[HN Gopher] The time bomb in the tax code that's fueling mass te...
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The time bomb in the tax code that's fueling mass tech layoffs
Author : booleanbetrayal
Score : 1466 points
Date : 2025-06-04 13:30 UTC (4 days ago)
(HTM) web link (qz.com)
(TXT) w3m dump (qz.com)
| dtagames wrote:
| This doesn't explain the mass tech layoffs. According to the
| article, the rule applies to R&D. The vast majority of tech
| workers laid off in the last two years didn't work in research
| and development. They wrote regular software for sale, like
| games, for example.
|
| The games industry, while hugely profitable and bigger than TV,
| movies, and music combined, laid off tens of thousands of people.
| It's unmitigated greed is all it is.
| tjchear wrote:
| > For almost 70 years, American companies could deduct 100% of
| qualified research and development spending in the year they
| incurred the costs. Salaries, software, contractor payments --
| if it contributed to creating or improving a product, it came
| off the top of a firm's taxable income.
|
| According to the article, as long as the tech workers
| contribute to improving or creating a product (be it games or
| apps), they count as R&D cost.
| dtagames wrote:
| I worked in games 2 years before the studio shutdown. It
| wasn't because of "R&D" tax breaks. None of the recent
| layoffs or studio closures are explained by that. Nor are the
| Microsoft, Dell, or Intel layoffs which aren't game-related.
| gregw2 wrote:
| To qualify for R&D tax breaks, IIRC having identified
| qualifying work for a segment of my firm, there must be
| elements of hypothesis, experimentation, results, etc that I
| would consider more science-y 'Research' than just turn the
| crank software 'Development.' It has to be both. And that has
| to be documented. And offshore research+development doesn't
| get you a tax break. The irony is that the R+D tax actually
| discourages onshore pure development as a 'trade' and
| encourages a split of onshore R+D and offshore D.
|
| This sort of thing appears to be self-reported; I don't know
| if it ever gets audited. I don't know if big tech lies or
| creatively interprets what counts and that has contributed to
| the issue. But this article sort of over-represents what
| qualifies as R&D for US tax purposes.
| ghc wrote:
| Under the new rules, _all_ software development, excluding
| bug fixes, _must_ be expensed in this manner. "Turn the
| crank" development is included.
|
| https://larsco.com/blog/section-174-updates-navigating-
| the-i...
| ndriscoll wrote:
| Which makes sense. Software is functionally a capital
| asset, so really it should be depreciated across the
| length of the copyright term (unless the company wants to
| release it to the public domain to fully depreciate it
| early).
| robocat wrote:
| Maybe software should be a capital asset, but these
| depreciation rules don't fix that issue.
|
| The rule says if you pay someone $200k to develop
| software: then you now have a $200k asset that then
| devalues to value of $0 over 5 years (starting midyear).
| That's just plain _weird_.
|
| For our example a depreciation table might look like:
| Year, %Amortized, Amount 2025 10% $20,000
| 2026 20% $40,000 2027 20% $40,000 2028 20%
| $40,000 2029 20% $40,000 2030 10% $20,000
|
| The final effect of the 174 rule change is that you still
| finally end up with a software asset worth $0. However
| you now have taxable income of $200k in year one and
| expenses equalling $200k spread over 5 years. The taxes
| paid could be a lot: although the taxation money is
| really just being lent to the government for a few years
| at 0%. The actual financial costs are fucking
| complicated.
|
| Understanding accounting and taxes are two absolutely
| essential skills if you ever wish to be a founder (and
| useful anyways).
|
| Finding a solution to dealing with the valuation of
| assets is difficult. The historical solution of
| depreciation is broken for software, intellectual
| property and goodwill. In theory, taxes on dividends and
| capital gains taxation already deal with the issue
| (company taxation at x% kinda ends up at $0 because the
| shareholder pays y% and claims back the x% through
| imputation).
|
| And remember that salaries are properly taxed.
| ndriscoll wrote:
| Right, that weirdness is why it should be depreciated
| over the length of the copyright term. You spend $200k
| this year, and now you have a useful asset for the next
| 95 years (or 120 years if you never publish it).
