in our comment letter
to the U.S. Department Treasury, the Section 45V proposed regulations
have created impossible barriers for the nascent hydrogen industry.
Further stifling the hydrogen industry is the narrow proposed guidance
under Section 48, the Production Tax Credit, under which hydrogen
storage only qualifies if used as fuel. Like the previous examples,
such a requirement is not contained in statute. In addition, we have
provided comments under Section 30D, the Clean Vehicle Tax Credit
regarding the foreign entity of concern rules and the non-traceability
proposals. Section 30D, as proposed, would allow for the domestic
battery supply chain to be vulnerable to foreign producers, especially
from foreign entities of concern. Unless the loopholes are closed in
the final rule, U.S. investment in the domestic battery supply chain
will be at significant risk. Under all of these examples, Congress has
provided the framework to encourage U.S. manufacturing, but
implementation has had negative impacts on such manufacturing.
Finally although part of the CHIPS Act rather than the IRA, ACC waits
in anticipation of the final regulations under Section 48D, and has
urged that the final regulations harmonize the tax credit with the U.S.
Department of Commerce interpretation such that it includes facilities
whose primary purpose is producing materials integral and essential to
manufacturing of semiconductors.
We thank you for conducting a hearing on such an important topic and
appreciate the opportunity to provide these comments.
Very truly yours,
Robert B. Flagg
Senior Director, Federal Affairs
______
American Clean Power Association
1501 M St., NW, Suite 900
Washington, DC 20005
https://cleanpower.org/
This statement is respectfully submitted on behalf of the American
Clean Power Association (ACP). ACP is the leading voice of today's
multi-tech clean energy industry, representing over 800 energy storage,
wind, utility-scale solar, clean hydrogen and transmission companies.
ACP appreciates the opportunity to comment on this hearing, entitled
``American Made: Growing U.S. Manufacturing Through the Tax Code.''
The U.S. generates 16% of its electricity from solar and wind. 33.8
gigawatts (GW) of the cumulative 262 GW of that clean power came online
in 2023 and much of this growth was fueled by the clean energy tax
incentives included in the Inflation Reduction Act (IRA). This
comprehensive tax package--comprised of investment and production tax
credits for solar, wind, hydrogen, storage and advanced manufacturing--
is helping to increase investment in domestic clean energy, keep up
with the increasing electricity demand, and keep prices affordable for
American families. Bonus credits for investments in energy communities
and projects using domestic content help to ensure that we are re-
investing in our communities.
These investments are spurring economic development across the country.
Over the last 18 months alone, we have seen announcements for:
$455 billion in private investment--equivalent to over 15 years'
worth of American clean energy investment;
$4.5 billion in customer savings; and
42,000 new U.S. manufacturing jobs.
To achieve the full potential of these federal incentives, ACP
estimates that the clean energy industry will need to hire 550,000
Americans by 2030.
Manufacturing
The clean energy industry, through the use of the advanced
manufacturing production tax credit (45X), is revitalizing American
manufacturing and shifting supply chains. One hundred twenty-eight new
or expanded domestic manufacturing facilities have been announced, 78
of which will support the utility-scale solar industry. This translates
to 42,000 new jobs and $26 billion in new manufacturing investments.
When these announcements reach operation, ACP estimates a nearly 16-
fold increase in domestic solar module production and more than 15-fold
increase in domestic grid-scale battery storage production, along with
significant increases in production output for solar cells,
polysilicon, ingots, and wafers, and wind turbine blades, towers, and
nacelles. These investments are critical for the U.S. to secure its
energy independence and global leadership in the clean energy future.
Supply Chain
Supply chains are shifting, and the change is happening in real-time.
As we build our domestic supply chain and ``friend-shore'' other
components, it is essential that we do not impact the ability of the
existing clean energy industry to operate, build U.S. projects and
factories, and raise the capital necessary to continue its investment
trajectory.
Developers are finding ways to support more manufacturing, for example,
signing long-term purchase commitments to assist the financing of new
production capacity. These developers, however, need continued
certainty on planned projects in order to pay for these new
manufacturing investments. As domestic production capacity is still
ramping up, project developers and downstream manufacturers need to
continue importing components until they can be sourced in America.
Legislative changes to the implementation of the clean energy tax
incentives could cancel or delay existing and planned projects,
severely impacting the industry's ability to deploy more domestic clean
energy, meet our country's growing electricity demand and continue to
finance new domestic manufacturing.
The reliance of critical aspects of the U.S. economy on Chinese
manufacturing is a problem that has been years in the making. It began
over 20 years ago with the bipartisan passage of permanent
normalization of trade relations with China. Today that reliance is not
sustainable and requires a whole of government and private sector
response across multiple industries. The clean power sector is
committed to play a leading role in this process and looks to Congress
for partnership to develop real solutions that will accelerate domestic
energy and national security imperatives while not crippling the U.S.
economy.
Moving supply chains to the U.S. and to jurisdictions which share U.S.
values does not happen overnight--it is a complex and time-consuming
process involving thousands of individual suppliers. Many parts of the
U.S. economy are wrestling with the question of how to lessen our
dependence on foreign sources of production. This is clearly the case
for the solar supply chain. While domestic solar cell production is now
being rebuilt, all domestic solar manufacturers currently import solar
cells to make their modules in the United States. Solar modules likely
come first followed by other critical upstream components such as
cells. If those solar manufacturers cannot source the components they
need in the near term, they will likely close or never open--and the
future investments needed to stand up a fully integrated domestic solar
supply chain won't happen.
We hope that these comments are useful to the Committee as members
further consider how to grow U.S. manufacturing capacity by using
policy levers in the U.S. tax code.
______
American Rental Association
1900 19th St.
Moline, IL 61265
309-764-2475
800-334-2177
https://ararental.org/
Recent global events have highlighted the need to stimulate domestic
manufacturing in the United States. The Inflation Reduction Act of 2022
(IRA) contains policies that take significant steps to boost domestic
manufacturing of clean commercial vehicles. Specifically, the IRA
enacted a new section 45W that provides tax credits that are meant to
provide incentives for the manufacture and purchase of mobile machinery
that meets the definition of a clean commercial vehicle.
This statement is in reference to the Internal Revenue Service's Clean
Vehicle Team's current position with regard to equipment eligible for
the Section 45W credits authorized by the IRA. The American Rental
Association (ARA) represents the equipment and event rental industry.
ARA members buy equipment that is used in construction and industrial
applications. ARA members currently have the cleanest fleets of diesel-
powered equipment in the United States because almost all of that
equipment has been manufactured under the Environmental Protection
Agency's Tier 4 requirements.
One of the clear goals of the IRA is to spur the adoption and
deployment of electric-powered commercial vehicles and equipment.
Indeed, Section 45W(c) Qualified Clean Commercial Vehicle states:
For purposes of this section, the term ``qualified commercial clean
vehicle'' \1\ means any vehicle which--
---------------------------------------------------------------------------
\1\ https://www.law.cornell.edu/definitions/
uscode.php?width=840&height=800&iframe=true&
def_id=26-USC-862960381-
1197399893&term_occur=999&term_src=title:26:subtitle:A:chapter:1:
subchapter:A:part:IV:subpart:D:section:45W.
