Note that Trump's Big Beautiful Bill as it passed the House of Reps would bring back 100% expensing of R&D expenses including software development costs/salaries.
"I'll give you a candy bar if you let me stab you multiple times"
The time bomb in the tax code that's fueling mass tech layoffs
41–50 of 991 posts
Re: The time bomb in the tax code that's fueling mass tech layoffs
#42This 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 reason that we require you to deduct an expense over years for some things is because they have a resale value that needs to be accounted for. It's not a pure expense because you have an asset with real value that came out of the purchase. Employee time has no resale value. Once used it's gone, so employee salaries are expenses, not investments.
The only possible justification for the Section 174 R&D changes is that employees working in R&D theoretically are producing something which does have a resale value, so there's a small tax dodge enabled by direct-expensing your R&D costs but then ending up with an infinitely-copyable asset that came out of it.
If that's what you're saying, then I'd reply to that argument by saying that paying humans to design new things has historically been a business strategy that the government has wanted to incentivize in a way that buying and holding physical assets has not been. 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.
Re: The time bomb in the tax code that's fueling mass tech layoffs
#43Earlier quoted context omitted.
> Apparently this is a common tactic with tax bills, with the expectation that the changes will be repealed or altered in a later bill. None of this adds up. You're saying, the legislators were trying to cheat and because it's a "common tactic" that kind of cheating is somehow good, but it's bad when the cheating doesn't go through? On the other hand, being a common tactic implies that the possibility of it remaining…
In tax policy, every single change looks reasonable to one interest group, and like a cheat to a different interest group. That is just the nature of tax policy. Any change hurts some people, harms others. Changes to Section 174 happen rarely and are not a “common tactic.” Changes to tax policy in general are common, especially in the reconciliation process. They can have unforeseen side effects. As well as side effe…
> Any change hurts some people, harms others.
Not quite the sentiment you intended.
Re: The time bomb in the tax code that's fueling mass tech layoffs
#44I 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…
> Consider the timing: this change came in 2017. Where were the mass layoffs in 2018? 2019?
The bill passed in 2017, but the changes to R&D didn't kick in until 2022.
Re: The time bomb in the tax code that's fueling mass tech layoffs
#45Earlier quoted context omitted.
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 reason that we require you to deduct an expense over years for some things is because they have a resale value that needs to be accounted for. It's not a pure expense because you have an asset with real value that came out of the purchase. Employee time has no resale value. Once used it's gone, so employee salaries are expenses, not investments. The only possible justification for the Section 174 R&D changes is t…
> 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.
Re: The time bomb in the tax code that's fueling mass tech layoffs
#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?
Re: The time bomb in the tax code that's fueling mass tech layoffs
#47Earlier quoted context omitted.
The reason that we require you to deduct an expense over years for some things is because they have a resale value that needs to be accounted for. It's not a pure expense because you have an asset with real value that came out of the purchase. Employee time has no resale value. Once used it's gone, so employee salaries are expenses, not investments. The only possible justification for the Section 174 R&D changes is t…
> 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.
Level playing field for whom? Who does incentivizing R&D disadvantage?
Restaurants weren't competing with R&D-heavy corporations in any way. R&D-heavy corporations competed with each other, on a level playing field where all of them can build new stuff without having to pay taxes on negative income in their early years.
The only change this has made is un-level the playing field in favor of old, established corporations that already have the revenue streams in place to fund their new R&D projects.
Re: The time bomb in the tax code that's fueling mass tech layoffs
#48> 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'.
Re: The time bomb in the tax code that's fueling mass tech layoffs
#49> 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?
If the business has some revenue, but is not yet profitable after deducting development costs, it can become profitable on paper (and owe tax) if R&D is capitalized instead.
Re: The time bomb in the tax code that's fueling mass tech layoffs
#50Earlier quoted context omitted.
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 reason that we require you to deduct an expense over years for some things is because they have a resale value that needs to be accounted for. It's not a pure expense because you have an asset with real value that came out of the purchase. Employee time has no resale value. Once used it's gone, so employee salaries are expenses, not investments. The only possible justification for the Section 174 R&D changes is t…
What about construction worker and other labor time to build a factory? That’s the analogy being made here by the tax code: Software whose development is a capital expense with value returned over time.