|
| If it turns out it's not useful, we could then allow
| companies publish the source and release it into the
| public domain to immediately "destroy" the asset (the
| copyright) and claim their deduction. So failed r&d
| projects would be deductible right away as long as the
| public gets them, and ones that result in a useful asset
| get depreciated based on how long they actually last,
| which is currently potentially multiple lifetimes.
| jameshart wrote:
| I get your thinking here but copyright isn't the only
| relevant intellectual property constraint.
|
| Software built by a business is a trade secret
| independent of its copyrightability. Even after the
| expiry of copyright a business can continue to exploit it
| as a proprietary asset.
| kelnos wrote:
| I don't think copyright term is a good rubric/measure
| here. For SaaS, a company can keep the software locked up
| indefinitely, regardless of copyright term. Employees can
| be contractually obligated not to publish source code,
| even if the copyright has expired.
|
| Amortizing development cost over the useful life of the
| software is maybe a reasonable thing to do (I don't think
| it is, but let's for a minute say I agree), but
| determining "useful life" is not simple.
| nitwit005 wrote:
| At the last couple of companies we worked at, they just
| sent out surveys on what time went to different activities.
| We couldn't possibly fill that out honestly, as that wasn't
| tracked.
|
| Which, I think is an overlooked part of this. They must
| constantly have gotten feedback that people were lying to
| them.
| jewelry wrote:
| Greed is too easy as a target.. industry space has shifted
| because of slower innovation and less growth, so cost cutting
| being more a focus would be a reasonable strategy
| dtagames wrote:
| If your company is already profitable to the tune of billions
| annually, "cost cutting" isn't necessary. You're just cutting
| people out of jobs and out of economic participation in
| society -- which affects a far larger group than just
| themselves when those folks can't spend their salaries in
| other businesses.
|
| There is no justification for "cost cutting" when it hurts
| the larger economy. If the company were _losing_ money, that
| would be different, but these mass layoffs are all from firms
| that make obscene, enviable levels of profit. It 's greed.
| RobGR wrote:
| You can call any self-interested decision "greed" if you
| need to just turn off your brain and emote.
|
| But they were making high profits for decades, and being
| greedy for decades. Then there were a lot of layoffs. What
| changed ?
| orangecat wrote:
| If a company is making $10 billion in annual profits, and
| they discover that they're spending $100 million on a
| useless project, are they morally obligated to continue
| that spending indefinitely?
|
| _There is no justification for "cost cutting" when it
| hurts the larger economy._
|
| It is not good for the economy to have people doing work
| that doesn't produce value.
| kbolino wrote:
| > It is not good for the economy to have people doing
| work that doesn't produce value.
|
| This is a political statement, not an economic one. What
| is or isn't good for the economy is up to the goals of
| that economy. In Japan, for example, they've more or less
| adopted the opposite principle as an important plank in
| their political system. Or perhaps it would be better to
| say that they've adopted the idea that people having jobs
| is more important than those jobs having a direct
| connection to some measure of productivity.
| jokethrowaway wrote:
| You are correct saying it's not the R&D deductions.
|
| But it's not "greed": it's the end of zero interest rate
| policies.
|
| https://newsletter.pragmaticengineer.com/p/zirp
| mywittyname wrote:
| > The vast majority of tech workers laid off in the last two
| years didn't work in research and development.
|
| I bet they were classified as R&D for accounting purposes.
| Product development largely falls into R&D - it doesn't matter
| what the product being developed is for.
|
| Every job I had at a megacorp was classified as R&D, and I know
| because I had to track hours against such.
| demosthanos wrote:
| > I bet they were classified as R&D for accounting purposes.
|
| It's not just that. Section 174 now explicitly calls out
| Software as always being an R&D expense:
|
| > (3) Software development
|
| > For purposes of this section, any amount paid or incurred
| in connection with the development of any software shall be
| treated as a research or experimental expenditure.
|
| https://www.law.cornell.edu/uscode/text/26/174
| kelnos wrote:
| > _They wrote regular software for sale, like games, for
| example._
|
| Even though it sounds unintuitive, that activity is considered
| R&D for tax purposes.
