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The time bomb in the tax code that's fueling mass tech layoffs

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Re: The time bomb in the tax code that's fueling mass tech layoffs

#21

I wonder if this was an unintended consequence, or if the politicians backed by big business really wanted to disrupt the software infrastructure.

If this article is accurate it doesn't sound like it. The change was a political tactic to make the tax bill it was part of comply with Senate budget rules on paper. Apparently this is a common tactic with tax bills, with the expectation that the changes will be repealed or altered in a later bill. There is a movement to repeal this change, but the effects have already been felt.

> Apparently this is a common tactic with tax bills, with the expectation that the changes will be repealed or altered in a later bill.

None of this adds up. You're saying, the legislators were trying to cheat and because it's a "common tactic" that kind of cheating is somehow good, but it's bad when the cheating doesn't go through?

On the other hand, being a common tactic implies that the possibility of it remaining in the books was well understood, and the declared "expectations" carry zero weight as evidence, even less than zero when coming from politicians.

Legislation like that has far reaching consequences and pretend "surprise" just confirms the intent behind it. It's only prudent to assume that we have a common tactic case of throwing sheet at the wall to see for how long it'll stick. If there's no backlash the "tactic" will remain there forever.

As another example of the same common tactic, consider the fact that all popular browsers have been used as Trojan horses into the users' local networks for like forever. At some point back in 2015 somebody objected so the browser makers started talking about fixing the problem but then stopped talking without fixing it because public opinion moved on to other areas affected by abundant sticky materials... Thus, that particular sheet remained on the wall for another 10 years and counting, and the story may repeat itself again.

Re: The time bomb in the tax code that's fueling mass tech layoffs

#22
This is insane, how does it make sense? Employee salary expenses are no different from other expenses to run your business. Imagine they did this for raw material instead, a restaurant could only expense 20% of the food that they sell. If they purchased $100 worth of food, but could only sell $50 worth of it, they have to pay tax on that even when making a net loss overall. It just does not make any sense. There would've been a huge uproar if this was done for cost of goods. Why are employee salary expenses any different?

Re: The time bomb in the tax code that's fueling mass tech layoffs

#23
post #22

This is insane, how does it make sense? Employee salary expenses are no different from other expenses to run your business. Imagine they did this for raw material instead, a restaurant could only expense 20% of the food that they sell. If they purchased $100 worth of food, but could only sell $50 worth of it, they have to pay tax on that even when making a net loss overall. It just does not make any sense. There woul…

There are other expenses that are also amortized.

Re: The time bomb in the tax code that's fueling mass tech layoffs

#24
post #20

Earlier quoted context omitted.

Which makes sense. Software is functionally a capital asset, so really it should be depreciated across the length of the copyright term (unless the company wants to release it to the public domain to fully depreciate it early).

Maybe software should be a capital asset, but these depreciation rules don't fix that issue. The rule says if you pay someone $200k to develop software: then you now have a $200k asset that then devalues to value of $0 over 5 years (starting midyear). That's just plain weird . For our example a depreciation table might look like: Year, %Amortized, Amount 2025 10% $20,000 2026 20% $40,000 2027 20% $40,000 2028 20% $40…

Right, that weirdness is why it should be depreciated over the length of the copyright term. You spend $200k this year, and now you have a useful asset for the next 95 years (or 120 years if you never publish it).

If it turns out it's not useful, we could then allow companies publish the source and release it into the public domain to immediately "destroy" the asset (the copyright) and claim their deduction. So failed r&d projects would be deductible right away as long as the public gets them, and ones that result in a useful asset get depreciated based on how long they actually last, which is currently potentially multiple lifetimes.

Re: The time bomb in the tax code that's fueling mass tech layoffs

#25
Related. Others?

The time bomb in the tax code that's fueling mass tech layoffs - https://news.ycombinator.com/item?id=44180533 - June 2025 (927 comments) (Big Beautiful Bill R&D Tax: Will tech go on a hiring spree again? - https://news.ycombinator.com/item?id=44028106 - May 2025 (19 comments)

The Consequences of Limiting the Tax Deductibility of R&D - https://news.ycombinator.com/item?id=43639202 - April 2025 (64 comments)

House restores immediate R&D deduction in new tax bill - https://news.ycombinator.com/item?id=39212650 - Feb 2024 (8 comments)

Ask HN: Best country to run a boostrapped startup from? (After Section 174) - https://news.ycombinator.com/item?id=39098371 - Jan 2024 (31 comments)

US tech innovation dreams soured by changed R&D tax laws - https://news.ycombinator.com/item?id=38988129 - Jan 2024 (3 comments)

