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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

#141

Post by orwin »

cyberax wrote: post #100
altairprime wrote: post #40

Earlier quoted context omitted.

It makes sense when you consider that there is no minimum tax rate on businesses. Given the choice, Amazon would rather spend 100% of its profits on itself than allow any of its profits to be paid out in taxes. Section 174 was implemented without a minimum tax on corporate profits before voluntary deductions such as research. Therefore, it’s exploitable and all companies ought to hire and fire staff to ensure their p…

> Given the choice, Amazon would rather spend 100% of its profits on itself And why is this bad, exactly? Money will be spent and will go back into the economy. Amazon will have to use the funds to build new offices, datacenters, do research, whatever. And even if execs give themselves $10^11 USD in bonuses, they will be taxed as personal income, at even higher rates than corporate income.

Mostly, Amazon will do stock buybacks, so that its investor can invest into other top stocks.

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

#142

Post by [deleted] »

MattPalmer1086 wrote: post #136
wdaher wrote: post #56

Earlier quoted context omitted.

Here's a toy example that hopefully makes this clear: In 2024, your business has $1m in revenue and has $2m in expenses. 100% of these expenses are R&D salaries (engineers you hire.) Your company loses $1m/year. (You brought in $1m and spent $2m.) Under the old rules, you'd owe no tax because you were unprofitable. After Sec 174, what the IRS now says is: You had revenues of $1m. But you only had $400k in expenses (b…

Wait - they are saying that employee salaries are not expenses? That is surely wrong? Just because those salaries are for R&D? I could understand if there was some additional tax break for R&D which was being removed. I can't see how basic operating costs cease to be expenses.

[deleted]

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

#143

Post by gruez »

MattPalmer1086 wrote: post #136
wdaher wrote: post #56

Earlier quoted context omitted.

Here's a toy example that hopefully makes this clear: In 2024, your business has $1m in revenue and has $2m in expenses. 100% of these expenses are R&D salaries (engineers you hire.) Your company loses $1m/year. (You brought in $1m and spent $2m.) Under the old rules, you'd owe no tax because you were unprofitable. After Sec 174, what the IRS now says is: You had revenues of $1m. But you only had $400k in expenses (b…

Wait - they are saying that employee salaries are not expenses? That is surely wrong? Just because those salaries are for R&D? I could understand if there was some additional tax break for R&D which was being removed. I can't see how basic operating costs cease to be expenses.

>Wait - they are saying that employee salaries are not expenses?

>That is surely wrong? Just because those salaries are for R&D?

The same would be true if you hired a bunch of scientists/engineers and got them to do R&D.

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

#144

Post by jmyeet »

khuey wrote: post #111
jmyeet wrote: post #38

I reject this framing. What really changed things was the end of ZIRP [1] and even then it was opportunistic. Labor costs are a massive cost for tech companies. They have continually tried to suppress wages. In the 2000s, it was the anti-poaching agreement between Steve Jobs, Eric Schmidt and others. In the 2010s, high growth ahnd zero interest meant labor costs continued to balloon. But then Covid came along and was…

Things can have more than one cause. Even the article only claims this change "has contributed to the loss".

Yes. And I reject that claim.

Big tech companies are both doing mass layoffs AND hiring. How does this fit the narrative that the tax change is at least in part responsible? The new hires still have the same deduction issue, right? So what impact does this really have?

Think of it this way: if this passes, will the layoffs end? Or reduce? Absolutely not. All this does is give line the pockets of shareholders. That's it.

I'm a big fan of tying certain benefits to NOT doing layoffs. This can include:

1. You get this deduction only if you've fired fewer than 1% of your workforce in the last calendar year;

2. You don't get to sponsor for an H1B if you've conducted ANY layoffs in the last calendar year; and

3. The tax deduction only applies to unionized workers.

And while we're at it, let's roll back this ridiculous tax structure where IP can be "sold" to a subsidiary in Ireland and then royalties paid.

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

#145

Post by mring33621 »

demosthanos wrote: post #73
paulcole wrote: post #65

Earlier quoted context omitted.

But nobody’s forcing you to classify software developers as R&D.

No, that's literally the Section 174 change. You now must count them as R&D. The relevant paragraph from Section 174: > (3) Software development > For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure. https://www.law.cornell.edu/uscode/text/26/174

what if you don't call it "software development"?

how about "business process mechanization"?

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

#146

Post by jt2190 »

Retric wrote: post #129
jt2190 wrote: post #116

Earlier quoted context omitted.

Are you asserting that software and other labor-heavy startups should raise additional private capital so that they can pay taxes before they’ve established themselves in the marketplace? I’m not sure what you mean to say exactly.

I’m saying investers should pay the full cost of R&D without assistance from taxpayers. When the non R&D portion of the business is profitable they should start paying taxes. Assuming a company isn’t miss classifying operations as R&D it shouldn’t be a major issue.

Thanks for clarifying.

This will of course discourage “riskier” startups and dampen innovation and give more power to profitable incumbents who will have less incentive to innovate. (Perhaps the result of this looks like Europe?)

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

#148

Post by profile53 »

Retric wrote: post #127
kelnos wrote: post #74

Earlier quoted context omitted.

> Removing a specific tax exemption to create a level playing field isn’t discouraging R&D. If the end result of removing this exemption is that there is less R&D done in the US, then yes, empirically, removing the exemption discourages R&D. Assuming the mass layoffs were indeed fueled by the removal of this exemption (I don't know if the article is correct or not), then it is reasonable to assert that it is true tha…

> empirically, removing the exemption discourages R&D. Not clearing a road means fewer people use it, but you not going out with a shovel to clear a public roads isn’t you discouraging their use nor is you canceling your plans to clear said roads. Having zero subsidies is the default situation.

It didn’t create a level playing field, it just discouraged a very specific type of R&D while ignoring all others. All other types of employee salaries follow certain rules and some can optionally follow R&D rules. Software is now the only one required to follow 5 year R&D amortization so the deck is now stacked against software.

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

#149

Post by mNovak »

dadoprso wrote: post #48
svara wrote: post #46

> For cash-strapped companies, especially those not yet profitable, the result was a painful tax bill just as venture funding dried up and interest rates soared Can someone explain this? What taxes do unprofitable US businesses owe that this would be deducted against?

I thought you could carry forward losses or something. i.e. Once profitable you can use your previous losses as 'tax credits'.

So you're essentially giving the government a 0% interest 5 year loan, in the amount of the pre-paid taxes

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

#150

Post by nsxwolf »

mring33621 wrote: post #145
demosthanos wrote: post #73

Earlier quoted context omitted.

No, that's literally the Section 174 change. You now must count them as R&D. The relevant paragraph from Section 174: > (3) Software development > For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure. https://www.law.cornell.edu/uscode/text/26/174

what if you don't call it "software development"? how about "business process mechanization"?

Then you risk going to jail.
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