| jen20 wrote:
| > They wrote regular software for sale, like games, for
| example.
|
| Wrote software, like, you know, "developed" it?
| potato3732842 wrote:
| >The delayed change to Section 174 -- from immediate expensing of
| R&D to mandatory amortization, meaning that companies must spread
| the deduction out in smaller chunks over five or even 15-year
| periods.
|
| Doesn't this just amortize out to be roughly the same amount of
| deduction over the long term?
|
| All the big companies mentioned should be relatively unaffected
| over an N>5 year time period. Also this was something that's been
| in the works for years so their accountants should have been
| planning for it so it wasn't a financial shock (and company
| financials seem to indicate no such shock).
| yesfitz wrote:
| If you look at the time value of money[1], a $1,00,000
| deduction this year is worth more than $200,000 deductions over
| the next 5 years.
|
| But more importantly, the article claims it was used as a tax
| shield to grow.
|
| "Basically, as long as spending counted as R&D, companies could
| report losses to investors while owing almost nothing to the
| IRS."
|
| "Once those same expenses had to be spread out, or amortized,
| over multiple years, the tax shield vanished. Companies that
| were still burning cash suddenly looked profitable on paper,
| triggering real tax bills on imaginary gains."
|
| 1: https://www.investopedia.com/terms/t/timevalueofmoney.asp
| potato3732842 wrote:
| Sure, but that doesn't account for the allegedly apocalyptic
| layoffs from companies that don't fit into the "real taxes on
| imaginary gains" mold.
|
| I get that this is bad for the VC monopoly bucks scene, but
| they were already down for the most part. If the changes are
| as the article alleges than all these big tech companies that
| are posting huge layoffs should mostly be fine because it's
| not a serious change from status quo for them.
| JamesBarney wrote:
| Interest rates are bigger motivator of the layoffs than
| these changes. When interest rates are high that means
| investors far more heavily prioritize profits today over
| profits tomorrow.
|
| This tax change just made it worse.
| TheTaytay wrote:
| My company was affected. The amount of money paid in taxes
| more than quadrupled from one year to the next.
|
| It hurt small businesses that were slightly profitable. No
| one else. VC shops aren't profitable anyway, so no taxes to
| pay. Microsoft took a 4 or 5 billion dollar write off, but
| they can literally write a 5 billion dollar check.
|
| The issue is that the IRS wants you to pay them today on
| profits and cash that literally don't exist. You make $1M
| in revenue and pay 5 developers 200k/year? You have no
| money left at the end of the year, but you pay taxes as if
| you profited about 900k.
| ec109685 wrote:
| Yes, but you are still talking about a loan. That 1M in
| write offs are guaranteed to come over a five year
| period.
| TheTaytay wrote:
| From the horror stories I read from other founders, the
| bank wouldn't loan on those numbers.
|
| When we asked our accountants what they were seeing from
| other companies, the answer was "mortgage their house."
| That assumes they had enough equity to mortgage.
| HWR_14 wrote:
| > Doesn't this just amortize out to be roughly the same amount
| of deduction over the long term?
|
| With steady enough employment numbers, sure. Google has a weird
| one-time cost where they get hit with extra taxes at 80%, 60%,
| 40% and 20% of their employee's salaries for five-years and
| then it's all balanced. You can turn the money Google needs to
| borrow (or not invest) at some interest rate into a known
| number.
|
| Any startup that is cash poor and especially one that is
| growing struggles. In year 3 you get to write off 20% of year
| 1's salaries, 20% of year 2's salaries and 20% of year 3's
| salaries.
| ak217 wrote:
| Yes, if you are a profitable company operating at a steady
| state and your investors have a time horizon of (in other
| words, are locked in for) a decade or more.
|
| Most companies in question don't fit these criteria. They are
| either large public companies subject to the reactions of the
| market to quarterly earnings, or small private startups that
| have limited cash (a runway of far less than 5 years) and are
| facing a perfect storm of a historic rise in the cost of
| capital coinciding with this change.
|
| In either case, their cost of labor just went up by a lot and
| will continue to cause layoffs, labor market shrinkage, and
| diminished ability to develop new products.
