Robert Rasmussen was building a business the right way. A disabled Navy veteran, he co-founded Agile Six to improve government services and create a workplace where employees felt cared for. His company helped design and maintain VA.gov, the website millions of veterans use to access healthcare and benefits. Agile Six took on complex federal contracts other firms wouldn’t, kept costs down, and focused relentlessly on intuitive design and usability.
All along, Rasmussen’s dream was to “graduate” Agile Six and hand the company over to his employees — some of whom are literally family, others longtime friends — through an ESOP program, which rewards employees with equity.
“I said I will not make a dollar and cut a person,” he told Quartz. His plan was simple: to reward the people who helped build the company.
But today, Rasmussen says he has no choice but to lay off workers and even cut their severance packages. While Agile Six was growing profitably and quickly in recent years, Rasmussen now finds himself laden with millions in debt, up all night watching congressional votes — and wondering if he’ll be able to keep the doors open.
“There’s a knife at my throat,” he said last week. It’s a betrayal that feels deeply personal, shaped by Rasmussen’s time in the Navy. “We didn’t leave a man behind,” he said. But the way a tax law hit his business — without warning or recourse — still stings.
Like many small businesses, Agile Six was blindsided and hammered by a quiet shift in the U.S. tax code, a change to what’s known as Section 174. The change radically rewrote the tax rules on research and development. And it has helped fuel the loss of hundreds of thousands of high-paying, white-collar jobs, a Quartz investigation revealed last month.
The tweak dates back to the 2017 Tax Cuts and Jobs Act (TCJA), the first Trump administration’s signature tax legislation. That bill slashed the corporate tax rate from 35% to 21% — a massive revenue loss on paper for the federal government. To make the bill appear deficit-neutral over the standard 10-year budget window, lawmakers inserted delayed provisions that would raise future revenue. The change to Section 174 was one of them. It didn’t take effect until 2022. But when it did, the impact was brutal.
Prior to the change — in fact, for almost 70 years — American companies had been able to deduct 100% of qualified research and development spending in the year they incurred the costs. That included salaries, software, contractor payments — anything that contributed to creating or improving a product. Just like ordinary payroll expenses, which are typically deductible in the year they’re paid, R&D costs came off the top of a firm’s taxable income. The policy encouraged innovation and helped tech firms and small businesses alike to flourish. But the TCJA replaced the old system with mandatory amortization: Companies now had to spread R&D deductions out over five years for domestic work, and fifteen for foreign work.
It might appear to be a wonky accounting change with few real-world consequences. But in practice, the shift has been explosive. By forcing companies to capitalize their R&D costs — rather than deduct them as ordinary expenses — the change shattered a long-standing alignment between innovation and tax policy.
“You spend a dollar on research, you deduct a dollar,” Dean Zerbe, a former senior counsel to the Senate Finance Committee, said in describing the previous norm. “Now you spend a dollar, and you only get to deduct 20 cents.”
That reversal, Zerbe noted, “gets you upside down pretty quickly.” Now national managing director at alliant, Zerbe and his team helped Rasmussen and others weather this storm. In effect, startups and established firms alike are suddenly penalized for investing in the future — and in some cases left owing more in taxes than they earned in profit.
Businesses like Rasmussen’s are a case in point. In 2022, Agile Six had $30 million in annual sales. Rasmussen and his team were, in his words, “at the end of the runway,” poised to graduate from small business protections and scale into the next phase.
Then the change hit, and the result was immediate. Filing its 2022 taxes, Agile Six received a surprise $2 million tax bill related to the new Section 174 requirements — on top of the $1 million it already owed. In 2023, the company’s revenue climbed to $50 million, but the R&D hit also grew: $3 million in additional tax liability.
“We were actually paying tax on almost twice as much as we made,” Rasmussen said.
In theory, businesses in this position will get the money back, with the amortized deductions trickling in over time. But that’s assuming the company survives long enough to claim them. And it also doesn’t account for how the value of that money is eroded by inflation, interest payments, and opportunity cost along the way.
Rasmussen summed it up this way: “I’ve been paying for innovation with borrowed money, and I’m told I’ll get it back when I don’t exist anymore.”
