Startups, capital and the Budget Reconciliation Bill: What it means for innovation and growth

Congress just passed the Budget Reconciliation Bill, a sweeping 1,200-page piece of legislation that will significantly impact the U.S. economy.

Commonly referred to as the “One Big, Beautiful Bill,” it has drawn national attention for its more controversial provisions, including a permanent extension of the 2017 tax cuts and significant funding reductions for healthcare and SNAP benefits.

But beyond the headlines, several lesser-known measures could reshape the trajectory of early-stage companies and investors across the country. For regions like Northwest Arkansas, the bill may unlock new momentum in building a stronger innovation economy.

This analysis focuses on a narrow slice of the law: provisions that directly affect how capital is taxed, deployed and recovered in the innovation economy. In many respects, the legislation is good news for founders, funders and the future of startup formation.

A Boost for Early-Stage Investment

One of the most impactful changes is the expansion of Qualified Small Business Stock (QSBS) treatment. The law raises the cap on tax-free gains from $10 million to $15 million and clarifies eligibility for more business models. It also introduces a partial exclusion structure for holders under five years. For founders finalizing equity grants or converting Simple Agreements for Future Equity (SAFEs), this change could lock in long-term upside. For early investors, it shifts incentives toward high-risk, high-reward startup investing, the kind of capital most needed in emerging ecosystems like Northwest Arkansas.

Expensing Changes Give Startups Breathing Room

The bill restores full expensing for domestic R&D and makes 100% bonus depreciation for qualified equipment permanent. These changes are critical for capital-intensive startups in biotech, hardware and energy. Expensing real costs in the year they’re incurred helps stretch runway and defer taxes. It also improves optics for later-stage investors evaluating burn rates and margins. These provisions give early-stage companies in places like Northwest Arkansas more room to grow.

AI and Clean Tech: Mixed Signals

The bill includes $150 million in federal funding to build science-grade AI infrastructure through the Department of Energy. This signals growing federal interest in AI for research, defense and health care. For companies in these areas, the funding could accelerate development.

At the same time, lawmakers dropped a proposal for national AI standards, leaving most companies to navigate a patchwork of state laws. That creates a divide: science-focused AI may benefit from new investment, while commercial AI faces continued uncertainty.

Clean tech saw setbacks and new openings. EV credits end after the third quarter of 2025, and incentives for solar, wind and hydrogen are being phased out earlier than expected. That sharpens the divide between companies that can stand alone and those that rely on subsidy. One bright spot: the bill expands eligibility for Master Limited Partnerships (MLPs), allowing more clean energy projects, including sustainable aviation fuel and domestic nuclear, to access infrastructure capital.

Boosts for Defense, Biotech and Manufacturing

Other sectors saw targeted support. Defense tech received increased investment across autonomous systems, cybersecurity and Indo-Pacific resilience. Biotech retained orphan drug protections and benefits from restored R&D expensing. Manufacturing gained a 35% CHIPS investment credit and full expensing for new U.S.-based facilities, lowering costs for domestic production.

Why It Matters for Northwest Arkansas

Northwest Arkansas has seen a surge of startup activity in recent years but still faces gaps in early-stage capital. For local founders and angel investors, the QSBS expansion could make equity more attractive, especially for patient capital. Programs like VC Immersions, which connect startups with national investors, are well-positioned to help founders seize this moment. The region’s push into applied AI, manufacturing and logistics tech could also benefit from the bill’s incentives and shift in national priorities.

A More Technical, But No Less Consequential Shift

While the full impact of this legislation won’t be clear for years, many of its provisions could open new opportunities outside traditional investment hubs. It doesn’t include a flashy grant program or targeted stimulus. Instead, it changes the mechanics: tax treatment, expensing and sector-specific incentives. For the right companies in the right regions, that shift could be just as powerful. The challenge now is knowing how to put them to use.

Editor’s note: Serafina Lalany is the executive director of the Northwest Arkansas Council’s StartupNWA. The opinions expressed are those of the author.