| kelnos wrote:
| > _Doesn 't this just amortize out to be roughly the same
| amount of deduction over the long term?_
|
| Yes, but if your business is not yet profitable, having to pay
| tax on money you don't actually have in the bank (because
| expenses exceeded revenue during the year) will cut into your
| runway, perhaps to the point that your company might not exist
| in five years... or even two or three.
| rvba wrote:
| Google, Facebook, Microsoft and many other of those old big
| companies are profitable though and they dont go anywhere in
| next 5 years (even if first 2 bleed out users)
| ec109685 wrote:
| Yes, big tech companies are lesser affected and they were
| already amortizing their expenses as "cap labor".
|
| It's a pretty bad article general and to blame the law change
| on this is all kinds of disingenuous: "It's no coincidence that
| Meta announced its 'Year of Efficiency' immediately after."
| mensetmanusman wrote:
| I wonder if this was an unintended consequence, or if the
| politicians backed by big business really wanted to disrupt the
| software infrastructure.
| LiquidSky wrote:
| If this article is accurate it doesn't sound like it. The
| change was a political tactic to make the tax bill it was part
| of comply with Senate budget rules on paper. Apparently this is
| a common tactic with tax bills, with the expectation that the
| changes will be repealed or altered in a later bill. There is a
| movement to repeal this change, but the effects have already
| been felt.
| bigbadfeline wrote:
| > 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 the books was well understood,
| and the declared "expectations" carry zero weight as
| evidence, even less than zero when coming from politicians.
|
| Legislation like that has far reaching consequences and
| pretend "surprise" just confirms the intent behind it. It's
| only prudent to assume that we have a common tactic case of
| throwing sheet at the wall to see _for how long_ it 'll
| stick. If there's no backlash the "tactic" will remain there
| forever.
|
| As another example of the same common tactic, consider the
| fact that all popular browsers have been used as Trojan
| horses into the users' local networks for like forever. At
| some point back in 2015 somebody objected so the browser
| makers started talking about fixing the problem but then
| stopped talking without fixing it because public opinion
| moved on to other areas affected by abundant sticky
| materials... Thus, that particular sheet remained on the wall
| for another 10 years and counting, and the story may repeat
| itself again.
| jrs235 wrote:
| When using bill reconciliation in order to avoid Senate
| filibusters to pass a budget, certain conditions must be
| met otherwise regular Senate rules and the need for 60
| Senators to be onboard to avoid a filibuster come into
| play.
|
| It's not cheating, it's playing by different rules to get
| most of what you want/need done and then sometimes those
| that played and gambled were intending to, or hoped to,
| make the changes later that require rules. Their hope is
| that 60+ Senators would be onboard for those changes
| because they (those that gambled and pushed the budget bill
| thru) managed to get what they wanted at the expense of
| #$%#ing something up that most others would then be willing
| to fix/address.
| axus wrote:
| Agreed. If the members of the majority party can
| compromise within their single-party system, and play by
| certain rules, everyone else is powerless to amend or
| block the legislation.
| snowwrestler wrote:
| 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 effects that are
| foreseen but considered more acceptable than other side
| effects.
| macintux wrote:
| > Any change hurts some people, harms others.
|
| Not quite the sentiment you intended.
| snowwrestler wrote:
| Ha! Call it a Freudian slip...
| kelnos wrote:
| > _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?_
|
| I don't think GP made any kind of value judgment either
| way; they were just stating how things seem to usually
| work.
| glookler wrote:
| Around ~2010 I still had a lot of coworkers who claimed tech
| was basically incapable of defending its interests against
| other sectors. Maybe a bit different than today. I don't doubt
| that they thought they would get this repealed, but I would
| suspect the risk of the live grenade went to the sector with
| the least lobbying competence per revenue for the tax
| equations.
| creer wrote:
| It was a very explicit change with its own very specific
| paragraph. Some stuff can be unintentional. This could not.
