Recent events starkly highlighted the importance of semi- conductors to the US economy and the fragility of the US semiconductor supply chain. These shortages were esti- mated to have cost over a full percentage point of 2021 US GDP,1 prompting Congress to pass the 2022 CHIPS and Science Act to level the playing field for onshore semicon- ductor manufacturing after decades of decline.
However, unrelated tax code changes are threatening to unravel any benefit from the CHIPS Act. New 2022 regula- tions that disallow the same-year expensing of investments in research and development (R&D) have perversely made the already-uncompetitive US tax code even more puni- tive to innovation. These disincentives to R&D risk harming US competitiveness across all high-tech fields, including those sectors where the US currently leads.