If someone can’t manage his or her own financial affairs, it’s a good bet they’d manage other people’s finances badly, too.
Given that the federal government has racked up an enormous $30 trillion of debt—$6 trillion in just the past two years—nobody should trust that federal legislators know the first thing about sound investing.
Case in point: As congressional committees continue to debate differences between the House and Senate versions of the America COMPETES Act, the so-called China bill, some lawmakers are pushing to include tax laws that would blatantly subsidize unprofitable private investments.
On top of the $50 billion of direct subsidies for semiconductor companies already packed into the 3,000-page, $350 billion omnibus package, the Senate Finance Committee’s chairman and ranking member—Sens. Ron Wyden, D-Ore., and Michael Crapo, R-Idaho, respectively—want to add another massive subsidy disguised as a tax credit to build semiconductor manufacturing facilities.
The federal government would offset every $100 a company spends on the purchase or construction of semiconductor facilities with $25 in tax credits. So, after receiving the credits, firms would be as well off losing 15% on a semiconductor investment as earning a 10% profit investing in other manufacturing facilities.
That type of narrow preference is a textbook case of bad tax policy.
Supposedly, the tax preference is meant to strengthen U.S. semiconductor manufacturing. However, by driving companies into unprofitable investments, the government would make the industry weaker, not stronger.
While the domestic semiconductor industry might grow in the short term, it would grow reliant on continuing corporate welfare to stay afloat.
Tax subsidies for semiconductor investments would make every other industry weaker, too, by starving them of the capital they need to make sound investments.
To justify the tax subsidies, supporters point to supposed vulnerabilities in global supply chains, which they claim are too reliant on foreign manufacturing of computer chips.
There are several problems with that line of reasoning.
First, similar arguments could be made with respect to countless other industries. Americans also rely on food, oil and gas, medicine and medical devices, metals, lumber, trucking and shipping, and innumerable other goods and services. But our debt-ridden nation simply can’t afford to subsidize bad investments in every industry that policymakers consider important.
Indeed, right now, Americans face a more pressing shortage of baby formula. The baby formula crisis has nothing to do with overreliance on foreign markets. If anything, the opposite is true. Imports account for only 2% of baby formula consumed in the United States.
The baby formula crisis stems from the closure of a single manufacturing plant in Michigan, along with some harmful government interventions, including protectionist tariffs …….