Ask HN: IRS section 174 – cause of layoffs? - https://news.ycombinator.com/item?id=38957651 - Jan 2024 (21 comments)

Will US companies hire fewer engineers due to Section 174? - https://news.ycombinator.com/item?id=38931860 - Jan 2024 (37 comments)

Will US companies hire fewer engineers due to Section 174? - https://news.ycombinator.com/item?id=38870429 - Jan 2024 (20 comments)

IRS tax code change in Section 174: R&D is an expense - https://news.ycombinator.com/item?id=38642461 - Dec 2023 (23 comments)

New tax rules on R&D expenses may lead to layoffs for devs - https://news.ycombinator.com/item?id=38636866 - Dec 2023 (7 comments)

Tell HN: People laid off in my company due to IRS Section 174 changes - https://news.ycombinator.com/item?id=38633668 - Dec 2023 (6 comments)

Tell HN: Submit comments to IRS re tax treatment of software dev expenses - https://news.ycombinator.com/item?id=38120388 - Nov 2023 (225 comments)

Software firms across US facing tax bills that threaten survival - https://news.ycombinator.com/item?id=35614313 - April 2023 (981 comments)

Ask HN: How are you handling Section 174 changes for bootstrapped companies? - https://news.ycombinator.com/item?id=34627712 - Feb 2023 (187 comments)

https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...

Re: The time bomb in the tax code that's fueling mass tech layoffs

#26

This doesn't quite fit into the article and is probably too inside baseball for a general business audience, but as I see it, there’s a real and serious argument to be made here about how Section 174 changes restructured the cost architecture of tech employment (yes, even for big, cash-rich companies). When salaries could be fully expensed, the effective marginal cost of headcount was lower. Amortization means the sa…

> op-ex becomes capex

i.e. some humans get the same tax treatment as humanoid robots, while LLMs ("AI") are always deductible as op-ex, regardless of function.

Draft 2025 spending bill in Congress would revert Section 174 changes for 2026-2029.

Re: The time bomb in the tax code that's fueling mass tech layoffs

#27

This doesn't quite fit into the article and is probably too inside baseball for a general business audience, but as I see it, there’s a real and serious argument to be made here about how Section 174 changes restructured the cost architecture of tech employment (yes, even for big, cash-rich companies). When salaries could be fully expensed, the effective marginal cost of headcount was lower. Amortization means the sa…

Contractors licking their lips at the prospect of being a clients op-ex. I think you’re right and hence the slow down in hiring top talent for top dollar.

Re: The time bomb in the tax code that's fueling mass tech layoffs

#29

Earlier quoted context omitted.

If this article is accurate it doesn't sound like it. The change was a political tactic to make the tax bill it was part of comply with Senate budget rules on paper. Apparently this is a common tactic with tax bills, with the expectation that the changes will be repealed or altered in a later bill. There is a movement to repeal this change, but the effects have already been felt.

> Apparently this is a common tactic with tax bills, with the expectation that the changes will be repealed or altered in a later bill. None of this adds up. You're saying, the legislators were trying to cheat and because it's a "common tactic" that kind of cheating is somehow good, but it's bad when the cheating doesn't go through? On the other hand, being a common tactic implies that the possibility of it remaining…

When using bill reconciliation in order to avoid Senate filibusters to pass a budget, certain conditions must be met otherwise regular Senate rules and the need for 60 Senators to be onboard to avoid a filibuster come into play.

It's not cheating, it's playing by different rules to get most of what you want/need done and then sometimes those that played and gambled were intending to, or hoped to, make the changes later that require rules. Their hope is that 60+ Senators would be onboard for those changes because they (those that gambled and pushed the budget bill thru) managed to get what they wanted at the expense of #$%#ing something up that most others would then be willing to fix/address.

Re: The time bomb in the tax code that's fueling mass tech layoffs

#30

This doesn't quite fit into the article and is probably too inside baseball for a general business audience, but as I see it, there’s a real and serious argument to be made here about how Section 174 changes restructured the cost architecture of tech employment (yes, even for big, cash-rich companies). When salaries could be fully expensed, the effective marginal cost of headcount was lower. Amortization means the sa…

> op-ex becomes capex i.e. some humans get the same tax treatment as humanoid robots, while LLMs ("AI") are always deductible as op-ex, regardless of function. Draft 2025 spending bill in Congress would revert Section 174 changes for 2026-2029.

Only external LLM use is ‘always deductable as op-ex’. If you build your own server farm and/or developer your own LLM, those are capital expenses which must be depreciated.
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