(1) meets the requirements of section 30D(d)(1)(C) and is acquired
---------------------------------------------------------------------------
for use or lease by the taxpayer and not for resale,
(2) either--
(A) meets the requirements of subparagraph (D) of section
30D(d)(1) and is manufactured primarily for use on public
streets, roads, and highways (not including a vehicle operated
exclusively on a rail or rails), or
(B) is mobile machinery, as defined in section 4053(8)
(including vehicles that are not designed to perform a function
of transporting a load over the public highways),
(3) either--
(A) is propelled to a significant extent by an electric motor
which draws electricity from a battery which has a capacity of
not less than 15 kilowatt hours (or, in the case of a vehicle
which has a gross vehicle weight rating of less than 14,000
pounds, (7 kilowatt hours) and is capable of being recharged
from an external source of electricity, or
(B) is a motor vehicle which satisfies the requirements under
subparagraphs (A) and (B) of section 30B(b)(3), and
(4) is of a character subject to the allowance for depreciation.
Moreover, a colloquy between Senator Van Hollen and Chairman Wyden
which reads in part: Mobile machinery is a vehicle that is unrelated to
transportation, such as a forklift or bulldozer. The qualified clean
vehicle credit utilizes an existing statutory definition of mobile
machinery, the purpose of which is to provide for an exemption from the
excise tax on heavy trucks that is deposited into the highway trust
fund. I ask the chairman of the Finance Committee whether commercial
lawn mowers can fit the criteria of mobile machinery and, therefore,
qualify for the qualified commercial clean vehicle credit, provided
that the vehicle meets the other criteria for the credit (Congressional
Record S4167, August 6, 2022). Chairman Wyden's affirmative response to
Senator Van Hollen's question clearly suggests Congressional intent
that classifies construction and industrial equipment that is
manufactured in accordance with the provisions set forth in the IRA as
eligible for the 45W credits.
In our view, many domestic manufacturers of the equipment ARA members
purchase annually are meeting the requirements of Section 45W. However,
the IRS Clean Vehicle Team appears to have a different interpretation
of Section 45W which has been expressed through denials of these
manufactures applications to be certified as qualified manufacturers of
qualified commercial clean vehicles. We know this to be the case
because several ARA members have been in direct contact with their
vendors about their applications as qualified manufacturers and been
told that IRS is denying their applications.
ARA members are not manufacturers; however, they are some of the
entities that will be using the credit when they buy qualified
commercial clean vehicles. From conversations and correspondence by the
IRS to manufacturers that we have reviewed, it appears that the IRS
Clean Vehicle Team does not believe that any electric-powered
construction or industrial equipment should be classified as qualified
commercial clean vehicles. If this truly represents the position of the
IRS Clean Vehicle Team, we believe it is in direct conflict with
Congressional intent.
ARA members are positioned to be in the vanguard of companies that will
purchase and deploy electric-powered equipment over the next decade.
Utilizing the section 45W credits will give these companies the means
to significantly increase the amount of electric-powered equipment they
purchase and deploy.
Respectfully submitted,
John W. McClelland Ph.D.
______
Bloom Energy
4353 North First St.
San Jose, CA 95134
408-543-1500
https://www.bloomenergy.com/
Chairman Wyden, Ranking Member Crapo, and distinguished members of the
committee, thank you for convening this important hearing and for the
opportunity to submit a written statement. We also extend our gratitude
to Senator Carper who, like yourself, believes the U.S. tax code can
help solidify the United States as the world's leader in clean energy
technology. The reasons set forth in this statement explain how this
Committee and Congress can take a giant step in this direction while
bolstering our national security and energy resilience by passing
Senator Carper and Senator Graham's legislation to extend the
Investment Tax Credit for fuel cells.
Bloom's Origin
Bloom Energy is honored to represent a clean energy sector that is
already dominated by the United States--solid oxide fuel cells (SOFCs)
and solid oxide electrolyzer cells (SOECs). In the 1990s, our Founder,
Chairman, and CEO, Dr. KR Sridhar, and a NASA team developed a fuel
cell that could split Martian water into oxygen for breathing and
hydrogen for use as fuel for vehicles. When NASA's project ended in
2001, Sridhar's team shifted focus to develop this technology in
reverse--to create electricity from oxygen and fuel.
American Innovation--American Jobs
Bloom's SOFCs generate clean electricity through a non-combustion/
electrochemical process that produces no Nitrogen Dioxide
(NO2) or Sulfur Oxide (SOX). The result is clean
electricity--Bloom's patented SOFCs produce fewer non-baseload
CO2 emissions than any ``e-grid'' subregion in the United
States. When storms hit, Bloom's distributed ``always-on'' platform
provides more ``energy security'' than traditional grid power and more
reliability than other forms of clean energy, which are often
susceptible to changing weather patterns. With 1 Gigawatt and over
1,000 installations deployed worldwide, Bloom is helping drive the
energy transition.
Bloom Energy proudly manufactures its SOFCs and SOECs in the United
States, sourcing from nearly1,000 U.S. suppliers and vendors. The ITC
for fuel cells has been a key driver in this success. According to the
National Fuel Cell Research Center, the fuel cell industry supports
over 10,000 American jobs across the supply chain. By manufacturing
domestically, Bloom Energy is not only creating jobs and cultivating a
strong supply chain to counter inferior and cheaper Chinese goods, but
also reducing the carbon footprint associated with transportation and
logistics.
National Security--Energy Security
SOFCs provide the resiliency and reliability required to answer some of
our most pressing national security challenges. Unlike traditional,
centralized power generation, which has long been a primary target of
military operations, Bloom's distributed energy platforms are more
difficult for enemy combatants to find and disable. Moreover, fuel
cells provide on-site power generation that is far more reliable, and
the ability to ``island'' power generation for in-theater operations
allows the military to set up bases and rapidly deploy personnel and
materials in more strategic and remote locations. As the Department of
Defense noted in their energy report one year ago: ``the Department
will need to assess the readiness of hydrogen and related fuel cells
for deployment across different platforms, as well as the logistical
requirements needed to support widespread use of hydrogen in the
battlefield.''
Some of our most advanced research on these technologies is being
conducted through a close partnership between Bloom and the Idaho
National Laboratory (INL). The INL is the nation's premier center for
nuclear energy research and development and is charged with defending
our resources and infrastructure from physical and cyber threats,
unauthorized intrusions and disruptions. The Lab is also a leading
research facility that is developing cutting-edge hydrogen fuel
technologies. INL's deep relationship with Bloom is leading us toward a
future where civilians and the military will benefit from hydrogen
generated from nuclear power.
As stated by INL Director, John Wagner, ``Pairing the research and
development capabilities of a national laboratory with innovative and
forward-thinking organizations like Bloom Energy is how we make rapidly
reducing the costs of clean hydrogen a reality and a real step toward
changing the world's energy future.''
Extending the ITC for fuel cells will help ensure that our country does
not cede the development and manufacture of this technology to others.
