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Quick takeaways
- Cash now vs. later: Re-expensing gives R&D-focused firms more cash they can plow into trials, fabs or labs instead of handing it to the IRS.
- Long-term uncertainty: The proposed perk in the “One Big Beautiful Bill Act” would expire after 2029, so strategists already worry about what comes after that if it does pass.
- Deficit optics: The overall bill could lead to $3.8 trillion of red ink, giving deficit hawks and those concerned about the spiraling deficit fresh ammunition. For companies investing in product-focused research, amortizing a deduction would shave about 12% off its real value once inflation and the time value of money are considered.
The sweeping tax bill passed by House Republicans, H.R. 1, the “One Big Beautiful Bill Act,” includes a provision that would temporarily restore the ability for businesses to immediately deduct 100% of their domestic R&D expenses. If enacted, Section 111002 of the bill would let firms expense 100% of domestic R&D expenses from January 19, 2025, through 2029.
The move would reverse a change implemented in 2022 that required companies to amortize these costs over five years. Reversing that policy would provide immediate tax relief for companies investing heavily in R&D. However, the landscape varies dramatically by sector.
Projected R&D spending and tax benefits by sector (2025-2029)
Our analysis of 15 major R&D spenders reveals significant divergence across sectors, from booming AI chipmakers in one corner to crisis-hit automakers in the other. The growth rate assumptions are based on current analyst projections and company statements for the next few years. They are intended to provide a rough sense of scale over time rather than accurate financial predictions.
| Company | Sector | 2024 R&D ($B) | Assumed Growth Rate | 5-Year R&D Total ($B) | Total Tax Benefit ($B) |
|---|---|---|---|---|---|
| Alphabet (Google) | Big Tech | $49.3 | 14% | $366.0 | $9.4 |
| Microsoft | Big Tech | $29.5 | 14% | $219.0 | $5.6 |
| Merck & Co. | Pharmaceuticals | $17.9 | 3% | $97.9 | $2.5 |
| Johnson & Johnson | Pharmaceuticals | $17.2 | 3% | $94.1 | $2.4 |
| Intel Corporation | Semiconductors | $16.6 | -10% | $73.5 | $1.9 |
| NVIDIA Corporation | Semiconductors/AI | $8.7 | 20% | $77.5 | $2.0 |
| Advanced Micro Devices | Semiconductors | $5.9 | 10% | $39.4 | $1.0 |
| Eli Lilly & Co. | Pharmaceuticals | $11.0 | 3% | $60.2 | $1.6 |
| Pfizer | Pharmaceuticals | $10.8 | 3% | $59.1 | $1.5 |
| Ford Motor Co. | Automotive | $8.2 | -2% | $39.4 | $1.0 |
| Tesla, Inc. | Automotive/EV | $4.5 | 2% | $24.0 | $0.6 |
| Boeing Co. | Aerospace | $3.8 | 4% | $21.5 | $0.6 |
| Lockheed Martin | Aerospace/Defense | $1.6 | 4% | $9.0 | $0.2 |
| Honeywell Intl. | Industrial/Aerospace | $1.5 | 5% | $8.9 | $0.2 |
| Dow Inc. | Chemicals/Materials | $0.8 | 1.5% | $4.2 | $0.1 |
Methodology: How we calculated the potential tax benefits
Tax benefit formula: The upfront tax savings equals the company’s R&D spending × 21% (corporate tax rate) × 12.3% (time value multiplier).
The 12.3% factor: This represents the present-value advantage of deducting R&D immediately rather than over five years. The Bipartisan Policy Center explains that a $100 R&D deduction spread over 5 years is worth only about $87.7 in today’s dollars (assuming a 7% discount rate), a roughly 12% erosion in real value.
*Growth rates reflect sector dynamics: Big Tech (14% CAGR) for AI/cloud leadership; Pharmaceuticals (3%) per Evaluate Pharma and other analyst reports; Semiconductors showing extreme divergence – NVIDIA (20%) dominating AI, AMD (10%) gaining share, Intel (-10%) amid restructuring; Automotive facing challenges – Ford (-2%) pivoting from EVs and cutting costs, Tesla (2%) balancing continued investment in FSD/Dojo against market uncertainties; Aerospace/Defense (4%) steady development. Projections incorporate tariff impact analysis showing potential automotive R&D decline.
The National Association of Manufacturers (NAM) and the Semiconductor Industry Association (SIA) have advocated for the restoration of immediate expensing for R&D costs. Conversely, fiscal watchdogs like the Committee for a Responsible Federal Budget (CRFB) have highlighted the potential budgetary impact, though they haven’t taken a specific position on Section 174.
Current sector trends
- Big tech dominates: Alphabet and Microsoft alone would capture approximately $15.0 billion in tax benefits over five years, reflecting their massive R&D investments in AI and cloud infrastructure.
- Pharma’s steady growth: Despite modest 3% annual growth, pharmaceutical giants like Merck and J&J (which is also a prominent medtech player) would each save approximately $2.4-2.5 billion, supporting drug discovery and clinical trials.
- Semiconductor sector divergence: The industry shows significant contrasts. NVIDIA ($2.0B benefit) thrives with strong revenue growth and AI dominance, AMD ($1.0B benefit) captures market share, while Intel ($1.9B benefit) struggles despite highest R&D spend, facing layoffs and restructuring.
- Auto industry in transition: The sector faces challenges with EV transitions and potential tariff impacts. Ford ($1.0B benefit) adjusts R&D amid EV losses and cost-cutting measures, while Tesla ($0.6B benefit) continues R&D in FSD and new models amidst market uncertainties.
- Tariff risk warning: The projections above assume moderate impacts, but our own Monte Carlo simulation suggested automotive R&D could face much steeper declines if comprehensive tariffs are implemented.
The shift to amortization in 2022 has been a point of contention for many businesses and policy analysts with Center Forward arguing that the policy was “having a significant negative effect on U.S. workers and companies” and that the impact would worsen with time. Similarly, the Bipartisan Policy Center (BPC) highlights that the policy of spreading out deductions erodes their value over time. In addition, amortization can lead to situations where companies, especially cash-strapped startups, could face tax liabilities on “phantom income” because their deductible R&D expenses are spread out over several years, while actual spending occurs upfront.
Total tax benefits by sector based on the sample companies (2025-2029)
- Big tech: $15.0 billion (2 companies)
- Pharmaceuticals: $8.0 billion (4 companies)
- Semiconductors: $4.9 billion (3 companies)
- Automotive: $1.6 billion (2 companies)
- Aerospace/defense: $0.8 billion (2 companies)
- Industrial/chemical: $0.3 billion (2 companies)
- Total: $30.6 billion (15 companies)
Sources: Company 10-K filings and earnings releases; Evaluate Pharma via BioSpace; Bipartisan Policy Center analysis; R&D World tariff impact analysis (April 2025); Thomas automotive survey (March 2025); Tesla Q1 2025 earnings; Ford FY2024 results; Intel restructuring announcements (April 2025); NVIDIA FY2024 results; AMD financial reports; Industry analyst reports.
