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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

#931

Post by yencabulator »

trhway wrote: post #202
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…

What i like about US is that compare to other countries (like for example Russia where i'm originally from) there is almost no lying and cheating here. Instead there is a respect of the law and an army of talented creative accountants and lawyers. Remember that stale "multi-used" sandwich served with the drink which by virtue of its existence converted drinking establishment into a food serving restaurant? Not being…

USA is pretty darn corrupt. Just because worse places exist does not make USA good.

https://en.wikipedia.org/wiki/Corruption_Perceptions_Index#2...

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

#933

Post by lesuorac »

demosthanos wrote: post #780
lesuorac wrote: post #725

Earlier quoted context omitted.

The article makes it clear it's a subsidy. > Originally enacted in 1954, Sec. 174 has historically allowed taxpayers to deduct SRE expenditures in the year incurred. Its original aim was to level the playing field for small businesses, those without dedicated research teams, that may be unable to deduct product development expenses under Sec. 162 because the costs were not ordinary and necessary expenses paid or incu…

Just to be clear, "special group" here means "any small business that wants to do any R&D of any kind", right? Because software was not a special group before, all R&D was opt-in for this kind of accounting. Now, after this change, software is a special group singled out, a deviation in the tax code specially carved out for us to make our field specifically the exceptional one with no wiggle room. No other type of de…

> So who is that subsidizing now?

Uh sure, with this change software would subsidize other R&D. Prior to the change anybody not eligible for Section 174 was subsidizing Section 174 recipients.

Subsidizing R&D is probably a good idea but let's call a spade a spade here. Additionally, subsidizing small business is good policy because they're by the numbers job creators while large businesses are job destroyers.

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

#934

Post by xmprt »

ajmurmann wrote: post #901
teitoklien wrote: post #869

Earlier quoted context omitted.

Back during the communist vs capitalism and free market era Politicians were patriotic like you hope them now to be, they were worried about the rise of communism and were extremely attentive and focused and unified to making sure capitalism and free market works for the masses, that everyday westerners are enriched and have better social and health outcomes than their communist counterparts. It did succeed to the po…

> They gutted our manufacturing and industries, outsourced all our jobs with no better ones for those without jobs to replace them. We have been very close to record-low unemployment last year and the real median household income is higher than ever

I think unemployment is a poor metric if it's the only one you're looking at. Unemployment says nothing about the quality of the jobs. For example, if 90% of the country was employed in a minimum wage job, then the unemployment metric would look great but I don't know anyone who would call that a healthy economy.

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

#935

Post by patapong »

rayiner wrote: post #828
bunnie wrote: post #537

Earlier quoted context omitted.

It's pretty bad. It had a huge impact on my personally, I'm a small R&D shop and basically I have had to end all risky long-term research projects. In addition to the research costs, I'd also have to pay taxes on the research costs mostly up-front. Significantly, if the project doesn't work out, I'm still out of pocket for the tax money. It's a penalty for taking a risk, and it kneecaps American innovators in a globa…

> In addition to the research costs, I'd also have to pay taxes on the research costs mostly up-front. Significantly, if the project doesn't work out, I'm still out of pocket for the tax money. That’s how it works for every business! If Jim Bean builds a distillation facility it has to amortize the investment in that over time. If the distillation facility doesn’t pan out, then it doesn’t get a refund for the taxes p…

In my (admittedly lay) understanding of the issue, it boils down to software maintenance being taxed as research and development.

In general, costs for running a business (buying inventory) are immediately deductible, while establishing new business (building factories) has to be amortized, since the factory can be used for several years.

In software, the line is a bit more blurry - coding creates new IP (research), but is also required to keep many software companies running (maintenance) by e.g. fixing bugs and updating infrastructure. Here, the IRS has decided that all software development counts as research.

This would kinda make sense if you could hire programmers for a single year to develop software, fire them and then sell the software for 5 years, but I think that's rarely the case.

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

#936

Post by coliveira »

bombcar wrote: post #581
coliveira wrote: post #411

Earlier quoted context omitted.

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

If you’ve never lived outside the US you have zero idea how bad it gets. It literally is an alternate world. The amount of daily activities in the US that just work 99.999999% of the time that would have a corruption aspect in some other countries is mind boggling. The closest analogy I can come up with is imagine if every money transaction involved cash tipping the parties involved. And that’s just the beginning.

A growing number of activities in the US require tipping, so it's getting there.

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

#937

Post by mixmastamyk »

inadequatespace wrote: post #662

The title of this article implies that it is a major or even the only cause for mass tech layoffs, which I strongly doubt. For example, rising interest rates I'm sure also independently contributed. I would be interested to if anyone has gotten a sense of exactly how much this has contributed.

It's hurts small businesses the most, and practically destroys startups. Titles are simplified by necessity and I think the phrase "...that's fueling..." doesn't strongly imply exclusivity.

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

#938

Post by mixmastamyk »

ghiculescu wrote: post #805
jjmarr wrote: post #726

Earlier quoted context omitted.

There's a 15-year amortization period if a US company hires an offshore developer. It's only a 5-year period if the developer is American.

Did you know that other countries have software companies too?

You're undoubtedly aware the US has an outsize influence on the sector.

Also this line of argument rests on the idea that the downturn is exclusive to Section 174, but it is not. Raising interest rates across the world are a major factor.

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

#939

Post by AnthonyMouse »

majormajor wrote: post #799
demosthanos wrote: post #770

Earlier quoted context omitted.

Eventually, as long as you survive that long. As has been said repeatedly in this thread, this change is purely a boon for existing big tech companies that now have even less to worry about from startups. It takes a startup 5 years before they'll be playing on an even field with big tech. > if you’re operating a profitable company You keep saying this across this thread, and keep ignoring that Section 174 has now red…

> As has been said repeatedly in this thread, this change is purely a boon for existing big tech companies that now have even less to worry about from startups. It takes a startup 5 years before they'll be playing on an even field with big tech. The article also blames it for 2022 mass layups at existing big tech companies with cash reserves. That seems like a big stretch compared to the "oops we over-hired in 2021"…

> The article also blames it for 2022 mass layups at existing big tech companies with cash reserves.

It's possible for two things to be true at once. The new rules can be moderately bad for big companies and cause them to do layoffs and also cause them to be catastrophically bad for startups, giving incumbent big tech companies another relative advantage over them.

This is also ignoring the short-term vs. long-term effects. In the first year the incumbent companies are in the same boat as the new ones because they already deducted all their R&D expenses from the previous year when they were still allowed to, so they get a minimal deduction this year and have no advantage. But five years from now, they'll have five years worth of R&D they're still amortizing -- notably, this means the government is no longer getting more revenue from them in the current year than they would otherwise, since their average R&D expense and their average amortized deduction are now equal -- whereas the startup has no historical R&D to deduct and is put at a disadvantage.

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