Relying on foreign countries--some of whom are increasingly taking an
adversarial position to the United States--would jeopardize the
critical research being performed by the INL and, by extension, the
future energy security of the United States.
Future Yet to Be Defined
Several market forecasts show a bright future for SOFCs, with some
sources projecting an annual growth rate of over 20 percent, and others
even exceeding 30 percent. Along with contributing to the country's
energy security, this expansion will bring a significant number of
jobs. According to McKinsey, by 2030, the broader fuel cell and
hydrogen industry could support 700,000 American jobs.
However, a future of booming exports, a dominant market position, and
strong employment is not a given. The ITC for fuel cells--which has
long been a bipartisan priority--is set to expire at the end of this
year. As part of the IRA, Congress extended the traditional ITC but at
the beginning of 2025, the credit transitions to a ``tech-neutral''
approach, a policy still in need of Treasury implementing guidance.
Under the new regime, a fuel cell would only qualify if it produces
electricity in a manner that results in zero greenhouse gas emissions,
regardless of its fuel source. Today, fuel cells run 24/7, 365 days a
year and are fueled primarily by natural gas, biogas (which both
contain hydrogen), or pure hydrogen.
For fuel cells that rely on hydrogen or are hydrogen-ready to qualify
for the tech-neutral ITC, a robust hydrogen industry will be needed to
provide access to the fuel source across the nation. We anticipate that
that goal will be driven heavily by the final guidance for the section
45V hydrogen production tax credit (PTC), which, in turn, will inform
the guidance for the upcoming tech-neutral ITC under section 48E.
The issues with respect to the section 45V clean hydrogen credit are
far from settled, with the comment period for the proposed regulations
having just closed last month. Moreover, significant uncertainty
persists as to when the Treasury Department will be able to issue final
regulations, which effectively suspends many hydrogen production
projects and delays the much needed wide-scale availability of hydrogen
for zero-emissions fuel cells.
Furthermore, the lack of implementing guidance for the tech-neutral ITC
leaves many unanswered questions regarding fuel cell technologies like
Bloom's, such as how the credit will apply to technology that neither
combusts or gasifies, but rather uses alternative methods like an on-
site, non-combustion, electro-chemical process to separate hydrogen
from feedstocks like natural gas.
Without clear, final rules for clean hydrogen and absent Treasury
guidance on the tech-neutral ITC for fuel cells, the expiration of the
current section 48 ITC will lead fuel cell manufacturers to look
overseas to locate their factories in order to remain price
competitive. In effect, failing to extend this fuel-cell tax incentive
will open the door for the Chinese to take advantage of the IRA and
bring U.S. manufacturing of U.S. green technologies with U.S. job to
China.
China, however, will not be the only example. Without an extension,
other countries will surely swoop in to lure investment and production
in an industry that one market analyst has earmarked ``for exponential
growth.'' Countries like Japan, South Korea, and Germany have already
implemented strong support mechanisms for fuel cell technology,
recognizing its potential to drive economic growth and reduce
emissions. It is in our national interest to ensure that the fuel-cell
industry, which originated in this country, stays in this country.
A Crossroads for Maintaining American Leadership
The Finance Committee and this Congress have an opportunity to fulfill
the purpose of this hearing by sustaining the incentive for the
production of a technology that was developed by Americans and
iscurrently being manufactured by Americans. Solid Oxide Fuel Cells are
poised to play a major role in answering two of the world's most urgent
challenges--increasing electricity generation and reducing carbon
emissions. All of this can be done through the efforts of innovative
thinkers and hardworking middle-class Americans.
We urge Congress to pass the Carper-Graham bill that extends the
section 48 Investment Tax Credit for fuel cells for all of the
compelling reasons outlined above--providing the long-term certainty
needed to support domestic manufacturing, driving and keeping American
innovation at home, creating high-quality domestic jobs, strengthening
our national security and enhancing energy security for the world. By
doing so, the United States can maintain its leadership position in
this critical clean energy technology and secure a more sustainable and
prosperous future for all Americans.
Thank you for your consideration.
Statement Submitted by John Lee
https://www.taxsimplecenter.net/index.html
Chairman Wyden, Ranking Member Crapo and members of the Committee:
I appreciate your calling for this hearing. Good tax code policy can
help U.S. manufacturers and businesses to grow. Business tax rate is
one of major factors for our domestic manufacturing.
I am a tax researcher and business owner. We have 15 tax research
publications of federal and state tax simplification research (A and
B).
Federal business tax system had 8 tax brackets such as 15%, 25%. . . ,
and 35% before reforming to a flat tax rate at 21% in 2018 (C). The 8
tax brackets were too complex. A flat tax rate (21%) is too simple,
rough and unreasonable. Small businesses have increased their tax rate
from such as 15%-18% to 21%. President Biden has proposed to increase
21% to 28% (D). High tax rates affect many people to reconsider to
start new businesses or not.
A good business tax plan is to have a relatively low bottom tax rate,
which can encourage more people to start businesses. Small businesses
hire many employees to meet people, social, and economic needs. Then
middle and large businesses are more stable to pay relatively higher
tax rates. Two brackets/formulas for federal corporate tax calculation
system are suggested with 2 tax rate ranges such as 15%-20%-25% or 15%-
21%-28% (A).
A flat tax rate can reduce for people to start new businesses, which
affect our existing and future economic situations. 15% is increased to
21% to increase tax by 40% (6%/15%) or to 28% to increase tax by 86%
(13%/15%). Two tax rate ranges such as 15%-20%-25% or 15%-21%-28% are
suggested. Tax revenue change is very minor. Small businesses have good
potential for business development. Middle and large businesses have
strong ability to pay relatively higher tax rates than small
businesses. When more small businesses survive and develop, more middle
and large businesses may be produced.
[GRAPHIC] [TIFF OMITTED] T1224.023
.epsTax rate and tax are summarized with two simple formulas, which can
be calculated and repeated by such as Excel or a program after
inputting related tax information.
Table Federal Corporate Tax Calculation Simplification
----------------------------------------------------------------------------------------------------------------
Option #1 (15%-20%-25%) Option #2 (15%-21%-28%)
----------------------------------------------------------------------------------------------------------------
Tax rate Tax rate
Taxable income (TI) Tax rate and tax range Tax rate and tax range
----------------------------------------------------------------------------------------------------------------
Not over $120,000 (YTI2,400,000+0.15) TI 15%-20% (YTI2,000,000+0.15) TI 15%-21%
Over $120,000 (0.25-6,000YTI) TI 20%-25% (0.28-8,400YTI) TI 21%-28%
----------------------------------------------------------------------------------------------------------------
YTI is yearly taxable income, which is equal to TI-F. TI is taxable
income. F is filing period (1, 2, 4, 12, 24, 26, 52 or 365 on yearly,
semi-yearly, quarterly, monthly, semi-monthly, bi-weekly, weekly or
daily basis). When F=1, YTI=TI for yearly withholding taxes and tax
returns.
Besides a good business tax system, individual income tax system
simplification is also important for businesses to reduce costs to do
withholding taxes for their employees. Existing federal individual
income tax system has 7 tax brackets, 224 (7 4 8) formulas, 21-page
Withholding Tables, 28 taxable income ranges, and 12-page Tax Table.
