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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

#81

Post by kelnos »

Retric wrote: post #51
demosthanos wrote: post #47

Earlier quoted context omitted.

Level playing field for whom? Who does incentivizing R&D disadvantage? Restaurants weren't competing with R&D-heavy corporations in any way. R&D-heavy corporations competed with each other, on a level playing field where all of them can build new stuff without having to pay taxes on negative income in their early years. The only change this has made is un-level the playing field in favor of old, established corporati…

> Who does incentivizing R&D disadvantage? Taxpayers who end up with the bill and every company is competing for workers, office space, etc. Incentives across decades shift what people study, what business get created, etc. R&D sounds great abstractly, but it’s not some panacea where unlimited funding results in pure gains. The economy is generally more efficient without central planning, and dumping money into anyth…

> The economy is generally more efficient without central planning

Big fat "citation needed" there. I know you chose the term "central planning" to try to invoke the communism boogeyman, but overall, free markets do not exist, and have never existed. Governments constantly use various levers (taxation being one of them) to encourage or discourage certain kinds of business activity. This is nothing new, and I find it laughable to suggest that this kind of thing should be done away with entirely.

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

#82

Post by wdaher »

lifeisstillgood wrote: post #77

I’m not sure I fully understand the problem here 1. I start “Facebook for dogs” It’s gonna be massive. For the first year me and five guys code away in the garage and I use my savings / credit card / family trust fund to pay them 100k each. Expenses are 500k, revenue is, amazingly, 1.5M and taxes owed is 500k. At this point turning round and saying the development was R&D, and claiming 500k of tax breaks is just (to…

See my example here for where it ends up biting you: https://news.ycombinator.com/item?id=44180533#44204246

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

#83

Post by Retric »

jt2190 wrote: post #80
Retric wrote: post #51

Earlier quoted context omitted.

> Who does incentivizing R&D disadvantage? Taxpayers who end up with the bill and every company is competing for workers, office space, etc. Incentives across decades shift what people study, what business get created, etc. R&D sounds great abstractly, but it’s not some panacea where unlimited funding results in pure gains. The economy is generally more efficient without central planning, and dumping money into anyth…

It sounds like you’re talking about government funding of research? This is about private companies funding the costs of making product ideas into actual sellable products.

Money is fungible there’s zero difference between a tax break for 100$ and handing out 100$ directly.

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

#84

Post by kgwgk »

demosthanos wrote: post #54
twoodfin wrote: post #50

Earlier quoted context omitted.

What about construction worker and other labor time to build a factory? That’s the analogy being made here by the tax code: Software whose development is a capital expense with value returned over time.

From a quick search it appears to me like construction labor is deductible as an expense in the year it is incurred. Do you have evidence that says otherwise?

> Dear ChatGPT, is construction labor deductible as an expense in the year it is incurred according to GAAP? Please answer in a few lines.

Under GAAP, construction labor is not immediately deductible as an expense in the year it is incurred if it relates to the construction of a long-term asset (like a building). Instead, it is capitalized as part of the asset's cost and then expensed over time through depreciation. Only labor costs not tied to asset creation (e.g., routine maintenance) are expensed as incurred.

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

#85

Post by lowkey_ »

lifeisstillgood wrote: post #77

I’m not sure I fully understand the problem here 1. I start “Facebook for dogs” It’s gonna be massive. For the first year me and five guys code away in the garage and I use my savings / credit card / family trust fund to pay them 100k each. Expenses are 500k, revenue is, amazingly, 1.5M and taxes owed is 500k. At this point turning round and saying the development was R&D, and claiming 500k of tax breaks is just (to…

Everything you just said but imagine revenue is $500K, and you spent $500K on salaries for the team.

You can only expense $100K of the salary costs this year, so even though you're break-even, you pay taxes on $400K in income.

Or, even worse, imagine revenue is $250K, and you spent $500K on salaries for the team.

You can only expense $100K of the salary costs this year, you're already -$250K on the year, and now you're paying taxes on $400K in income. You're destroyed.

VC-backed startups aren't designed to get profitable quickly, and I don't see that as a problem for the American taxpayer, and nobody is saying the taxpayer is giving money or helping. A business losing money should not have to pay taxes on income, as if it's not losing money.

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

#86

Post by kelnos »

bigbadfeline wrote: post #21
LiquidSky wrote: post #18

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…

> 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?

I don't think GP made any kind of value judgment either way; they were just stating how things seem to usually work.

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

#87

Post by xivzgrev »

lifeisstillgood wrote: post #77

I’m not sure I fully understand the problem here 1. I start “Facebook for dogs” It’s gonna be massive. For the first year me and five guys code away in the garage and I use my savings / credit card / family trust fund to pay them 100k each. Expenses are 500k, revenue is, amazingly, 1.5M and taxes owed is 500k. At this point turning round and saying the development was R&D, and claiming 500k of tax breaks is just (to…

the idea is that normal business expense are deductible.

in this case, your taxable income is $1.0M, and cash flow is $500k ($1.5M - $500k salaries - $500k taxes).

now you have to amoritize it over 5 years. so your taxable income is $1.4M ($1.5-500k*20%), taxes are 700k, and cash flow is $300k.

Uncle Sam just reduced your cash flows by 40% by a simple tax change. You eventually make up the difference, but for fast growing tech companies, that's a large shift in current flows and significantly changes their investment strategy.

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

#89

Post by subarctic »

demosthanos wrote: post #34
dashqueen wrote: post #17

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…

Isn't this literally the content of the article? What you just wrote down is basically this paragraph from TFA: > And so, on schedule in 2022, the change to Section 174 went into effect. Companies filed their 2022 tax returns under the new rules in early 2023. And suddenly, R&D wasn’t a full, immediate write-off anymore. The tax benefits of salaries for engineers, product and project managers, data scientists, and ev…

Agreed that's literally what the article is about

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

#90

Post by kelnos »

potato3732842 wrote: post #4

>The delayed change to Section 174 — from immediate expensing of R&D to mandatory amortization, meaning that companies must spread the deduction out in smaller chunks over five or even 15-year periods. Doesn't this just amortize out to be roughly the same amount of deduction over the long term? All the big companies mentioned should be relatively unaffected over an N>5 year time period. Also this was something that's…

> Doesn't this just amortize out to be roughly the same amount of deduction over the long term?

Yes, but if your business is not yet profitable, having to pay tax on money you don't actually have in the bank (because expenses exceeded revenue during the year) will cut into your runway, perhaps to the point that your company might not exist in five years... or even two or three.

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