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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

#121

Post by mppm »

svara wrote: post #105
mppm wrote: post #71

Earlier quoted context omitted.

Elsewhere in the world (under IFRS accounting rules) capitalization of R&D costs has been a firm requirement for a while. The US has been somewhat unique in allowing them to be expensed instead, until recently.

Taxes are calculated according to tax accounting rules, not IFRS, though? I know of at least two Western European countries where you don't have to do that. Don't worry, we pay enough taxes either way ;)

Yeah, seems I was wrong about that. Apparently most IFRS countries allow expensing R&D for tax purposes, regardless of accounting. Many even have an R&D superdeduction nowadays.

Sorry for the noise :(

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

#122

Post by DyslexicAtheist »

bit of a self-own it seems. Start-ups and early stage companies might simply decide to start in a more friendly tax jurisdiction. E.g.: Switzerland offers a 135% deduction on R&D-related salaries in the year they are incurred, making it an attractive location for tech development

EU provides a large pool of experienced developers seeking new opportunities on salaries well below SV. Why pay 500K for a burnt out "rockstar" who spends more time on twitter than doing actual work when you can hire highly skilled people in Eastern-EU (or even in Berlin).

Section 174 seems unlikely to progress unless attached to broader legislation.

> "More promising is the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024), which proposes restoring immediate expensing for U.S.-based R&D investments through the end of 2025. " -- https://www.pwc.com/us/en/services/tax/library/tax-committee...

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

#123

Post by edoceo »

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'.

If you make it that far.

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

#124

Post by [deleted] »

mppm wrote: post #71
svara wrote: post #63

Earlier quoted context omitted.

Is this true even if you don't capitalize the immaterial IP asset generated by the R&D salaries on the balance sheet? Is that required in the US? Otherwise I'm quite amazed that salaries can be carried forward as future expenses.

Elsewhere in the world (under IFRS accounting rules) capitalization of R&D costs has been a firm requirement for a while. The US has been somewhat unique in allowing them to be expensed instead, until recently.

[deleted]

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

#125

Post by xbar »

wdaher wrote: post #72

Worth noting: the version of the Big Beautiful Bill passed by the House ends this particular change, starting in tax year 2025. We'll have to see if this provision makes it through the Senate, and in what form.

The destructive power of the Section 174 change cannot be overstated. It has been reported on a lot, but its harms are generally poorly articulated.

I do not like many things in BBB, but I am glad to know there is at least something in there that I can be glad for.

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

#126

Post by bloomingeek »

warkdarrior wrote: post #97
thayne wrote: post #60

Earlier quoted context omitted.

The company already pays payroll taxes on those salaries, and the employees pay income taxes. And the people hurt by this aren't the shareholders or top executives, it's the rank and file workers getting laid off, losing benefits, and being asked to work more for the same pay. What this change effectively did was make software developers significantly more expensive, without increasing the amount those developers get…

Software developers are already too expensive in US, so this applies some downward pressure on those salaries. Frankly the economy will be much better off when tech salaries equalize across geos, thus avoiding the deep whole US manufacturing is in (for example, manufacturing wages in Vietname are one tenth of US manufacturing wages, and thus it is better to open new plants there).

[flagged]

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

#127

Post by Retric »

kelnos wrote: post #74
Retric wrote: post #45

Earlier quoted context omitted.

> I've seen no justification for the government deciding that from 2022 on we should actively discourage R&D, it just seems to be a mistake. Removing a specific tax exemption to create a level playing field isn’t discouraging R&D. That’s the thing, every year such exemptions exist the US taxpayers are handing out money. Just because we subsidize say EV’s or Corn doesn’t mean that’s the baseline forever more.

> 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.

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

#128

Post by cyberax »

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 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 taxes, then disbursing the benefits to lower-income benefit programs?

No.

> I’m not sure what the answer is.

The answer is pretty clear: invest money into the private sector, rather than divert it into the Federal budget. Private actors are more efficient at allocating funds than the government.

I'm not against social spending, it's a necessary evil for any real state. Pure libertarianism leads to dystopian outcomes. But it should be understood that it's a very real artificial inefficiency that is imposed on the economy.

There are also situations where additional social spending is necessary, but they are VERY easy to detect: when your interest rate is near zero.

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

#129

Post by Retric »

jt2190 wrote: post #116
Retric wrote: post #83

Earlier quoted context omitted.

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

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.

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