571–580 of 991 posts
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.
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…
As I understand accounting, this means that reported profits would be higher, and therefore incur more corporate income tax liability. Cash flow isn't effected besides tax.
A startup isn't likely to be making a profit yet, under either accounting rule. Is there a benefit to reporting a larger loss?
My first thought is that this effects Google and suchlike, not startups. But... assuming steady state "r&d" expenditure... it's not that much. Everything gets deducted within 5 years anyway.
So... maybe this hinders more modestly profitable, and fast growing companies most. Those that can't afford to carry 5 years worth of paper profits as easily.
Otoh... I am curious about how the difference between r&d expenses and operational ones are determined irl.
This should be quantifiable. How much extra assets are software companies actually booking?
It seems questionable that this "silent killer" had actually affected employment so much.
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No, this is a misunderstanding of the kind of taxation policy progressives tend to favor. Taxation on profit for businesses should be high, and taxation on upper tiers of individual income should be high, but taxation on funds businesses use to reinvest should be exempted or deductable. Basically the taxation we had in place after WW2 and on, with a steep corporate tax rate and more or less a maximum income for indiv…
I don’t think most progressives think about it in that detail. Raise taxes on the rich tech companies that are gentrifying san francisco.
If you ask me "should corporations pay more taxes?" I will say, yes. Famously so does Warren Buffet, is he also a progressive?
If you ask me, "hey should we gut tax incentives for R&D spending in the USA?" I will say, uhhh no? probably a bad choice?
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As a progressive, it seems like the Democrats always have Senate spoilers...
But this is the type of thing that progressives would like support (tax big corporate America).
It's a 10% tax cut for big corporate America, with some economic poison for blue states in the future.
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> 174 is so small it can't go through both chambers on its own so it needs to get attached a larger bill like OBBA. There's a minimum size for laws?
Theoretically no, but congress won't vote anything that has no collateral advantages to everybody involved.
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Why would a senator from Kentucky vote for a bill that doesn't benefit his state to a meaningful amount?
Seriously?
Arguably, that's the whole of politics: why should I give you something if you don't give me something?
The people involved are, generally, not deep thinkers, aren't aren't thinking much beyond their direct short-term advantage. The system selects against that.
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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…
What would be a more appropriate model from accounting perspective?
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It's only a wash if they've been amortizing all along. There's been no advantage to doing so, so established ones have all been deducting, and will have the same five year window of increased taxable income that startups will.
Startups have to face that five year window every time they start up . Each and every startup will have a year 0 where they're spending more than they earn, and under the new Section 174 they will only get to deduct 10% of their employee's salaries that year. In year two they get to deduct 20% of year 1's salaries and 10% of year 2's salaries, which is still 30% of what the established players will be able to deduct.…
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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.
What other cost do you think goes into software development? Companies are not spending that much money on IDE licenses. The vast, vast majority of software/R&D costs are labor
In the UK, business gets taxed on profit, which is what is left from revenue after subtracting costs.
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> 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?
State spending is not a panacea.