Highlights
- Bipartisan bill H.R.1496 aims to boost U.S. rare earth magnet manufacturing through targeted tax incentives.
- Proposed $20/kg tax credit for domestic magnet production.
- Tax credit increases to $30/kg with 90% U.S.-sourced materials.
- Legislation seeks to reduce dependence on Chinese rare earth materials.
- Supports national security objectives.
With rare earth magnet supply chains under increasing strain from China's tightening export controls, H.R.1496 – the Rare Earth Magnet Security Act of 2025 (opens in a new tab) – lands at a pivotal moment. Introduced by Rep. Guy Reschenthaler (R-PA) and supported by a bipartisan coalition of 22 co-sponsors, including Rep. Dan Meuser, the bill takes decisive aim at bolstering domestic rare earth magnet manufacturing via targeted tax credits.
Core Mechanism
At the heart of H.R.1496 is a straightforward yet potent tool:
- A $20/kg tax credit for domestically produced rare earth magnets
- Boosted to $30/kg if over 90% of the component rare earth materials are U.S.-sourced
- A phase-out begins in 2035, ending in 2038, offering a solid 10-year incentive runway
Critically, the bill restricts the use of materials sourced from “non-allied foreign nations” (i.e., China), with a grace period until 2027 for hard-to-substitute elements like dysprosium and samarium.
Strengths
- Focus on Downstream Capacity: This bill extends beyond mining—it incentivizes value-added production, where the U.S. currently has virtually zero capacity.
- National Security Alignment: By disqualifying magnets with components from adversarial nations, it aligns industrial policy with DOD priorities.
- Flexibility for DoD/DOE-Backed Innovators: Exceptions for lower-coercivity magnets made by government contractors could spur early-stage defense innovation.
- Elective Direct Payment Provision: Enables cash-equivalent tax credit use—a feature crucial for startups and pre-revenue manufacturers.
Weaknesses
- No Demand Guarantees: The bill stops short of offering federal offtake contracts or procurement mandates, which are essential for attracting private capital.
- No Upstream Integration Support: Without complementary incentives for refining and separation, the U.S. risks building magnet factories dependent on foreign oxides.
- Phase-Out Risk: Although structured reasonably, the phase-out starting in 2035 assumes a functioning market will emerge within a decade—an optimistic bet without a deeper industrial policy. Rare Earth Exchanges (REEx) has now covered multiple analyses suggesting that, unless tens of billions, if not over $100 billion, are allocated and directed in the context of industrial policy across the value chain, a ten-year timeframe is a pipe dream.
Note that the proposed law includes a 10-year incentive window, with full credit through 2034 and a phased reduction starting in 2035.
Rare Earth Exchanges™ Bias Meter™
| Source | Bias Rating | Justification |
|---|---|---|
| Congressional Text | Policy-Centric | Clear legislative intent with bipartisan framing and national security scope. |
| Legislative Gaps | Technocratic Assumption | Assuming supply-side credits alone will catalyze full supply chain development. |
REEx Reflection
H.R.1496 is a critical and commendable step, finally incentivizing what matters most: magnet production. But like a powerful magnet missing its alloy, it lacks binding demand signals and upstream refinement infrastructure. For the U.S. to truly escape China’s grip, this bill must be part of a broader, integrated industrial strategy—not a standalone fix.
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US$30/kg, is that for the weight of the Magnet or the weight of the RE’s within it. If the former, that is pricing American sourced Iron Ore at US$20,000/t !!!
I suspect that this is going to open up all sorts of scams and tax avoidance/right-off schemes.