ALL INPredictions
Last updated Nov 29, 2025
Prediction
Friedberg
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Friedberg @ 01:09:29Right
governmenteconomy
Under the current legislative proposal (as of April 2024), U.S. companies that incur R&D expenses outside the U.S. will be required to amortize those expenses over 15 years indefinitely; as long as that rule remains, any growing U.S. business with significant offshore R&D will report higher taxable income than economic profit and will consistently face U.S. tax liabilities even when economically at or near breakeven.
even in this bill where they're repealing this, they're leaving in the fact that if you invest in R&D outside the US, you have to amortize it over 15 years. So let's say that you're a US developer and you hire people offshore... You got to basically amortize the offshore stuff over 15 years, which means you'll never make a profit. You're always going to have to pay taxes.View on YouTube
Explanation

Legal/policy part of the prediction

  • The January 2024 bipartisan framework and H.R. 7024 (“Tax Relief for American Families and Workers Act of 2024”) would have restored immediate expensing only for domestic R&D while keeping foreign research expenditures subject to 15‑year amortization under §174. House and practitioner summaries explicitly state that foreign R&D costs would “continue” to be amortized over 15 years. (congress.gov)
  • That specific 2024 bill ultimately stalled, but in 2025 the One Big Beautiful Bill Act (OBBBA) was enacted. OBBBA rewrote §174 so that it now applies only to foreign research, which “continues to be amortized” over 15 years for tax years beginning after December 31, 2024. A new §174A restores full expensing for domestic research. IRS guidance and technical summaries confirm this structure. (irs.gov)
  • Multiple tax advisories after OBBBA describe current law as: (1) permanent or effectively permanent full expensing for domestic R&D, and (2) no change for foreign R&D, which must still be capitalized and amortized over 15 years, with no scheduled sunset. (manercpa.com)

This matches Friedberg’s core claim that the legislative fix would (and now does) leave in place a rule forcing US companies to spread offshore R&D over 15 years while giving much more favorable treatment to domestic R&D.

Economic consequences part of the prediction

  • Practitioners and IRS commentary note that the §174 capitalization rules increased taxable income and reduced cash flow for R&D‑intensive firms when they first took effect, precisely because immediate deductions were replaced with slow amortization. (irs.gov)

  • Under current law, a US company that does a growing amount of offshore R&D must still capitalize and deduct those costs slowly over 15 years, while domestic costs can be expensed. This generally means taxable income is higher than it would be under immediate expensing and can exceed “economic” profit, especially in growth phases when R&D spending is ramping up. Analysts explicitly warn that the foreign‑only capitalization regime may drive firms to relocate R&D to the US for tax reasons, which reflects the same underlying distortion Friedberg described. (grantthornton.com)

  • His stronger language (“any” such business will “always” pay tax even at breakeven) is somewhat hyperbolic, because net operating losses, credits, or other deductions can offset tax in particular cases. But the directional mechanism—that a 15‑year amortization rule on foreign R&D raises taxable income relative to economic profit for growing firms with significant offshore R&D—is correct and is recognized in the professional commentary.

Given that (1) the law has in fact evolved so foreign R&D must be amortized over 15 years indefinitely while domestic R&D is expensed, and (2) this structure does exactly what he said in terms of tax distortions (even if not literally in every single case), the prediction is best classified as right overall.