| dashqueen wrote:
| This doesn't quite fit into the article and is probably too
| inside baseball for a general business audience, but as I see it,
| there's a real and serious argument to be made here about how
| Section 174 changes restructured the cost architecture of tech
| employment (yes, even for big, cash-rich companies). When
| salaries could be fully expensed, the effective marginal cost of
| headcount was lower. Amortization means the same engineer now
| triggers a significantly bigger near-term tax bill. At scale,
| that's a serious shift in how labor costs flow through the P&L...
| functionally, op-ex becomes capex, and cash flow implications for
| big players run into the billions. But maybe it's me!
| walterbell wrote:
| _> op-ex becomes capex_
|
| i.e. some humans get the same tax treatment as humanoid robots,
| while LLMs ("AI") are always deductible as op-ex, regardless of
| function.
|
| Draft 2025 spending bill in Congress would revert Section 174
| changes for 2026-2029.
| nickff wrote:
| Only external LLM use is 'always deductable as op-ex'. If you
| build your own server farm and/or developer your own LLM,
| those are capital expenses which must be depreciated.
| walterbell wrote:
| What percentage of LLM use is based on internal purchase of
| $30K H100 GPUs? OpenAI projected 2025 revenue is $12B.
| reactordev wrote:
| Contractors licking their lips at the prospect of being a
| clients op-ex. I think you're right and hence the slow down in
| hiring top talent for top dollar.
| demosthanos wrote:
| Isn't this literally the content of the article? What you just
| wrote down is basically this paragraph from TFA:
|
| > And so, on schedule in 2022, the change to Section 174 went
| into effect. Companies filed their 2022 tax returns under the
| new rules in early 2023. And suddenly, R&D wasn't a full,
| immediate write-off anymore. The tax benefits of salaries for
| engineers, product and project managers, data scientists, and
| even some user experience and marketing staff -- all of which
| had previously reduced taxable income in year one -- now had to
| be spread out over five- or 15-year periods.
|
| [0] https://news.ycombinator.com/item?id=34627712
| subarctic wrote:
| Agreed that's literally what the article is about
| potamic wrote:
| This 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 would've been a
| huge uproar if this was done for cost of goods. Why are employee
| salary expenses any different?
| UncleMeat wrote:
| There are other expenses that are also amortized.
| sokoloff wrote:
| 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 over multiple years?
| londons_explore wrote:
| It's only shifting what year the government gets its revenue.
| The government should simply let the company choose how to do
| it, but if they choose anything other than year 1 interest
| will be payable at government bond rates.
| warkdarrior wrote:
| It's also massively shifting the companies' cash flows. The
| company paid $X for R&D this year, but for tax purposes 80%
| of that $X expense is moved to next four years. So for this
| year's tax purposes, the company R&D expenses are much
| lower than what the company paid.
| demosthanos wrote:
| 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.
| Retric wrote:
| > 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.
| demosthanos wrote:
| 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.
| Retric wrote:
| > Who does incentivizing R&D disadvantage?
|
| Taxpayers who end up with the bill and every company is
| competing for workers, office space, etc. Incentives
| across decades shift what people study, what business get
| created, etc. R&D sounds great abstractly, but it's not
| some panacea where unlimited funding results in pure
| gains.
|
| The economy is generally more efficient without central
| planning, and dumping money into anything that can be
| classified as R&D is simply inefficient.
| demosthanos wrote:
| > every company is competing for workers, office space,
| etc
|
| My company is all-remote and none of us would work for a
| company that isn't doing R&D. Most of an _entire
| profession_ now has to be amortized over 5 years.
|
| > The economy is generally more efficient without central
| planning
|
| The old tax code isn't "central planning", it just had
| the very reasonable property that the government wouldn't
| force you to pay taxes on a loss.
|
| This scenario [0] is now possible. It wasn't before. That
| is a catastrophic level of stupidity, and you can't
| justify it with invisible-hand nonsense.
|
| https://news.ycombinator.com/item?id=44204353
| Retric wrote:
| > none of us would work for a company that isn't doing
| R&D
|
| So you'd just be unemployed for the rest of your lives?
| That's a possible edge case not worth adjusting the tax
| code for, but it seems unlikely.
|
| > wouldn't force you to pay taxes on a loss.
