Senator Sherrod Brown Questions Wisdom Of IRA Tax Credits For China Solar Giants In Hearing

Senator Brown: IRA Tax Credits

Sen. Sherrod Brown (D-OH) questioned the wisdom of tax credits going to Chinese solar multinationals benefiting from the Inflation Reduction Act during a Finance Committee hearing on Tuesday.

“Our tax code is supposed to support American manufacturers in building out genuine domestic supply chains. It shouldn’t be exploited by the Chinese Communist Party,” said Brown during the hearing titled American Made: Growing U.S. Manufacturing Through the Tax Code. Brown said he was “working with my colleagues on both sides of the aisle” to tighten restrictions on the Section 45X energy components tax credit “to ensure that taxpayer money isn’t going to Chinese companies and other Foreign Entities of Concern.”

One of the five witnesses at the hearing, Mark Widmar, CEO of First Solar in Brown’s home state of Ohio, said that was a good idea. [Testimony]

I think it is nonsensical for an entity that is already heavily subsidized to benefit from U.S. taxpayer dollars to invest here in the U.S. That doesn't make any sense to me.

Brown asked if restrictions on China help create a domestic U.S. solar supply chain. For now, the credits are mainly going to solar modules and assembly. And a chunk of the new investments being made in new solar facilities are the big Chinese players who already dominate the industry worldwide. 

“What I am most concerned about right now is that the investments coming to the U.S. are modular assembly and all the tools are coming in from China,” Widmar said, adding that the new investments from China companies like Trina and JA Solar “are mostly just leased buildings, so they can easily walk away from them. It’s not an enduring investment. If you make it enduring, you achieve what the IRA set out to be, which was to make the U.S. a renewable energy leader.”

In his opening remarks, Ranking Member Mike Crapo (R-ID) called for greater scrutiny of how the IRA tax credits were being doled out and to whom. 

“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,” he said.

China was benefiting from the IRA on the EV side, as well.

Sen. John Barrasso (R-WY), who represents oil and gas companies, was critical mainly because fossil fuel energy producers were not beneficiaries of the IRA, a law many have dubbed Biden’s “Green New Deal”. He also spoke about other extraction industries vital to the EV supply chain – the minerals that go into making EV batteries like lithium and nickel, to name a few.

“If we want to grow U.S. renewable energy manufacturing then I think we have to find a way to limit China’s influence here in terms of manufacturing, and its impact on supply chains,” he said. “The IRA opened the door for U.S. tax dollars to go to China’s companies. The products and technologies that the IRA incentivizes are all mostly made in China. What are some ways in which China benefits from the IRA that ends up hurting us?” he asked one of the witnesses, a chemicals company called Huntsman Corporation.

“Well, many of the products that go into the supply chains of EV batteries for example are not produced here so those benefits are irrelevant. We all heard about all the money Ford has lost in EVs lately, but I assure you that China is not losing money on the batteries they are selling – including the mined goods that go into the batteries that are subsidized back home,” said Peter Huntsman, the company’s CEO and Chairman. [Testimony]. “We have to do this (mining and processing and chemical production) ourselves or just let the Chinese do it and admit that we are going to have a Chinese dependent EV fleet. The battery is the most technically complicated part of the car and the minerals inside have only a few suppliers,” he said. Most of them are in China or Chinese multinationals. 

Widmar spoke about the importance of domestic supply chains for renewable energy – from steel to copper, polysilicon and glass.  First Solar does not make solar panels in the traditional way from crystalline silicon photovoltaic cells. They have their own method, which relies on a cadmium telluride photovoltaic layer over glass that looks like one large, rectangular tinted window, rather than panels that house numerous solar cells plugged into a panel.

He said he wanted trusted partners, locally, that could scale along with his business. Southeast Asia and China came with too many risks, most recently highlighted by pandemic lockdowns that led to supply constraints and historically high freight costs.

“The IRA offers the catalyst for high value domestic solar, but the domestic solar industry is in a precarious position,” he said. Less than a third of the installed solar here was made here. Most of it comes from China and Southeast Asia. Their overproduction threatens the viability of every U.S. based manufacturer who may never be able to get financing for their operations because of those variables,” he said, adding that beyond the IRA, the U.S. renewables industry needed “enforcement of trade rules. All we ask is that competition is on a level playing field,” Widmar told the Committee.

Extending Tax Credits, Increasing R&D Write-Offs

Most of the hearing centered on the 2017 Tax Cuts and Jobs Act (TCJA). Witnesses praised that law and advocated for the tax cuts to remain, and for some to be made permanent, like the R&D tax credit.

“The Section 48D Advanced Manufacturing Investment Tax Credit has played a critical role in helping us, and in reinvigorating domestic innovation,” said Shannon Janis, vice president at OnSemi in Arizona, a semiconductor manufacturer that has benefited from the CHIPS & Sciences Act. [Testimony]. “That tax credit means we will continue to invest here and can compete with companies located offshore,” she said.

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, according to the National Association of Manufacturers (NAM). Manufacturing capital spending grew 4.5% and 5.7% in 2018 and 2019, respectively, according to NAM.

Courtney Silver, President of Ketchie Inc., a machine tool manufacturer in North Carolina [Testimony] called on the Senate Finance Committee to keep those taxes in place, saying manufacturing was a team sport, and they have to be on the same team. 

“The rules of the game must be consistent rather than constantly changing so the game does not evolve into chaos and for us, those rules are the tax code,” she said.

Ketchie invested over a million dollars in 2018 in new equipment and upgrades. They bought new HVACs and robotics equipment that helped them produce around the clock, and gave everyone pay raises and quarterly bonuses as a result of those tax cuts. 

“Workers were buying first homes and first cars and we made a true difference in people’s lives,” she said, a story known to many successful manufacturing business owners around the country. “We might not be here today if we did not have the economic boom from the tax cuts prior to the pandemic. Crucial tax policies began to expire in 2022, like write-offs for R&D. Those were a game changer for us. That helps small manufacturers compete here and in the global economy and yet more critical provisions expire at the end of 2025 which will harm us because they will lead to an increase in our tax rates,” she said. “If that doesn’t change, we will be competing with  one hand tied behind our backs for the foreseeable future.”

In November, CPA modeled manufacturing tax credits and its impact on the economy. The model found that tax credits for all U.S. manufacturing sectors would stimulate the economy, create 11.2 million new jobs, and increase real household income by 9.1%. Real GDP would grow by 6.3%. The boost in economic activity would generate $226.1 billion in additional tax revenue for the federal government.

The CPA Pro-Growth Model was designed to assess the impact of increasing production in all manufacturing sectors via corporate tax credits coupled with a requirement to invest in increasing domestic production. The simulation showed that you can easily create economic growth by stimulating production via tax credits for U.S. manufacturers. 

The IRA tax incentives are only for certain sectors of the economy that are plugged into the renewable energy story. The same can be said for the CHIPS Act. The TCJA was an across-the-board tax cut that also included opportunities to write-off R&D costs.

Sen. Marsha Blackburn (R-TN) said her constituents all talk about the importance of taxes. 

“What would happen if the TCJA tax cuts ended?” she asked. 

“Those tax provisions were rocket fuel for us,” said Silver. “It gave us the confidence and the liquidity we needed to survive in the pandemic years.” 

“With the tax credit, we brought in over a billion dollars that was offshore back into the United States,” Huntsman said.


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