Overview
Title
To amend the Internal Revenue Code of 1986 to establish the critical supply chains reshoring investment tax credit.
ELI5 AI
H.R. 1328 is about giving businesses money back through a special tax deal if they bring factories back to the USA to make important stuff like medicines and computer parts. It wants companies to do this by making it cheaper with a 40% discount on the money they spend to move these factories here.
Summary AI
H.R. 1328 aims to amend the Internal Revenue Code of 1986 by introducing a tax credit to encourage the reshoring of critical supply chains back to the United States. This bill provides a 40% tax credit for qualifying investments related to specific facilities involved in the production of essential items like pharmaceuticals, medical devices, semiconductors, aerospace equipment, and nanomaterials. It specifies which entities can qualify for this tax credit and outlines how the credit interacts with other existing tax incentives. The amendments apply to property put into service after December 31, 2024, and the credit can be transferable and may be paid directly.
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AnalysisAI
General Summary of the Bill
The proposed legislation, H.R. 1328, titled the "Supply Chain Security and Growth Act of 2025," aims to amend the Internal Revenue Code of 1986 to encourage the reshoring of critical supply chains. It introduces a tax credit called the Critical Supply Chains Reshoring Investment Credit. This credit provides a 40% tax incentive for investments in facilities that manufacture essential products like pharmaceuticals, semiconductors, and aerospace equipment within the United States, including Puerto Rico. Additionally, the bill proposes an amendment to increase the credit for foreign income taxes paid to U.S. possessions from 80% to 100%.
Summary of Significant Issues
Definition Issues: One concern is the definition of a "qualifying taxpayer," which excludes "prohibited foreign entities." This relies on potentially broad or politically influenced criteria for "foreign entity of concern," which might lack precision and fairness.
Financial Impact: The 40% credit rate for qualified investments is substantial. Without proper management and oversight, this could significantly impact government revenues, possibly inviting misuse.
Broad Eligibility: The definition of "critical supply chain facility" may be overly broad, allowing many facilities to qualify for the credit without necessarily contributing significantly to critical supply chains.
Revenue Implications: The increase from 80% to 100% in the deemed credit for taxes paid to U.S. possessions might lead to revenue losses for the federal government, raising questions about the necessity and benefits of this change.
Credit Coordination: Coordination between different tax credits, such as for reshoring investments and electricity production, could lead to administrative challenges and potential exploitation if not clearly delineated.
Complexity and Compliance: The bill includes numerous references to external sections and legal documents, which may complicate compliance for taxpayers without specialized legal expertise.
Exclusion of Economically Distressed Zones: The high poverty rate requirement (30%) for qualifying an area as an "economically distressed zone" could exclude other disadvantaged areas that need similar assistance.
Impact on the Public
Broadly, the bill aims to bolster U.S. manufacturing of critical products, which could strengthen national security and job creation in these sectors. By encouraging domestic production, the bill might help reduce dependence on foreign supply chains, potentially leading to more stable access to essential goods like pharmaceuticals and semiconductor technology.
Impact on Specific Stakeholders
Businesses and Investors: Companies that qualify for the tax credit may see a significant financial incentive to invest in critical supply chains within the U.S. This could lead to increased investment and activity in sectors like pharmaceuticals, semiconductors, and aerospace.
Foreign Entities: Entities classified as "prohibited foreign entities" would be excluded from these benefits, potentially affecting foreign investors looking to participate in American supply chains.
Economically Distressed Areas: The focus on Puerto Rico and specific economically distressed zones could benefit regions that meet the poverty criteria, driving economic activity in these locales.
Taxpayers and Government: While the targeted tax incentives could stimulate economic growth and job creation in critical sectors, the high rate of credit could also lead to revenue challenges for the federal budget, impacting broader fiscal policies.
In summary, while the bill could stimulate positive economic activities in targeted industries and regions, it also presents challenges in terms of potential revenue losses, oversight difficulties, and the inclusivity of its criteria for determining which areas and entities are eligible for benefits. Stakeholders would need to weigh these considerations carefully.
Issues
The definition of 'qualifying taxpayer' in Section 2 excludes 'prohibited foreign entities,' potentially relying on a politically influenced or overly broad definition of a 'foreign entity of concern' that might lack clarity and fairness.
The 40% credit rate for qualified investments in Section 2 is substantial and could have large fiscal impacts on government revenue if not properly managed, potentially inviting misuse.
In Section 48F, there is a concern regarding the broad definition of 'critical supply chain facility,' which could allow many facilities to qualify for the credit without significantly contributing to critical supply chains.
The increase in deemed credit for taxes paid to possessions of the United States from 80% to 100% in Section 3 could result in significant revenue loss without clear justification or demonstrated need.
The coordination between critical supply chains reshoring investment credit and electricity production credit in Section 2 could lead to complications if facilities claim multiple credits without clear boundaries, potentially increasing administrative challenges.
The provision in Section 48F allowing elective payment and transferability of credits could create a secondary market for tax credits, complicating oversight and allowing for potential misuse or speculative trading.
The language and definitions in Section 2 involve multiple references to other legal documents, which could complicate administration and compliance, especially for taxpayers or entities without specialized legal knowledge.
The requirement for a 30% poverty rate for a zone to be considered an 'economically distressed zone' in Section 48F might exclude areas that are also economically disadvantaged but do not meet this threshold.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The first section of this act states that it can be officially referred to as the “Supply Chain Security and Growth Act of 2025.”
2. Critical supply chains reshoring investment credit Read Opens in new tab
Summary AI
The section introduces a tax credit called the Critical Supply Chains Reshoring Investment Credit, which offers a 40% credit for qualified investments in critical supply chain facilities used for manufacturing certain essential items, like pharmaceuticals and semiconductors, in the United States or Puerto Rico. It explains who qualifies, what counts as qualifying investments, and includes provisions for taxpayers to transfer the credit or treat it as a payment option.
48F. Critical supply chains reshoring investment credit Read Opens in new tab
Summary AI
The section provides a 40% tax credit for qualifying taxpayers investing in facilities that are crucial for the supply chain and are located in certain areas like Puerto Rico. Qualifying investments must be tangible, depreciable property used in facilities manufacturing products such as pharmaceuticals, semiconductors, or aerospace equipment, and taxpayers must not be foreign entities of concern.
3. Increase in deemed credit for taxes paid to possession of the United States Read Opens in new tab
Summary AI
The section amends the Internal Revenue Code to increase the tax credit for foreign income taxes paid or accrued to U.S. possessions from 80% to 100%, effective for taxes paid or accrued after December 31, 2024.