From artificial intelligence regulation to tax policy, the federal government is poised to take actions in 2025 that will likely significantly impact technology advancement. Economic development practitioners should be tracking these developments and preparing to assist their entrepreneurs and researchers through the changes, so that their regions can maximize the opportunities.
Among the many potential changes that we’ll see in 2025, here are four that are important to track:
Research deduction restoration
The Republican-led Congress is almost certain to pass tax legislation this year. One likely change is that Congress will give companies back the ability to choose to expense 100% of their Section 174 research costs in a single year, rather than having to amortize those costs over 5 years, as the 2017 tax law required companies to start doing as of 2022.
According to research reviewed by the Information Technology & Innovation Foundation, the change from expensing to amortizing research costs led affected domestic firms to reduce their investments in R&D by 2.7%. The effects for new and small companies, and particularly those dependent upon SBIR and other awards for their revenue, were predicted to require additional capital to overcome or else threaten the existence of the company.
Will Congress restore Section 174 R&D expensing? On the one hand, the last two congresses have exhibited strong, bipartisan support to revert the rule, and a wide array of businesses advocate for the change. On the other hand, the provision was included to generate revenue for other cuts, and, despite strong support, Congress has not yet passed the change. Section 174 restoration is likely, but not assured.
SBIR/STTR reauthorization
Speaking of the Small Business Innovation Research (SBIR) program, it, as well as the Small Business Technology Transfer (STTR) program and related authorities, are set to expire on Sept. 30, 2025. Congress has consistently reauthorized SBIR over the past 40-plus years and is likely to do so again. However, the last reauthorization went down to the wire, and other renewals have occurred only after a lapse.
Three years ago, the debates over SBIR reauthorization focused on two issues: the number of awards any one company can receive and curtailing participation by researchers and entrepreneurs from China. Some of the congressional personnel have changed over in this time, particularly in the Senate, and so we do not yet know the extent to which these issues will continue to be sticking points—or what new issues may be under consideration.
Given SBIR’s long history and strong support, Congress is likely to continue the program that provides several billion dollars each year for technology development and has notable successes including Google, Ginkgo BioWorks, and iRobot. However, there may be further changes to the program as part of this process, and, with many other priorities ahead and the likelihood of a contentious congress that passes few bills, reauthorization may come down to the wire (or beyond it).
Artificial intelligence policy
AI is dominating tech media and the market—41% of all venture capital investment in the first half of 2024 went to AI companies—and is certain to feature in 2025’s executive actions, and possibly in new Congressional activity as well.
Many different technologies are important to the nation and to regional economies, so I’m less interested in what happens with AI per se than I am in what impacts any actions have for federal policy in other sectors. For example:
- Does Congressional concern about AI lead to further investments in science and innovation programs that can also fund other technologies?
- Are agencies required to divert funds from broad tech programs toward AI (as a Biden Administration executive order proposed)?
- Does Congress rediscover a need to have quality, nonpartisan tech information when crafting related legislation?
Federal AI policy will evolve in 2025, but if or how any changes affect other technology sectors and programs bears watching.
Federal investment in domestic programs
Republicans control the presidency and both chambers of Congress in 2025, but this does not mean there is agreement on the direction of federal spending. During Trump’s first presidency, for example, we regularly experienced a White House budget that proposed to eliminate programs and agencies followed by appropriations bills that increased funding for those same initiatives.
It seems likely that Congress will want to include spending cuts as part of its tax package (and/or other reconciliation bills) and will at least propose to offset any emergency spending with reductions in existing expenses (e.g., the rescissions that the State Small Business Credit Initiative has experienced in recent years).
This does not mean that Congress necessarily will look for cuts in regular fiscal year appropriations. Those bills will require some level of bipartisan cooperation and fund a broad swath of activities that garner support across congressional districts. It is entirely possible, and even in keeping with some past conservative legislatures, that domestic spending can increase—particularly for non-controversial programs with bipartisan support.
While there are many programs that regional innovation economies want to see funded over the next year, two of the most significant are EDA’s Tech Hubs and NSF’s Engines. Congress authorized these with bipartisan support in 2022 but have provided just a fraction of the approved funding. Advocates are hopeful that both programs’ emphasis on ensuring national security into the future, economic competition with China, and regional economic growth will not only prevent Tech Hubs and Engines from being cut, but also make them candidates for further investment over the next year.
Keeping tabs on it all
These are four high-priority issues for stakeholders in regional innovation economies to track, and there are many more topics that could be of additional concern for specific sectors and geographies.
If you need additional capacity to manage these changes, contact Excel Regional Solutions. Through our advocacy services, we can help you track and communicate changes in legislation, regulation, executive orders, or agency actions that affect your priorities, or develop and executive a government relations strategy to communicate your region’s needs to officials. Through our economic development services, we can help you plan to assist entrepreneurs and researchers in your region understand what any changes will mean for their growth opportunities, or pivot your own pitch for federal funding to new programs.