These formulas, tables, and rates are very complex. During the past 150
years, we have struggled about tax systems with different tax brackets
(1-56), formulas (up to 224), and tables (A). There are two income tax
calculation systems. One is for employers to calculate withholding
taxes (E). Another is for people to do tax returns (F). Taxable income
ranges, marginal and effective tax rates, and tax numbers in the 21-
page Withholding Tables, and 12-page Tax Table are often changed. When
businesses do not need to use existing complex Withholding Tables and
224 formulas, then businesses (including manufacturers) and Internal
Revenue Service (IRS) can save related time and costs.
We have done our federal individual income tax simplification (A and
B). The 7-56 tax brackets can be matched and reduced to 3. The 21-page
Withholding Tables and 224 formulas can be eliminated to simplify our
federal tax system with simple two linear formulas and one existing
formula by 98% (1-\3/224\) deduction. Detail explanation is available
by our research paper (A), which may save more than $10 billion per
year. Tax revenue can have almost no change. If you have any questions
and comments, let me know. Thank you.
Website link:
A. www.academicstar.us/UploadFile/Picture/2023-5/20235518550488.pdf
B. https://taxsimplecenter.net/publication.html (tax simplification
research)
C. https://www.taxsimplecenter.net/businesstaxsimplification.html
D. https://www.pwc.com/us/en/services/tax/library/president-biden-
fy2024-budget-renews-call-for-corporate-rate-increase.html
E. https://www.irs.gov/pub/irs-pdf/p15t.pdf
F. https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
G. https://www.taxsimplecenter.net/uploads/8/3/3/9/83395216/
wf_tax_bill_
draft11.pdf
______
Off Planet Research, LLC
1130 W Marine View Drive, Suite A-2
Everett, WA 98201
March 12, 2024
United States Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510
To the Senate Committee on Finance,
I am writing to express my appreciation for the hearing held on the
importance of U.S. manufacturing and the impacts of the tax code on its
growth. As a small business owner, I support the statements made
regarding returning the full expensing of Section 174 costs. I would
like to share our experience as a small business and the extremely
damaging effect Tax Section 174 had on the business in 2022.
The requirement for small businesses to amortize research and
development (R&D) expenses over a five-year period instead of deducting
them in the year they were incurred has forced us to take on unexpected
and severe personal and business tax burdens that threaten our personal
welfare as an LLC partnership and the viability of our small business.
Our small business is working to advance technologies that are part of
the national space program through NASA and the National Science
Foundation (NSF)'s SBIR programs as well as providing testing resources
for a wide array of private space organizations, research institutes,
government agencies, and universities. We most recently received an NSF
Phase II SBIR grant to expand our capabilities for recreating the icy
soils found in extreme locations like the lunar south pole where the
congressionally supported Artemis missions will be exploring for water
ice and other volatiles.
We are providing services to the government and closing strategic
knowledge or technology gaps that have been identified as priorities by
NASA and NSF. In return, our small business is being punished with
unreasonable tax burdens. Most of the R&D funds counted as taxable
income were used to pay our employees or buy supplies and materials
from the vital vendors who make our grant work possible.
Due to these rules, we showed a 10-fold increase in our net income in
2022 compared to without this amortization rules. This resulted in us
owing significantly more than anticipated in taxes, which was more than
double our actual profit. Instead of showing positive cash flow in
2022, this lead to negative cash flow for our business. As an LLC
partnership, this extra tax payment fell to us as small business
owners.
The snowball effect of these rules creates an added burden beyond just
the extra taxes owed. Because the business showed an inflated net
profit, it also inflated our income as the owners. One ramification has
been tripled student loan payments as a result of being pushed into a
higher income bracket.
These amortization rules strain all R&D businesses, but especially
small businesses and their owners. As a small business, we do not have
the ability to reallocate resources across departments to offset R&D
``income.'' Performing R&D activities is becoming more of a liability
than a benefit.
Many space companies playing a vital role in the burgeoning space
economy are small businesses with an R&D focus. They are taking the
United States to literal new heights and creating technologies that
will revolutionize space and terrestrial industries. Policies that
burden R&D activities will stifle innovation and harm businesses.
Countries, like companies, that do not innovate will not be
competitive.
Please urge congress to immediately correct this harmful tax section
and allow the full deduction of R&D costs in the year that the costs
are incurred. It is critical that this correction be made retroactively
to 2022 when it took effect to reverse as many of the harmful and
compounding consequences as possible. Please reach out with any
questions.
Sincerely,
Melissa Roth and Vincent Roux
Co-Founders and Co-Owners
______
One Voice for Manufacturing
300 New Jersey Ave., NW, Suite 300
Washington, DC 20001
https://onevoiceinfo.org/
March 11, 2024
The Honorable Ron Wyden The Honorable Mike Crapo
Chairman Ranking Member
United States Senate United States Senate
Committee on Finance Committee on Finance
219 Dirksen Senate Office Building 219 Dirksen Senate Office Building
Washington, DC 20510 Washington, DC 20510
Dear Chairman Wyden and Ranking Member Crapo:
On behalf of One Voice, the joint effort between the National Tooling
and Machining Association (NTMA) and the Precision Metalforming
Association (PMA), and our nearly 3,000 metalworking member companies,
thank you for your efforts to help support the growth of American
manufacturing. The most efficient and effective way to generate growth
among small businesses manufacturing in America is to pass the
bipartisan Tax Relief for American Families and Workers Act of 2024,
H.R. 7024.
Federal tax policy has a significant impact on our members' businesses.
When a manufacturer has more resources available to reinvest back into
the business, they will purchase more equipment, add more customers,
and hire and train more employees. However, the loss of full expensing
and the requirement to amortize R&D expenses have caused increased tax
bills for small and medium-sized manufacturers, which many still
struggle to cover. This drastic change in the tax treatment of small
business investments in research and innovation reduces incentives to
invest in R&D and reduces the cash flow of manufacturers making it
harder to invest in and grow our businesses.
A recent NTMA/PMA survey conducted in January 2024, showed that taxes
are the number one issue for One Voice members. Tax provisions such as
R&D expensing, Bonus Depreciation, Section 163(j), Section 179, Section
199a and the estate tax have a significant impact on small and medium-
sized manufacturers, like our members. The survey showed that due to
the loss of full expensing of R&D, 33% of One Voice members had to
reduce their R&D activities while 37% of members reduced their capital
expenditures due to the drop to 80% expensing for Bonus Depreciation.
Our member companies rely on these vital tax provisions to help invest
in their employees and facilities. The Senate should immediately pass
the bipartisan Tax Relief for American Families and Workers Act of
2024, H.R. 7024, as the most effective pathway to level the playing
field for small manufacturers.
Thank you for your support on this issue and your efforts on behalf of
the metalworking industry.
Sincerely,
David Klotz Roger Atkins
PMA President NTMA President
______
Smart Material Solutions, Inc.