If Agile Six hadn’t been practicing balance-sheet discipline going into the change, he said, there’s no way it would have survived even this long. In the meantime, to cover those tax bills, the company has had to borrow millions of dollars against its future. Rasmussen has also had to cut costs. Layoffs were unavoidable. Severance packages had to shrink, too.
As Rasmussen was quick to point out, many of Agile Six’s employees made sacrifices in hopes of saving the company: voluntarily forgoing bonuses and skipping professional development courses to keep costs down. “So now they’re personally unprepared for the market I just sent them into,” he said. “And that breaks my heart.”
The fallout runs deep: “We're on life support here, and we were a healthy business. I dare you to find a better balance sheet than we had in 2022, and now we're on life support.”
Unlike Agile Six, David Maass’ Flightware didn’t have millions in revenue or a staff to lay off.
An MIT-trained aeronautical engineer with decades of experience, Maass was a one-man consulting firm working under the federal government’s Small Business Innovation Research (SBIR) program, which channels billions into research projects with defense and space applications. His clients included the Department of Defense and NASA. He specialized in additive manufacturing, better known as 3D printing, and had spent years solving tough technical problems for government agencies that needed novel solutions.
Then the Section 174 changes hit.
Under the old rules, Maass said, if he made $100,000 in profit on a $1 million project, he owed taxes on just that $100,000. But under the new rules, he could only deduct a small fraction of his actual expenses in the first year — meaning that for tax purposes, it looked as if he had made some $900,000 in profit, kicking his tax bill to almost $300,000.
“How do you pay a $270,000 tax bill on $100,000 in actual profit?” he said. “The answer is: You don’t. It’s a very fast way to go bankrupt.”
So Maass shut the company down. The change “discouraged me from doing any new business” and “encouraged me to terminate my business,” he said. He was lucky, he added, to be nearing retirement anyway. “But if I had been 40 instead of 70, it would have been completely different.”
The worst part? The work he was doing mattered. “These weren’t handouts,” he said. The government had a problem. He proposed a solution, competed, and won the contract. So in effect, what the tax code change punished wasn’t excess or inefficiency. It was public-purpose innovation.
The irony is brutal. Sold under the banner of “tax cuts and jobs,” the Section 174 change did the opposite: It punished businesses, hollowed out the domestic innovation pipeline, and kneecapped the very sectors that underpin American competitiveness. Veterans like Rasmussen, firms building tools for the Pentagon and NASA, engineers powering the digital economy — all were collateral damage in a legislative shell game.
In a LinkedIn post, Maass called the Section 174 change “a self-inflicted national disaster,” pointing to the long-term economic damage: “Given that tech firms comprise more than a third of the S&P [500] and are one of the most competitive segments of the U.S. economy — why would we do this?”
The global context only makes the harm more stark, Maass said in an interview. “In China, you spend a million dollars and you get to deduct $2 million,” he said, pointing to Chinese policy that allows companies to deduct 200% of R&D expenses.
In Maass’ own field of additive manufacturing, he now sees the most interesting research coming from Chinese institutions. It’s no coincidence. “If things continue on this path, we won’t be the technology leader in a decade,” he said.
A fix is on its way, in Republicans’ sweeping domestic policy bill that cleared Congress last week. The legislation will permanently restore the immediate deduction for some research and development activities in the U.S.
But Rasmussen and Maass both say the help is coming too late to undo the damage already done. And the fixes in the bill don’t address the scale of that damage.
“I think they should know it’s too late for many,” Rasmussen said of lawmakers. Agile Six will survive, he hopes, but the cost has already been staggering. “People have already suffered. People have already lost jobs.”
The ones who didn’t survive? They’re gone — shuttered, absorbed, or sold off in desperation. The very businesses aiming to carry government innovation into the next era have instead become soft targets for consolidation. “I’ve had to take phone calls I swore I never would — from firms I built this business to disrupt,” Rasmussen said.
As for the fix signed into law Friday by President Donald Trump, he’s clear-eyed: “It just lets me stay in business,” he said. “Nobody’s making a killing over the last three years. This isn’t corporate welfare. It doesn’t make us whole.”
And for the smallest firms — the ones still small enough to refile amended returns and claim their losses back — Rasmussen doubts they even exist anymore. “They might be gone,” he said quietly. “They might not have made it.”