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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

#161

Post by eximius »

sitkack wrote: post #106
eximius wrote: post #99

Earlier quoted context omitted.

Considering they are probably the largest component of R&D expenses... yes, _if_ you think R&D should be tax-subsidized in some way.

I don't understand how that is a subsidy, are the people paying the employer? The employer makes less profit due to salaries, but they won't "lose less" or make more money due to salaries. Under that argument, the government would have a direct incentive to dictate how businesses do business to maximize taxable revenue.

Tax subsidies are when the government taxes you less, thereby reducing your tax burden. You don't receive funds, you just owe less.

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

#162

Post by shafyy »

cyberax wrote: post #128
californical wrote: post #113

Earlier quoted context omitted.

It is complex - is it better for the money to go back into the economy by paying high salaries to a specific group of highly-educated people ? Or is it better for the money to go back into the economy through taxes, then disbursing the benefits to lower-income benefit programs ? I’m not sure what the answer is. The former is likely to drive some innovation, which I’m sure varies by company. Where the latter could als…

> It is complex - is it better for the money to go back into the economy by paying high salaries to a specific group of highly-educated people? Yes. Also, the salary will not go _only_ to highly-educated people. For example, if Amazon decides to build a new distribution center, it will employ blue-collar workers to build it, not software engineers. > Or is it better for the money to go back into the economy through t…

Jesus man, how can you look at the economic history of the past 30 years and still think neoliberalism is the way to go?

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

#163

Post by entangledqubit »

From what I understand, this does not actually affect Google. They were already amortizing their R and D expenses.

Over long time scales (and big company revenue streams), this is sort of a wash. I think this hurts startups a bit more due to the long timescales involved which eats up much needed cash in the short term.

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

#164

Post by duped »

californical wrote: post #113
cyberax wrote: post #100

Earlier quoted context omitted.

> 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.

It is complex - is it better for the money to go back into the economy by paying high salaries to a specific group of highly-educated people ? Or is it better for the money to go back into the economy through taxes, then disbursing the benefits to lower-income benefit programs ? I’m not sure what the answer is. The former is likely to drive some innovation, which I’m sure varies by company. Where the latter could als…

It can do both, by eliminating corporate taxes.

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

#165

Post by zdragnar »

xhkkffbf wrote: post #151
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 some executive tweaks a "no code" tool? Technically, the name says that there's no coding involved.

Presumably that still counts as "developing software"- the regulation doesn't mention "coding" at all.

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

#166

Post by youngtaff »

demosthanos wrote: post #96

There are some misunderstandings in the comments that seem to stem from not having read the section, so I thought it was worth referencing the actual text [0]. It's quite short and easy to read. The most important bits: * Subsection (a) requires amortizing "Specified research or experimental expenditures" over 5 years (paragraph (2)) instead of deducting them (paragraph (1)) * Paragraph (c)(3) is a Special Rule that…

I worked for a UK company that amortised it’s development costs… it led to the false belief that the company was profitable when it really wasn’t

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

#167

Post by typeofhuman »

timewizard wrote: post #154
sampton wrote: post #133

Amortization is bad policy when it comes software. Software is inherently high risk. Every piece of software is unique and does not guarantee steady income over 5 years. Most startups won't survive 5 years to fully realize the deductions. This is the end of US software dominance.

Is US software dominance because of our startups? Or because of the giant trillion dollar monopolies we have? Didn't AAPL, GOOG and FB all create products _before_ they had any taxable income? Would this change have had any actual impact on their foundings?

HN has taken a sad turn over the last few years where we see genuine curiosity - such as your reply - met with downvotes instead of replies.

I don't have an answer for you. But I support your intrigue.

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

#168

Post by zdragnar »

californical wrote: post #113
cyberax wrote: post #100

Earlier quoted context omitted.

> 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.

It is complex - is it better for the money to go back into the economy by paying high salaries to a specific group of highly-educated people ? Or is it better for the money to go back into the economy through taxes, then disbursing the benefits to lower-income benefit programs ? I’m not sure what the answer is. The former is likely to drive some innovation, which I’m sure varies by company. Where the latter could als…

Those salaries are also taxed, and at the highest tax brackets. The government may end up getting more revenue that way.

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

#169

Post by jay_kyburz »

klipt wrote: post #135
californical wrote: post #103

Earlier quoted context omitted.

Don’t forget the other stakeholder - the general public. Yes it sucks for developers, but does it make any difference for any other employee? Why does Joe’s plumbing have to pay those taxes, but Jane’s AdTech company doesn’t? Sure, there are benefits to investing in R&D in general, and tech has fueled a lot of growth, so incentivizing it has likely paid off for the whole economy. But will that forever be true? Maybe?

If Joe's plumbing hires an assistant plumber, they get to fully deduct the assistant's salary. Why do I, the hardworking tax payer, have to subsidize Joe Plumber, who already has a big house with a pool?

In some parts of the world we have a sales tax which is a form of minimum tax on business outputs. The consumers of plumbing and software pay 10% regardless on a businesses profitability.

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

#170

Post by heymijo »

badloginagain wrote: post #160
walterbell wrote: post #152

Earlier quoted context omitted.

> ends this particular change Temporarily, for 5 years.

If remember correctly, this was put in by Trump first round, set to activate when Biden was in office. Now Trump second round fixes it, but expires in next (presumably) Democrat administration.

That is correct. Some historical context is much appreciated in this thread.

> tl;dr on Section 174, Research & Experimentation costs went from being fully deductible in the year incurred to being deductible over a 5 year period.

Larger tax bills and a tightening on what roles/activities are deductible as R&E are likely what OP is pointing at with his comment.

To the best of my non-inside baseball research, Section 174 changes were simply one part of a package of revenue generating measures to offset the large tax cuts from the broader tax act they were a part of.

The changes came from The Tax Cuts & Jobs Act of 2017 that was introduced to the House of Representatives by Congressman Kevin Brady (R) Texas. The bill passed both houses of Congress along party lines. Then President Trump signed the bill into law. Section 174 changes did not take effect until 2021.

https://news.ycombinator.com/threads?id=heymijo&next=4332098...

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