984 Trinity Road
Raleigh, NC 27067
(919) 521-4440
https://www.smartmaterialsolutions.com/
Smart Material Solutions, Inc. is a small nanomanufacturing company
with four full-time and four part-time employees in Raleigh, North
Carolina. Our patented process, invented at North Carolina State
University, enables industrial-scale manufacturing of nanopatterns that
improve technologies ranging from solar panels to advanced camouflage.
We have ongoing projects with the U.S. Army, NASA, and industrial
partners on clean energy, infrared metamaterials, and dust-mitigating
surfaces for Lunar applications.
As an early-stage company developing new technologies, we are
particularly hard hit by the inability to expense research costs.
Despite posting a $90,000 loss in 2022, our taxable profit was
approximately $1 million because we could only deduct 10% of our 2022
research costs. As an S Corp owned by our employees, we had to pass
this phantom profit through to our employees as personal income. Some
of our employees were forced to pay more in taxes than their annual
salaries--clearly a deterrent for working since we pay more in taxes
than we earn every day we continue our otherwise successful business.
This is not a great way to treat middle-class STEM entrepreneurs who
thought starting a company, serving the national interest, and building
the American manufacturing base might be more fulfilling than, for
example, a career in big tech.
We--companies with fewer than 10 employees--spend an average of 43% of
our revenue on research, making us particularly vulnerable if research
costs cannot be expensed. We also lack the cash flow and savings of
larger corporations, so it is much more difficult for us to pay large
tax bills when we have little to no profit. We know we are not the
intended target for taxation, and the tax revenue we generate is a tiny
fraction of the current tax bill, since we constitute only 1% of U.S.
research spending. However, small manufactures like us will be the
collateral damage without swift action to pass the Tax Relief for
American Families and Workers Act (H.R. 7024).
We hope the Senate Finance Committee understands the dire consequence
of not retroactively restoring research expensing. From 1954 to 2021,
American companies could expense research costs, encouraging
development of new technologies and giving the United States its
reputation for innovation. Both large corporations and small businesses
were advised that congress would fix this harmful tax change due to its
bipartisan support, so we continued doing business as if we could
expense research costs. Unfortunately, in 2022 the rules changed to
require amortization of research costs, risking both small businesses
and American innovation. Restoring research expensing by passing H.R.
7024 now is vital to the survival of many small businesses, will help
the United States keep up with countries like China (which allows
companies to deduct 200% of their research costs), and will save an
estimated 169,400 American jobs and $14.4 billion in American income
per year according to a recent Earnst and Young study.
Thrive Business Group
1325 Lincoln St., Suite 101
Bellingham WA 98229
(360) 746-8738
https://www.cpabellingham.com/
March 12, 2024
Honorable Senator Wyden,
I want to express my appreciation for the hearing conducted to
highlight the importance of U.S. manufacturing and how it can be
impacted through the tax code. I want to highlight the importance of
returning the full expensing of Section 174 costs (Research &
Development costs).
Ms. Courtney Silver pointed out that the change in accounting treatment
for these costs has strained cash flow. Strained cash flow is just the
tip of the iceberg. I would like to add a real-life example of the
truly catastrophic impact that capitalizing R&D expense is currently
having on small businesses.
I have one small business client who contracts with NASA and NSF to
provide research and development services to further their work. In
2022, they had a net income (i.e., profit) of $17,200.
However, after their research and development costs were capitalized
according to the existing tax law, they owed tax on $175,800 of income.
This increased their tax bill by over $40,000--more than double their
actual profit in their business.
These folks are working day in and day out to further the mission of
the federal government through work for NASA and NSF and they are being
punished for it through the current tax law.
This is just one of many similar stories. Crippling tax bills, people
taking out loans just to pay their taxes--and all on phantom income
because they cannot deduct their R&D expenses in the year they paid for
them.
I am a CPA in Bellingham, WA. I work with local small business owners
to help them with their tax planning and compliance. I was raised by
small business owners, am a small business owner, and am passionate
about serving small business owners. I believe small business is the
backbone of our economy.
Unfortunately, we are seeing a very special group of small business
owners being punished by the current tax law for doing exactly what is
desired for our economy and country--research & development and
manufacturing.
The Tax Cuts and Jobs Act instituted a new tax law that took effect 1/
1/22. It required that all research and development costs be
capitalized and deducted over a 5 year amortization period. This means
that when businesses invest in research and development, they are not
able to deduct those costs in the year they spend the funds. This is
true even for normal business expenses like wages, supplies, insurance,
and more.
The tax law allows for a federal tax credit for R&D activities. This
could a valuable incentive to promote R&D activities to further our
country's competitive positioning in the global economy. However, this
tax credit is dwarfed by the tax impact of the current R&D cost
capitalization and amortization rules.
In other words, the current capitalization rules create a much larger
tax burden than the credit provides a benefit. It is very quickly
turning off small businesses from having any motivation to engage in
R&D activities.
I am writing to request that you prioritize the bipartisan discussion
and successful solution of the Tax Relief for American Families and
Workers Act. By doing so we can end this punishing tax law for
businesses engaged in R&D and manufacturing activities and once again
reinstate the support for these activities.
Sincerely,
B. Siobhan Q Murphy, CPA
______
U.S. Tire Manufacturers Association
1400 K Street, NW, Suite 900
Washington, DC 20005
202-682-4800
https://www.ustires.org/
As the Committee on Finance explores the topic of federal tax
incentives for U.S. manufacturing, the U.S. Tire Manufacturers
Association (USTMA) respectfully submits for the record of the hearing
background on the job creation, sustainability, and supply chain
security benefits of federal incentives for retreading U.S. truck fleet
tires.
BACKGROUND
The retreading of commercial truck tires is a prime example of the
economic and environmental benefits of effective product recycling.
Each retreaded tire creates and supports local jobs, reinforces U.S.
supply chain security, and reduces energy consumption, carbon dioxide
emissions, raw material use, and tire disposal challenges.
The U.S. Government has recognized the benefits of retreaded tires
dating back to 1988, when the Environmental Protection Agency (EPA)
issued guidelines for purchasing retreaded tires, with the purpose of
``using the stimulus of government procurement to increase the use of
retread tires within both the government and private sectors.''
Further, in 1991, the EPA recommended federal agencies ``(1) obtain
retreading services for their used tires and (2) purchase retread
tires.''
While this federal directive established a process for tire retreading
and its benefits, over the last 25 years, commercial truck tire
retreading has declined in the United States. Which this decline is
attributed to the availability of cheap alternative tires, often
sourced from China and elsewhere in Southeast Asia, which are 65% less
likely to be retreaded because of their design and construction. In the
last 20 years, the number of retread facilities in the United States
has declined by 50% due to the rise in disposable truck tires.
There is an urgent need for the federal government to further
incentivize the purchase of retreaded truck tires in the United States,
to mitigate the economic, environmental and supply chain costs
associated with the escalation of low-quality imports unfit for
retreading. One viable incentive is a short-term tax credit for U.S.
purchasers of retreaded truck tires which would reinforce jobs and the
sustainability benefits of U.S. retreaded truck tires while protecting
U.S. supply chains.
