During his State of the Union speech Tuesday, President Joe Biden recounted Intel CEO Pat Gelsinger telling him that the only thing preventing the company from investing more in America is a delay of legislation providing huge new government subsidies.
“Pat came to see me, and he told me they’re ready to increase their investment from $20 billion to $100 billion,” Biden said. “That would be the biggest investment in manufacturing in American history. And all they’re waiting for is for you to pass this bill.”
But microchip companies like Intel are hardly cash-strapped paupers that desperately need a bill providing $52 billion of federal subsidies in order to build factories in the United States. According to a study by the Institute for New Economic Thinking, Intel, and four other wildly profitable American semiconductor giants that stand to benefit from the bill were so awash in cash that they spent nearly a quarter trillion dollars in the last decade — or 70 percent of their profits — on stock buybacks.
Those buybacks diverted money from capital investments and into stock price boosts that enriched shareholders and executives. Intel and the microchip industry did this while moving manufacturing jobs away from the United States over the past three decades.
Now the companies stand to be rewarded by Biden’s microchip subsidy legislation — which omits safeguards that could have required recipients to use public funds for domestic investments rather than for even more stock buybacks, shareholder dividends, and executive pay packages.
“[The companies lobbying on this] say they need the subsidies to give them an incentive to invest,” said William Lazonick, professor emeritus of economics at University of Massachusetts, who coauthored the study on semiconductor industry buybacks. “Well, the companies that are lobbying on this have spent multiples of that $52 billion on buybacks.”
Subsidies With Almost No Strings Attached
Amid a spate of Biden-backed free trade deals between 1985 and 2014, the United States lost more than a third of its jobs in the semiconductor industry, even as the five major American-headquartered semiconductor companies raked in more than $9 billion of state and federal subsidies, loans, and other support, according to data compiled by the watchdog group Good Jobs First.
Much of the world’s microchip production is now concentrated in Taiwan, a hundred miles off the coast of China — a major economic competitor on hostile terms with the island. Proponents of the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act have cast their bill as a way to onshore some of that production capacity, further away from the risk of the microchip supply chain being disrupted by any strife between the two countries.
To do this, the CHIPS Act proposes to provide even more subsidies to semiconductor companies, ostensibly for them to invest in new chip production plants in the United States.
In order to ensure this massive public subsidy is invested in domestic manufacturing, Senator Bernie Sanders (I-VT) introduced an amendment to give the government an equity stake in the companies receiving subsidies and restrict companies that receive the subsidies from repurchasing their own stocks. Such repurchases inflate the stock prices of companies, but don’t go toward paying workers or investing in actual manufacturing.
Despite Senate Majority Leader Chuck Schumer (D-NY) coauthoring a New York Times op-ed with Sanders demanding limits on stock buybacks, the Vermont senator’s amendment was not added to Senate Democrats’ microchips legislation.
Instead, after Sanders’s measure was blocked, a provision authored by Democratic Representatives Alexandria Ocasio-Cortez and Cori Bush was added to the House-passed version of the bill. The language was touted by the Congressional Progressive Caucus and billed by Democrats as “prevent(ing) companies from using any of the funds allocated (CHIPS) fund from being used on stock buybacks or the payment of dividends to shareholders.”
However, the provision only prohibits companies from directly appropriating subsidy money to buybacks or dividends. The language does not bar those companies from repurchasing stock or issuing dividends while simultaneously receiving the government funds — an important distinction, said Lazonick, because money is fungible.
“[The companies] would just say that these distributions to shareholders came from sources other than the CHIPS funds,” Lazonick explained. “So it’s symbolic.”
Even so, Biden is touting the CHIPS Act as a necessary investment for companies to build in the United States, where manufacturing semiconductors may be more expensive than it is in Taiwan.
For Intel’s part, the company recently extracted over $2 billion in subsidies from the state of Ohio for its new chip fabrication plant, a number that is expected to rise as the company receives property tax abatements. That is on top of the nearly $6 billion worth of government subsidies the company has raked in from other states — all while company executives publicly defended their practice of shifting manufacturing jobs out of the United States.
Intel says that since 2005, its board authorized its executives “to repurchase up to $110 billion (of stock), of which $7.2 billion remained available.”
“A Significant Decline in Business Investment”
Biden’s support for the CHIPS Act as written contrasts with his past statements criticizing companies which spend most of their profits on buybacks, and regulations that enable them to do so.
In 2016, then Vice President Biden penned a Wall Street Journal op-ed headlined: “How Short-Termism Saps the Economy.” Biden wrote that “ever since the Securities and Exchange Commission changed the buyback rules in 1982, there has been a proliferation in share repurchases. Today buybacks are the norm. . . This emphasis on returning profits to shareholders has led to a significant decline in business investment.” He argued that companies spending money to inflate their own stock prices hurt workers and the economy more generally.
More recently, the Biden administration pointed to this shareholder greed and lack of investment as a key part of the supply chain problems that were laid bare by the pandemic.
“A focus on maximizing short-term capital returns has led to the private sector’s underinvestment in long-term resilience,” said the White House review of supply chain resiliency published last summer. “For example, firms in the S&P 500 Index distributed 91 percent of net income to shareholders in either stock buybacks or dividends between 2009 and 2018. This has meant a declining share of corporate income going into R&D, new facilities or resilient production processes.”
But his proposed solution, the CHIPS Act, implies that the problem is actually that semiconductor companies need more public money.
Chip companies for their part have spent millions of dollars lobbying on the bill, arguing that the subsidies are necessary for them to make capital investments.
The main group lobbying in the bill, the Semiconductor Industry Association, spent nearly $1.4 million on lobbying efforts in 2021. Individual chip companies including Advanced Micro Devices, Samsung, and Intel, spent a combined nearly $12 million on lobbying in 2021, including on the CHIPS Act.
Separately, some companies have been pressuring Congress to pass the CHIPS Act through the Semiconductors in America Coalition. Four of the group’s members — Apple, Microsoft, Cisco, and Google — spent a combined $633 billion on buybacks between 2011 and 2020, more than twelve times the amount of subsidies the CHIPS Act would provide to different companies.
Gelsinger, the Intel CEO whom Biden touted, recently pledged that his company would “not be anywhere near as focused on buybacks going forward as we have in the past.”
But even after CHIPS Act money is funneled into the coffers of his company, nothing in the subsidy bill would prevent him from discarding that pledge.