Section 174 was permanent, until the Tax act of 2017 pushed by the current President made them expire in 2022, under a different President. That was when the market tanked and the Layoffs began. The current bill debated in congress that has the renewal of 174 also removes judicial protection against abuse of power. Enabling government employees to do as they please without having to comply with Judicial oversight. That would give dictatorial powers to the President. 174 needs to be restore without destroying this democracy. Keep that in mind when advocating to Senators.
This title is pretty bait-and-switch, enough so that @dang might consider swapping it out for something more accurate. Only the first paragraph is about job trends per se. The rest is making a case for repealing the changes to Section 174, and it basically reads like a lobbyist's copy. I am weakly in agreement with the author on this topic, but the title should probably reflect the actual meat of the article.
I’m unclear about two things:
- This seems like it’s a big problem for small startups, but a complete non-issue for FAANG. So why are the FAANGs doing such aggressive layoffs?
- Why is this in the public discourse until just now? Until a few weeks ago, the discourse seemed to be that the sudden discontinuation of ZIRP was the primary contributor to the tech job meltdown. Suddenly the narrative is changing, but nothing is new, given that tax code change happened in 2022.
Tax cuts are always made more palatable by pretending they will expire. That way the total effect on the debt is minimized.
Usually Congress just renews them anyway, and it gets less attention than the original cuts. It's just preserving the existing incentive, and handwave over the fact that it still affects the deficit projections.
The relationship between taxes and the deficit is complicated, but it's not that complicated. Deficit equals income minus expenditure. You can tell people that tax cuts pay for themselves, and they do seem content to keep believing it.
I might agree with the author's thesis that tax code changes are the cause of the "tech job meltdown" BUT they don't provide any evidence for their claims in the article :/ This makes it punditry, not a serious economic discussion.
When I see discussion of complex economic problems (e.g. housing...) that are probably complex and multifactorial, authors often want to claim they are monocausal. It's usually a bad sign if there are no charts, graphs, numbers or quotes from people (in a position to know the truth, e.g. execs setting hiring policy) to back up their claims.
I don't think it has much to do with Section 174. IMO, the explanation is that the software industry is saturated. Everything has been commoditized so it's cheaper to pay for software products than to pay engineers directly. Salaries are high and the ROI for building your own software is low. Big tech companies still need a lot of engineers, but not nearly enough to absorb the massive glut of engineers looking for jobs.
This is the new normal, like the legal industry 20 years ago
Have companies actually said this section 174 thing has caused layoffs?
All I have seen is speculation but nothing concrete that really puts blame on this.
Section 174 being a trump thing, i would think if it was the cause of economic issues it would have been brought up endlessly because hes so polarizing, the media is addicted to trump news, he runs on being good for the economy and we just went through an election where this seems it would have been an easy thing to make him look bad. But none of that happened.
I get the logic and how people come to the conclusions, but if this piece of tax law is changed, will there really be changes in hiring?
This is a nice "just so" explanation, but I don't think it is telling the full story, or even most of it. Sure tax policy probably has an impact, but so do interest rates, AI, tariffs, inflation, geopolitical turmoil, rampant speculation and hype cycles, etc. If this tax policy is so important why didn't it save the dot com crash from happening? Why are tech industries outside the US seeing similar hiring downturns? It's a boom and bust industry, we're in the bust, and it seems unlikely that one bad tax policy is the culprit.
I think he means tropes not shibboleths
But anyway interesting summary of the situation. Is it true? As in has anyone got a giant Excel sheet and checked sources and memos to verify? It's a good theory (theory in the true sense: a model to put up to scrutiny) but some evidence would be good to see.
If correct it means jobs aren't lost they move to other countries. Where they don't it opens opportunities for other countries to compete on features not built in the US.
Is the author a real person? The about page is wordy but light on specific details.
The way I see it is maybe more broad. Tech companies no longer see startups as threats anymore (except for AI).
The reasons for this involve the aforementioned tax changes, the loss of ZIRP, AI, offshoring, etc., but also include a whole host of legal and regulatory hurdles.
The upshot is that Facebook/Amazon/Google are no longer threatened by (non-AI) competitors because they know that unless you come into the ecosystem with literal billions of dollars and an army of lawyers (or the backing of a large foreign government), they can crush you one vaguely worded regulation at a time, and if they can’t, they can get the current administration to ban you.
AI has largely been excepted because the law isn’t settled yet, so it’s still possible for (eg. )Google to be threatened by a smaller competitor.