BENEFITS OF RETREADING TRUCK FLEET TIRES
Job Creation: U.S. truck tire retreading operations occur
principally through localized retreading workshops that replace the
worn treads from the casings of truck tires with new tire treads.
Approximately 500 domestic retreading workshops directly support over
51,000 jobs in the United States.
Sustainability: Compared to new truck tires, retreaded truck
tires utilize substantially less fuel and materials, significantly
reduce emissions of carbon dioxide and other air pollutants, reduce
water consumption and remove over a billion pounds of material from the
waste stream each year. Specifically, retreaded truck tires:
Use 15 gallons less oil and 90 pounds less
total material per tire.
Save the U.S. and Canada approximately 217
million gallons of oil each year.
Reduce CO2 emissions by 24%
annually.
Reduce annual water consumption by 19% and
overall air pollution by 21%.
Remove 1.4 billion pounds of material per year
from the waste stream.
Supply Chain Security: Increasing demand for truck tires
retreaded in the United States will reduce U.S. dependency on imported
``disposable'' truck tires. These cheaper truck tires, unfit for reuse,
are often sourced from China and elsewhere in Southeast Asia via supply
chains that are more volatile and government subsidized. Reversing
current purchase and use trends will stabilize and protect supply
chains for U.S. retreaded truck tires.
NEED FOR FEDERAL INCENTIVES FOR TRUCK TIRE RETREADING
In recent years, the United States has seen an increase in the use of
cheaper, imported truck tires that cannot be retreaded and therefore
must be disposed of after a single use. Between 2011 and 2022, these
imports increased from 2 million to over 4 million tires, driven by
falling imported tire prices incentivized by heavy foreign government
subsidies. As an example, imported tire prices dropped from $128 to
$102 per tire over the same period.
Fortunately, some in Congress have recognized the threat these imported
tires pose to American jobs, sustainability and supply chain objectives
and are considering federal support to reverse imported truck tire
purchasing trends. One such proposal, which would fall within Senate
Finance Committee jurisdiction, would:
Provide for three years a $30 per tire tax credit for the
purchase of qualified retreaded truck tires; and
Direct federal agencies to utilize retreaded tires within
federal truck fleets when possible.
USTMA members including Bridgestone Americas, Continental Tire the
Americas, The Goodyear Tire & Rubber Company, and Michelin North
America support this initiative, as do leading U.S. commercial truck
fleet operators. Organized labor unions also support these proposed
incentives.
USTMA is the national trade association for tire manufacturers that
produce tires in the U.S. With an annual economic footprint of $170.6
billion, U.S. tire manufacturing is a critical part of the American
economy. USTMA's 12 member companies collectively operate 57 tire-
related manufacturing facilities in 17 states. The industry directly
supports more than 291,000 U.S. jobs in manufacturing, distribution and
retailing across every congressional district in the country. The
industry also supports more than 510,000 additional U.S. jobs in
supplier and induced activities, totaling more than 801,000 jobs
nationwide.
USTMA advances a sustainable tire manufacturing industry through
thought leadership and a commitment to science-based public policy
advocacy. USTMA members are committed to sustainable practices across
our industry essential to the responsibility we share of helping
achieve a more sustainable society. From engineering innovations that
reduce CO2 emissions to enhancing tire safety and
performance, driving workplace safety progress, and preserving the
environment through the lifecycle of a tire.
In recent months we have met with Senators Blackburn, Brown, Scott, and
Warner of the Senate Finance Committee, and we appreciate their
interest in this issue and are hopeful they will soon introduce
legislation.
Thank you for the opportunity to submit this written statement for the
record. We would be happy to provide additional information.
______
The State of Retread Tires in the
United States & Canada
2024 Addendum to the 2018 Report
Overview
Led by Professor John Woodrooffe, the 2018 publication of The State of
Retread Tires in the United States and Canada: An Analysis of the
Economic & Environmental Benefits for Fleet Operators and the United
States Government was the result of industry-wide coordination with
business leaders, experts, and scholars from the Duke Center for
Sustainability & Commerce, N.C. State Supply Chain Resource
Cooperative, and the University of Michigan Transportation Research
Initiative.
With an eye on economic, environmental, and national security risks and
opportunities, the following addendum seeks to provide lawmakers with a
snapshot of the state of the American tire retreading industry in 2024.
About the Author
JOHN WOODROOFFE
Mr. John Woodrooffe is a Research Scientist, Director of the Commercial
Vehicle Research and Policy Program, and Head of Vehicle Safety
Analytics at the University of Michigan Transportation Research
Institute. He has over 30 years of experience in vehicle-related
research and is an international expert in large vehicle transport
safety, efficiency, vehicle productivity, and progressive regulatory
issues.
Retread in Focus: The Facts
America Depends on Retread
Retread is the largest remanufacturing sector in
the U.S., employing over 51,000 workers and supporting more than
268,000 jobs across the broader $28.4 billion U.S. tire industry
(Daystar et al, 2018).
Operating under franchise agreements with large
tire companies (e.g., Bridge- stone, Continental, Goodyear, Michelin),
retreads are a nearly 100% domestically produced product (with U.S. and
foreign content) manufactured by small independent businesses,
typically employing 10-60 workers.
Approximately 15 million tires are retreaded
annually in the U.S. (Modern Tire Dealer, 2023).
U.S. truck and bus fleets are prolific users of
retreads, retreading each tire 2-3 times on average.
Nearly 90% of U.S. fleets with 100+ trucks rely
on retreaded tires due to their financial, operational, and
sustainability benefits (Daystar et al, 2018).
Retreads are a vital economic and national
security asset, helping keep America's trucks on the road during
unprecedented supply chain and geopolitical disruptions.
Financial & Environmental Benefits of Retread
Truck tires are commonly covered under a limited
warranty and designed to be retreaded up to three times, extending a
tire's life by 300% or more and keeping fleets on the road at a lower
cost per mile. Bridge-stone, the largest producer and retreader of
commercial tires in America, estimates that premium tires are retreaded
an average of 2.1 times.
Tires are the 3rd highest expenditure for fleets,
behind people and fuel. Annually, retreading generates nearly $3
billion in cost savings.
Retreading reduces energy use by 30%, and
requires approximately 15 gallons less oil to produce one retread than
manufacturing a new truck tire (NHTSA, 2008).
A typical retread commercial tire saves (on
average) 90-100 lbs. of material. Capable of being retreaded 3 times or
more, a single premium tire can save upwards of 300 lbs. of materials
versus non-retreadable tires.
The Threat of Low-Cost Imports to the U.S. Economy
For every new premium tire sold in the U.S. and
Canada, 1.1 retreads are produced, whereas less than 0.4 retreads are
made for every new ultra-low-cost import (Day-star, 2018). The rise of
ultra-low-cost tire imports has eroded the market and hastened the
decline of the U.S. retread industry.
The number of tire retreading facilities in the
U.S. has dropped from over 3,000 in 1982 to an estimated 500 in 2023.
The growth of low-cost import tires is accelerating this trend and
increasing the likelihood of further plant closures (Modern Tire
Dealer, 2023).
