Insights

The One Big Beautiful Bill Act (OBBBA) of 2025 contained so many different and far-reaching provisions impacting multiple business sectors, its ultimate impact on the economy, deficit, and nation will be difficult to fully gauge for many years to come. However, one provision likely to have an immediate effect for American businesses is the elimination of the amortization requirement for Research and Development (R&D) expenditures.

While the OBBBA has often been described as an extension of President Trump’s 2017 Tax Cuts and Jobs Act (TCJA), it actually reverses one of its provisions, included as an offset to meet Senate reconciliation requirements.

Starting in 1954, U.S. businesses were permitted full deductions for R&D expenditures in the year they occurred. However, the TCJA amended the tax code to mandate that companies amortize their domestic R&D expenditures over five years, and foreign R&D expenditures over fifteen years.

This provision, passed in 2017, went into effect in 2022, leading American businesses to reassess their R&D expenditures and adjust to a new normal where the tax advantages of R&D investments take longer to materialize, acting as a disincentive to make those investments.

The Congressional Budget Office estimated this change in policy would “reduce the incentive to invest in R&D,” with studies estimating a reduction in American R&D investment by $71 billion and a potential loss of 240,000 jobs in the first decade of this policy in the absence of policy changes.

Requiring the amortization of R&D spending put the U.S. on the opposite path from most of the world’s leading economies, making it one of only two Organization for Economic Co-operation and Development (OECD) countries with this requirement.

Meanwhile, China, the U.K., and other leading economies offer super deductions for R&D expenses up to an additional 100 percent of eligible R&D expenses in addition to the R&D expenses incurred. That meant that foreign competitors could receive as much as 20 times the tax benefit received by U.S. companies for doing the same research.

The business community will therefore welcome the elimination of the R&D amortization provision. As corporate leaders contend with continued turbulence in tariff and regulatory frameworks, the return of 100% deductible R&D expenditures will likely provide a measure of certainty and stability on which to invest and plan the future of American innovation and progress.