Big Story: Congress advances sweeping tax bills touching on R&D, AI, and more
As part of a sweeping tax reform effort, two key House committees advanced wide-ranging bills on Wednesday covering key issues for startups, including tax incentives, AI, and telecom. In marathon markups Tuesday and Wednesday, the House Ways & Means Committee and the Energy & Commerce Committee advanced proposals that will impact startups’ ability to invest in research and development (R&D), help provide a safety net for parents who want to enter the startup ecosystem, and avoid a fragmented landscape of AI rules at the state level. As these proposals continue to move through Congress, policymakers should prioritize policies that fuel innovation, drive investment, and expand opportunities for startups across the U.S.
The House Ways & Means proposal would allow companies to immediately expense domestic R&D costs beginning in 2025—an essential tool for early-stage companies—and extend the provision through 2029. The bill increases the Child Tax Credit to $2,500 through 2028 and includes new verification requirements, along with incentives for employers to subsidize childcare. It also extends opportunity zones with an added focus on rural investment, raises the pass-through business income deduction to 23 percent, and continues other key provisions from the 2017 tax law, including adjusted marginal tax brackets, standard deductions, and the alternative minimum tax exemption. Engine has long called for a tax framework that supports startups through targeted incentives that help startups stretch their limited budgets, encourage investment, and reduce barriers to entrepreneurship.
The Energy & Commerce markup added another layer, advancing a 10-year moratorium on enforcement of state AI laws to prevent a costly patchwork of AI regulations that vary by state. Colorado already has an AI regulatory framework on the books, and there have been over 1,000 AI-related bills introduced in states so far this year making imminent the threat of a patchwork that undermines AI innovation and startup competitiveness. The bill also restores the Federal Communications Commission’s lapsed spectrum auction authority and opens 600 MHz of federal spectrum for commercial use, generating up to $88 billion in offsets and supporting the wireless capacity needed to drive innovation and expand connectivity. These proposals now move to the House floor for a vote before advancing to the Senate. There, limits on the reconciliation process could result in some provisions being stripped out, like the 10-year state AI law moratorium, which has drawn opposition from Democrats.
Policy Roundup:
Startup founders come to D.C. calling for policies to enable AI innovation. This week, founders of AI startups from across the country met with agencies, lawmakers, and key committees to discuss the policy challenges they’re facing as they build in AI. Founders discussed the threat to their competitiveness posed by a patchwork of varying AI regulations, the importance of balanced intellectual property frameworks, the need for a more robust AI talent pool, and the role foundation models play in AI innovation. Those key AI policy topics for startups are examined in a new report Engine released on Wednesday.
Copyright Office report raises concerns for startups. The U.S. Copyright Office released its long-awaited draft report on generative AI training last Friday. While it acknowledges that fair use can apply and the transformative nature of AI training, it places excessive focus on licensing schemes, which could impose costly burdens on small AI companies trying to scale. The report also introduces the idea that AI outputs might harm a market without being substantially similar to copyrighted works. Startups can’t afford the legal complexity and costs of navigating costly litigation or licensing frameworks that don’t reflect the evolving AI landscape.
Lawmakers push back on cuts to research funding. A group of House Democrats with science backgrounds sent a letter to President Trump on Thursday urging him to reverse proposed cuts to key research agencies, including the National Science Foundation and National Institute of Standards and Technology. These agencies are critical to U.S.-led AI standards and innovation, and gutting them risks undermining AI leadership at home and abroad.
On the Horizon:
WED 05/21: The House Energy and Commerce subcommittee on Commerce, Manufacturing, and Trade will convene a hearing to discuss AI regulation and the future of U.S. leadership at 10:15 AM ET.
WED 05/21: The House Appropriations Committee will convene an oversight hearing of the Federal Communications Commission at 10:00 AM ET.
WED 05/21: The Senate Judiciary subcommittee on privacy, technology, and the law will convene a hearing to discuss AI-generated deepfakes at 2:30 PM ET.
Startup Roundup:
#StartupsEverywhere: Southfield, Michigan. The market for carbon-free, reliable energy is growing along with a rising electricity demand. Josef Hjelmaker, through his company, Electric Outdoors, plans to save millions of dollars in electrification conversion costs and make long-term access to the outdoors safer and more sustainable for all. We sat down with Josef to discuss his company, his experience raising capital in Michigan, and the recent American trade policy shifts.