Due to differences in quality, low-cost tire
imports are often deemed unsuitable for retreading and, therefore,
discarded after a single use. As they are typically not retreaded, low-
cost imports account for a disproportionate share of the more than 270
million tires sent to U.S. scrap yards and landfills in 2021 (USTMA,
2022).
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Retread Explained: Safety and Process
MODERN RETREADING includes a 10-step process * that requires multiple
inspection points and highly automated advanced manufacturing
technology.
---------------------------------------------------------------------------
* Source: Bridgestone Bandag, LLC.
1. INITIAL INSPECTION
The tire is visually examined using a 7-step rotation to fully analyze
if the tire is capable of being retreaded and to identify if there are
any repairs that are required.
2. ELECTRICAL INSPECTION
An electrical current is applied to the inner cavity of the tire. A
sensor is used to detect any voltage that penetrates the tire,
identifying penetrations that may be invisible to the naked eye.
3. SHEAROGRAPHY
In most modern retread facilities, a shearography machine is used to
scan the tire from side to side. The machine generates detailed images
that are used to identify any underlying damage.
4. BUFFING
The remaining tire tread is physically abraded to remove the rubber and
to create a uniform surface upon which the retread will be applied.
5. SKIVING REPAIR
Repairs are made as needed, including to any damage uncovered during
the buffing process.
6. APPLYING CUSHION
An extruder will apply a thin and uniform layer of specialized uncured
rubber, called the cushion, over the crown of the casing. Once cured,
this material is what secures the new tread to the casing.
7. BUILDING
During the ``building'' process the new tread is applied--most often by
a computer-controlled machine--to the casing.
8. ENVELOPING
The tire and its new tread are encased in a flexible rubber envelope
that will ensure uniform pressure across the surface of the tire,
pressing the tread and casing together during the curing process.
9. CURING
The tire tread is cured to the casing using a combination of
temperature, pressure and time within a pressurized chamber.
10. FINAL INSPECTION
As a final check, the operator will examine the final product to ensure
the quality of the retread. The operator will also verify that the
customer specifications are met.
AS SAFE AND RELIABLE AS A NEW TIRE
Leading manufacturers maintain the controls, licenses, and
certifications (e.g., ISO 9001:2000) to help ensure the quality and
safety of the retreading process and finished products. In addition,
unlike new tires coming off the line that are subject only to visual
inspection, retreads undergo rigorous visual and electronic analyses to
ensure they adhere to strict standards. Studies conducted by the
National Highway Transportation Safety Administration (NHTSA), the
American Trucking Associations, and the states of Arizona and Virginia
concluded that a well-maintained retreaded tireoffers equivalent
reliability to a well-maintained new tire (Daystar et al, 2018).
See State of Retread Tires in the United States and Canada 2018 page
11.
Stepping Up Quality and Safety: Innovation and Investment
Retread industry innovations enable fleet managers to follow their
tires throughout the retreading process and equip them with data and
insights to make more informed decisions. Most importantly, retread
solutions ensure that the trucks and drivers who rely on retreaded
tires operate safely and efficiently.
``In addition to advancing retreaded tire quality and safety, the
retreading industry continues to explore and invest in automation and
ergonomic manufacturing enhancements to improve worker health, safety,
and productivity.''
-- Jason Roanhouse, Vice President of Operations, Bridgestone/Bandag
Retread's Value Proposition for America:
Improved Security and Sustainability
The Economy
Directly employing 51,000+ workers and supporting more than 268,000
jobs across the broader tire industry, retreading is the largest
remanufacturing sector in the U.S. In addition to its contribution to
the American economy, retreading is a key differentiator for the
premium domestic tire industry and a critical component of good fleet
management; nearly 90% of fleets with more than 100 trucks across the
U.S. and Canada run on retreaded tires because of their affordability
and reliability.
``As a manageable and trackable asset, fleets invest in premium tires
because they plan to extend and optimize via retreading. Lower-cost
imports are typically used once and then discarded. Therefore, the
retread and domestic tire industries should be seen as mutually
reinforcing. When there is no way to get the tire retreaded, the odds
of fleets investing in premium retreadable tires decrease
dramatically.''
-- Executive, Pomp's Tire Service, Inc.
The Environment
In 2021, over 270 million tires were sent to U.S. scrap yards and
landfills, many of which were low-cost, single-use imports (USTMA,
2022). Taking upwards of 50 to 80 years to decompose, once entering the
waste stream, tires present a unique challenge with far-reaching
environmental health and safety consequences.
As scrap tires break down, they release chemicals and heavy metals into
the soil, polluting water sources and endangering nearby and downstream
life. Incinerating tires releases hazardous compounds--gases, heavy
metals, and oil. Notably, tackling intentional or uncontrolled tire
fires is challenging, intensifying respiratory and environmental risks
(U.S. EPA, 2016). Amid these issues, retreads show potential as a
promising solution.
By reusing the existing casing and replacing only the worn-out tread
rubber, retreading significantly reduces the amount of raw materials,
energy, and emissions required. Commonly covered under a limited
warranty and designed to be retreaded up to three times, retreading can
extend a tire's life by 300% or more, helping keep tires out of the
waste stream. With nearly half of all commercial trucks in the U.S. and
Canada running on retreads, this translates to an estimated annual
savings of 217.5 million gallons of oil and 1.4 billion pounds of waste
(Bridgestone, 2018).
The retread industry is an excellent example of the circular economy in
action, with most retreaders using recycled rubber and a growing number
of facilities operating on solar power. In addition, as the largest
remanufacturing sector in the US, the retread industry takes its role
in environmental health and safety seriously, investing in research and
innovation to eliminate the use of harmful chemicals and improve
sourcing, manufacturing, use, and end-of-life.
With approximately 15 million commercial tires retreaded annually
across the U.S., retreads are making a difference and proving its case
as a safe, reliable, and more environmentally friendly alternative to
lower-cost, single-use tire imports.
Opportunity to Tackle Waste and Improve Sustainability
in Last Mile Delivery
Bridgestone estimates that last-mile delivery vehicles replace tires as
often as every 3 to 4 months, meaning a single vehicle can use more
than 30 sets of tires over its lifetime.* With less than 5% of last-
mile delivery vehicles running on retreaded tires, the rapid
electrification of LMD fleets, coupled with the burgeoning demand for
LMD services, presents a tremendous opportunity for retread, a more
environmentally friendly solution to the tire waste problem.
---------------------------------------------------------------------------
* Class 2-3 delivery vans. Per Bridgestone testing. Actual results
may vary.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
The Reality of Retread in 2023
Showing Weakness But Showcasing Value
Over the last 14 years, low-cost imports have grown at a staggering 7%
compound annual growth rate (CAGR), surging to 11% between 2012 and
2022 (Panjiva, 2023). As retread industry strength is highly correlated
to the volume and velocity of low-cost imports, this unprecedented
growth has considerably impacted the demand for retreads, leading to a
significant drop in U.S. retread manufacturing facilities from over
1,000 in 2002 to an estimated 500 in 2023 (Modern Tire Dealer, 2023).