I would think there’s a similar impact on biotech/pharma which relies on research finding candidates to take into development. These companies can burn a whole lotta money and I think their job market has been brittle over the last year as well. These are ms/phd/md kinds of jobs for the most part. Sudden upturns in laoyff or surrendering companies would confirm the article.
Sure, taxes, AI, etc. matter. But my intuition is that the narrative that has driven the software industry "we are changing the world" has run out of steam and it would have without all those other things. The wild Silicon Valley success stories turned into despised monopolies, extractive middlemen, uprooters of local culture, job destroyers and hijackers of attention. I can name very few large software companies that I would not be ashamed of working for. From talking to more politically minded programmers it seems to be on a lot of people's minds, that glory days of SV/VC are over.
This is not to say that software's story is over, just that the incentive mechanisms in place have failed. We could have created protocols, interoperability, local-first apps and novel funding mechanisms but the poisoned VC/shareholder money ensured that we do not.
I believe is AI. A programmer is now 3x productive. As a ceo, you realize you can probably let a few people go without consequences. Also, CEO’s look and see what Elon did at twitter, and think maybe they can do the same. I wouldn’t underestimate the influence Elon has on entrepreneurs and CEOs. “If you aren’t adding pieces back in, you aren’t removing enough”.
My company is hiring lots of devs in Canada. Salary is around 2/3 of USA and sec 174 doesn’t apply.
> if we had to put up with these crazy new rules, we basically just had to bank up R&D credits for a few years and then we were back to par
ok i'm slow today, but reading this phrase... was the nasty effect of this change a one-time thing then?
VMWare had half of its employees laid off in the past two year. Hock Tan cornered the market, taking over VMWare and its competitor, Citrix. Was this caused by Sec 174, or was it just another predatory acquisition?
Maybe they can hire in low wage countries and pay tax in Ireland to save the bacon?
I don't quite buy it. What the heck is R&D even? How much of a software development company is classified as R&D (I never heard or seen this ever in my life and I've seem some accounting sheets). Seems like bullshit to me.
If I've a software company and I sell products (licenses) and services (supports), and make $150,000 a year from a customer. Then if I pay my developer $100,000 gross salary, my expenses with development are $100k so I'm left with $50k taxable income. The developer doesn't do no R&D bullshit, we're selling accounting software not curing cancer.
As a shareholder in the company I can get money out as dividends, on which I have to pay tax but that's it and it's a lot less than the taxes on labor that the developer pays on his $100k. There's still $50k per developer x 100 developers = $5M to draw from.
I don't see where's the big issue, oh noes, no more amortization of R&D, we're fucked.
When I'm emperor-dictator it will all be cash accounting unless the company explicitly wants to amortize something. Amortizing anything as amorphous as "research" is absolutely idiotic.
This Section 174 discourse is so deceptive and disingenuous.
The 2017 tax cuts were a massive gift, particularly for Big Tech. Billions and billions of dollars, just from the cut in Corporate Tax as well as taxes on the repatriation of foreign profits. Oh and apparently dropping that from 35% to 14% wasn't enough, because there's now a push for yet another tax holiday [1], which would save Big Tech at least $75 billion.
So if tech companies want Section 174 changed back to 100% deduction for software development costs, what tax breaks do they want to give back to pay for it exactly?
But the part that grinds my gears is blaming Section 174 for the layoffs. What a joke. Companies use layoffs to suppress wages and get more unpaid work. Nobody is demanding raises when they're in fear of losing their jobs.
If Section 174 was the reason for the layoffs, these companies wouldn't be hiring at the same time they're doing layoffs.
And consider this: if your head count is stable, then amortizing software development costs doesn't really matter. Why? Because you're only deducting 20% of this year's costs but you're now deducting 20% from each of the last 4 years too. So unless your labor costs massively changed, it's basically the same thing.
How about we end IP transfer and paying royalties to foreign subsidiaries in Ireland? Then you can have your 100% deduction.
[1]: https://www.citizen.org/news/apple-microsoft-poised-to-reap-...
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So it's no longer the case that the slowdown came from covid and pervasive wfh leading to everything being outsourced to people in cheaper countries?
At the time of writing, the only comment that accurately explains why OP is wrong is right at the bottom of the the thread: https://news.ycombinator.com/item?id=44274018
And consider this: if your head count is stable, then amortizing software development costs doesn't really matter. Why? Because you're only deducting 20% of this year's costs but you're now deducting 20% from each of the last 4 years too. So unless your labor costs massively changed, it's basically the same thing.
This article is from a week ago and it makes a similar argument about Sec 174: https://news.ycombinator.com/item?id=44180533