Tech Industry Warns US Investment Pledges Hinge on Research Tax Break

Excitement over AI’s potential is emerging as an effective tool to make the case for the tax break, according to advocates for the provision. The Trump administration has emphasized AI development as a central prong of its agenda.

In recent months, an education nonprofit affiliated with the tech industry trade group has held meetings attended by Republican and Democratic lawmakers in Florida, Michigan and Illinois to highlight how AI impacts different industries from agriculture to health care.

So far, the campaign appears to be working.

Jason Smith, chair of the House Ways and Means Committee, last week told lobbyists at a fundraiser that he expected R&D expensing would make it into the final package, said Caroline Schellhas, senior director of government affairs for the National Venture Capital Association.

In late April, the venture capital trade group’s board of directors traveled to Washington to argue on behalf of reinstating the full R&D deduction, among other tax priorities, Schellhas said. NVCA’s board includes top executives from firms including Andreessen Horowitz, Bessemer Venture Partners and Benchmark. Alongside members of the House Ways and Means and Senate Finance committees, the board also met with a top lieutenant to Treasury Secretary Scott Bessent.

There’s some evidence US corporations pulled back on research investment once the R&D tax break became less generous in 2022. After previously growing more than 6.5% annually, R&D spending in the U.S. increased only 3.5% over the course of 2022 and decreased in 2023, according to Bloomberg Tax.

Lobbyists are optimistic Congress will restore the full break, allowing companies to write off the entire cost of research and development in the year they incur the expense rather than the pared-down break spreading the value of the deduction over five years.

Charles Crain, managing vice president of public policy at the National Association of Manufacturers, a powerful lobbying group advocating for the research deduction, said he is “very confident” the break will be fully reinstated.

So industry advocates are focusing on getting Congress to make the new break retroactive, effectively reimbursing companies for the money they missed out on while the value of the R&D deduction was curtailed under the Trump tax law.

While estimates vary, the cost would be high. Making R&D expensing retroactive to 2022 and permanently extending it would cost $139 billion over ten years, according to Congress’s Joint Committee on Taxation. The Tax Foundation forecasts much greater revenue losses: $161.4 billion from 2025 through 2034, and that’s assuming the policy isn’t retroactive.

A bipartisan group of two dozen senators, led by Republican Senator Todd Young of Indiana and Democratic Senator Maggie Hassan of New Hampshire, introduced a bill to revive full upfront R&D deductions for businesses. That bill would restore the benefit retroactively — though that ask has been met with some skepticism from members of the House Ways and Means Committee, according to a congressional aide.

“Anything can change at any moment, but we feel good about where we are,” Oxman said. “We’re going to continue pressing forward until it’s done.”

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