Recent retread strength can be attributed to challenges faced by low-
cost tire importers, namely tariffs imposed on Chinese truck and bus
tires in 2019 and
pandemic-induced supply chain disruptions in 2020 and 2021, reducing
the flow, availability, and affordability of low-cost imports. Yet,
amid these fluctuations, the proliferation of imported tire brands and
the emergence of subsidiaries operating out of Thailand and Vietnam has
created a new set of challenges for the industry in recent years.
``It was simple_for several months, a significant portion of the market
disappeared, and when domestic tire suppliers could not ramp up
production quickly enough to keep up, retread was the only viable (and
affordable) option. Were it not for retread shops, many trucks would
have sat idle. It is time to include U.S. dependence on imported tires
in the U.S. supply chain security discussion.''
-- Executive, Resley Tire Co. Inc.
Citing the rise of subsidiaries and the unprecedented flood of low-cost
imports in 2021 and 2022 coupled with flat global demand, analysts
forecast that market oversupply and exceptionally low pricing will
accelerate retread's decline in 2024 and 2025.
These developments underscore the U.S. retread industry's challenges
and the importance of legislation addressing the economic and
environmental risks posed by low-cost tire imports.
Driven primarily by operators out of Southeast Asia, the post-COVID
flood of low-cost tire imports to U.S. markets paved the way for 8 of
the 10 largest exporting countries to post double-digit yearly
increases in 2022 (Modern Tire Dealer, 2022; Tire Business, 2023).
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
In Support of Retread: A Call to Action
Important for the Economy, Environment, and National Security
Retreaded tires are a nearly 100% domestically produced product (with
U.S. and foreign content) made by small businesses, collectively
employing more than 51,000 workers. In use by almost half of all
commercial trucks in the U.S. and Canada and credited with generating
more than $3 billion in fleet cost savings and the avoidance of 1.4
billion lbs. of landfill waste annually, retreads are designed to be a
safe, cost-effective, environmentally friendly, and sustainable choice
to help keep fleets on the road, materials moving, and products
affordable.
However, despite the economic and environmental benefits, over the last
20+ years, low-cost tire imports have eroded the share of retreaded
tires and forced facilities to shutter, putting thousands of skilled
laborers out of work.
Facing the combined pressures of increasing labor and energy costs with
declining demand, retread business owners urge lawmakers to address the
economic, environmental, and national security risks associated with
America's increasing dependence on low-cost imports and ensure U.S.
retread readiness in future crises.
Trouble Ahead: What You Need to Know
Market Realities: Retread strength is highly correlated to the
volume and velocity of low-cost imports, and their unprecedented growth
has adversely impacted U.S. retread demand and manufacturing capacity.
The Time to Act Is Now: Low-cost imports to the U.S. grew at a
staggering 11% Compound Annual Growth Rate (CAGR) between 2012 and
2022. This unprecedented growth, coupled with the post-pandemic surge
beginning in 2021, represents an existential threat that, if
unaddressed, will have profound consequences for retreading in 2024 and
beyond.
With the U.S. retread industry at risk, it is imperative that lawmakers
support the industry with pro-retread policies, such as tax incentives
for the purchase of retread tires. This measure will increase retread
demand and protect American jobs and the environment.
The passage of this legislation will help secure U.S. supply chains,
ensure economic stability, and preserve precious non-renewable natural
resources.
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HOW TO CITE THIS REPORT
J. Woodrooffe (2024).
2024 Addendum to the 2018 The State of Retread Tires in the United
States & Canada.
ACKNOWLEDGMENTS
Input and funding of this report partially provided by Bridgestone
Bandag, LLC in cooperation with industry experts, academia and Bandag
franchisees.
______
Vital & FHR North America LLC
1201 Brim Rd.
Bowling Green, OH 43402
(408) 217-0375
https://www.vitalchem.com/
On behalf of our 10,000+ employees, Vital & FHR North America LLC
submits this statement with appreciation to Chairman Wyden, Ranking
Member Crapo, and the other Members of the Senate Committee on Finance.
We are honored to present this statement for the hearing: ``American
Made: Growing U.S. Manufacturing Through the Tax Code.'' As a leading
manufacturer of advanced materials and vacuum coating systems for a
diverse range of applications including solar, fuel cells, display
technologies, automotive, and more, we are deeply invested in the
future of American manufacturing, particularly in the clean energy
sector.
Our facility in Bowling Green, Ohio, is a testament to the power of
innovation and partnership, supplying critical components to American
made solid oxide fuel cells, a key technology in the clean energy
landscape.
The Role of Tax Incentives in U.S. Clean Energy Leadership
Tax incentives and credits have been pivotal in establishing the United
States as a leader in the clean energy sector. By all accounts, low-
carbon energy sources have accounted for an increase in U.S.
electricity generation over the past few years, with projections
indicating significant growth as clean energy technologies become more
prevalent. The investment tax credit (ITC) and production tax credit
(PTC), for example, are spurring remarkable growth in fuel cell, solar
and wind power capacity, largely driven by these policies.
In fuel cells alone, analyst projections show a tremendous increase in
demand over the coming years. In one report released less than 2 months
ago by Market.us, the global solid oxide fuel cell market size is
expected to grow from $1.4 Billion in 2023 to $21.3 Billion by 2033,
expanding at a compound annual growth rate (CAGR) of 31.3% during the
forecast period from 2024 to 2033.
We believe the tax code is vital for helping position American
manufacturers to capture most of this global market. Our competitors
are actively working to lure investment, so the United States should
respond accordingly.
Economic Impact and Job Creation
The clean energy sector is not only crucial for environmental
sustainability but also for economic vitality and job creation. The
Department of Energy estimates that clean energy tax incentives will
create millions of American jobs over the next several years.
Unfortunately, according to the International Energy Agency, today the
United States still lags behind other countries in many areas of clean
energy manufacturing. However, in fuel cells the United States remains
the world's leader in innovation and manufacturing employment. Our
company employs hundreds of people who manufacture products for the
domestic fuel cell industry.
Encouragingly, a McKinsey study found that by 2030 the broader fuel
cell and hydrogen industry could support 700,000 American jobs. To
achieve these numbers, it is critical--for both fuel cell producers and
their domestic suppliers like Vital & FHR--that S. 3027 be passed and
the ITC for solid oxide fuel cells be extended.
The Case for Sustained Support
To maintain American momentum and leadership, it is critical that we
sustain and expand clean energy tax credits, including the ITC for fuel
cells. These policies not only incentivize the adoption and production
of clean energy but also support the entire supply chain, including
manufacturers like Vital & FHR. They are essential for ensuring that
the U.S. remains at the forefront of the global transition to a clean
energy economy, driving innovation, creating jobs, and promoting
sustainable growth.
In conclusion, the extension and expansion of clean energy tax
incentives represent a strategic investment in America's economic and
environmental future. By supporting these policies, we can continue to
lead in the development and manufacturing of clean energy technologies,
create high-quality American jobs, and compete effectively in the
global market.
We appreciate the Committee's consideration of our perspective and
stand ready to contribute to the development of policies that will
ensure the continued growth and success of the U.S. manufacturing
sector and the clean energy industry.
Thank you for the opportunity to participate in this important
discussion.
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