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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

#471

Post by Braxton1980 »

saghm wrote: post #468
Braxton1980 wrote: post #407

Earlier quoted context omitted.

>say that there IS corruption, but at least it happens in the open How is that corruption?

Breaking the law is still breaking the law even if you don't hide it. If anything, not getting in trouble for breaking the law noticeably often means that there's also corruption from the ones who should be holding the corrupt accountable.

Breaking the law isn't "corruption"

A good definition from AI "Is when government officials misuse their power for personal gain or to benefit their friends or associates"

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

#472

Post by saghm »

jdminhbg wrote: post #418
curtis3389 wrote: post #367

Earlier quoted context omitted.

Here's the cosponsors of the bill: https://www.congress.gov/bill/115th-congress/house-bill/1/co... I think the purpose of the change was to "increase revenue": > Requiring that certain research or experimental expenditures be amortized over a five-year period or longer, starting in 2023, would increase revenues by $109 billion over the period from 2023 to 2027. https://www.congress.gov/congressional-report/115th-cong…

> I think the purpose of the change was to "increase revenue" Yes, but in a specific way: they were trying to offset the tax cuts they wanted so they could pass it via the reconciliation process and avoid the Senate filibuster. They didn't actually care about this revenue and the assumption from most people was that the specific carve-out would disappear in some future bill.

And now with their attempts to keep the tax cuts around, they've just decided to ignore the rule entirely and pretend that extending a temporary tax cut counts as not costing anything. Of course, there's nothing that would stop them from getting rid of the filibuster entirely either, but that honestly just makes it weirder to pretend that this somehow fulfills the requirements rather than just is taking advantage of the rules being only self-enforced.

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

#474

Post by lucianbr »

bluGill wrote: post #400
vlovich123 wrote: post #345

Earlier quoted context omitted.

I'm not sure I buy into this. Sure, compared with Russia it's probably a lot less, at least in terms of being something everyday people engage in. But in terms of comparing with countries like Germany or Sweden I don't know. Here's some food for thought: * Global financial crises: Banks were paying (bribing) ratings agencies to rate junk bonds AAA. * Savings & loan crisis: widespread fraud & insider abuse. * Bernie M…

If the list doesn't go on and on that is a clear sign that corruption is being hid.

Could be a sign that the commenter was not willing to spend all his day writing, especially once his point was made.

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

#475

Post by gamblor956 »

sokoloff wrote: post #32
potamic wrote: 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…

Now imagine that a restaurant buys 100 tables, 500 chairs, kitchen equipment, cutlery for 800 people, signage, a security system, and does a remodeling before opening. (Or an airline buys an airplane. Or a hotel chain builds a hotel.) Should they be able to expense all of those items that provide value for multiple years in a single year? Does software development provide value exclusively in the year it's done? Or o…

The appropriate analogy is:

Imagine a restaurant spends money on employees to build 100 tables, 500 chairs, etc. Those tangible goods would be capital assets, so the labor costs of building them would also be capitalized.

This change to the tax code is just bringing the tax treatment of software development in line with how every other industry is treated. IOW, it was closing a loophole. A very valuable loophole, whose beneficiaries used it to get filthy rich, and bragged about how their industry was so much more valuable than everything else, even though a lot of that value was due to the exception software was getting in the tax code.

Notably, in the current version of the budget as of 6/6, the loophole is temporarily coming back, though given the Musk-Trump feud, it's very possible it will get pulled again to try to mollify the hardline deficit caucus.

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

#476

Post by gamblor956 »

layer8 wrote: post #185

As a non-American, it seems strange to me that the cost of regular software development, i.e. that is neither “research” nor “experimental” in a conventional sense, would be deductible in the first place (amortized or not). Isn’t that subsidizing a whole business sector? Maybe I’m misunderstanding something.

No, you have it right. Software was getting a special exception from the normal rule that salaries spent on creating capitalized assets are capitalized (which is the general rule for most industries, as well as for software development in most of the EU).

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

#477

Post by [deleted] »

gscott wrote: post #452
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 thought wages were deductible anyway. Say you pay a developer $250,000 a year. The employee pays the tax on their own wages.

[deleted]

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

#478

Post by gamblor956 »

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?

What taxes do unprofitable US businesses owe that this would be deducted against?

An unprofitable business doesn't pay income taxes. Businesses are taxed on their net income (i.e., profit).

People are railing against this as the cause of tech's recent underperformance, but it was a non-factor for the vast majority of tech companies, because most tech companies aren't profitable and wouldn't have paid taxes anyway.

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

#479

Post by lucianbr »

bjt wrote: post #443
coliveira wrote: post #411

Earlier quoted context omitted.

> almost no lying and cheating here Are you living in an alternate world?

Or are cynical Americans living in an alternate world, blind to how much better the rule of law is here than most other countries? The commenter's comparison was to Russia. When was the last time Putin lost an election? I'd say we're slightly behind western Europe as far as rule of law goes, not really sure about the advanced east (Japan, Korea), and miles ahead of just about everywhere else (eastern Europe, Russia,…

Why are these alternatives? I believe it is true that the situation in the US is better than many other countries (not most), and also that "almost no corruption" is false.

Being better than others really isn't the only thing that matters.

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

#480

Post by patmcc »

jandrewrogers wrote: post #425
patmcc wrote: post #361

Earlier quoted context omitted.

They're still expenses, they just now need to be amortized. Buying a truck is an expense, as is buying gas for the truck. But the former you have to amortize over x years, the latter you can expense immediately. The law used to be "employee salaries for software are like buying gas" and now it's "employee salaries for software are like buying a truck".

The critical difference is that the business owns the truck but not the employee. The amortization assumes that the asset can be sold for value. An employee can quit at any time for any reason. You don’t retain the right to their labor for five years.

If they're producing a capital asset, you do retain the right to the fruits of their labor, even if they quit.

The rationale behind amortization isn't exactly the idea that the asset can be sold, it's that the asset is producing revenue over multiple years. For software, the asset is the codebase.

Let's say you hire a single software dev, for one year, and they write Excel++, which you can sell for the next ten years. It would be entirely appropriate to amortize the cost of creating that software over those ten years, based on the matching principle (a fundamental idea of accounting, matching expenses with revenue).

The issue in the real world is that's not how the software industry actually works, 99% of the time.

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