|
| R&D is an investment, you only pay taxes if the rest of
| the company is profitable.
|
| If your company is spending 1M / year on R&D and not
| adding 800k in long term value then in theory you'd be
| correct. But at that point you either aren't doing R&D,
| or are doing such a poor job of it that the government
| shouldn't be encouraging that activity.
| HillRat wrote:
| The problem here is that _all_ software development
| (excepting that done for hire) is classified as R &D. The
| software developer working on your Wordpress or Magento
| site (and arguably the accountant building a spreadsheet,
| to take the statute at face value) isn't an operational
| expense, they're now an R&D expense that has to be
| amortized and can't be taken as an expense against
| revenue. Previously, this was an optional choice (and
| many large and mature companies were amortizing anyway),
| but under the current tax treatment it's required, which
| essentially turns early-stage startups into cash
| bonfires, given how many small companies don't make it to
| year five.
| Retric wrote:
| > Early-tags startups into cash bond fires
|
| As a practical measure it's really not. The transition is
| difficult for existing companies, but a future startup is
| going to be minimally impacted.
|
| Year 0 you're unlikely to have any profits, future years
| you have multiple years of R&D to offset with.
|
| But let's assume the worst case. Taxes are 21% of profits
| and at minimum deduction 20% of R&D so the theoretical
| maximum distribution is 0.8 * 0.21 = 16.8% increase in
| R&D expenses if profits = R&D year 0. But that maximum
| case is only year 0, you'd be able to fund R&D with those
| same profits and easily be profitable after that.
|
| If profits where say 40% of R&D in year 0 you'd have to
| pay 16.8% of 40% so an increase is only 6.72% hardly
| likely to tank the business if it's already generating
| that kind of income year 0, and again after that point
| you'll deduct for multiple years.
|
| More realistic numbers are going to be really low
| multiples here, _more importantly they represent
| significant investments not operating expenses._
| demosthanos wrote:
| > Year 0 you're unlikely to have any profits, future
| years you have multiple years of R&D to offset with.
|
| You're only unlikely to have no profits if you have no
| revenue. And you only get to break even 5 years in, which
| most startups will never reach.
|
| In practice what is likely going to happen is that we'll
| see more and more startups _deliberately_ avoid revenue
| in the early days. More and more free tiers followed by
| rug pulls when revenue actually becomes an asset rather
| than a liability.
|
| There is no _unplanned_ economy, only different outcomes
| from better or worse plans. And I 'm having a hard time
| imagining a worse plan than one that _intentionally
| disincentivizes_ businesses from adopting a sustainable
| business model early in their lifetime.
| Retric wrote:
| > unlikely to have no profits if you have no revenue.
|
| It's much easier to have revenue than profits, set the
| price lower and suddenly zero profit. Some company
| avoiding profits because of the 21% tax on profit like
| that would be mathematically dumb.
|
| > There is no unplanned economy, only different outcomes
| from better or worse plans. And I'm having a hard time
| imagining a worse plan than one that intentionally
| disincentivizes businesses from adopting a sustainable
| business model early in their lifetime.
|
| There's zero advantage to avoiding revenue or profit
| here. You're tilting at windmills.
|
| You simply need less investor money for R&D when other
| parts of the company are profitable. As to central
| panning, the mistake you just made is mitigated when many
| people are all independently making plans. Governments
| always need to get it right, the market is fine if some
| people get it right and therefore can reinvest in their
| success.
| jt2190 wrote:
| It sounds like you're talking about government funding of
| research? This is about private companies funding the
| costs of making product ideas into actual sellable
| products.
| Retric wrote:
| Money is fungible there's zero difference between a tax
| break for 100$ and handing out 100$ directly.
| jt2190 wrote:
| 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.
| Retric wrote:
| 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.
| jt2190 wrote:
| Thanks for clarifying.
|
| This will of course discourage "riskier" startups and
| dampen innovation and give more power to profitable
| incumbents who will have less incentive to innovate.
| (Perhaps the result of this looks like Europe?)
| Retric wrote:
| Risky startups with multiple years of R&D before revenue
| would be the least impacted.
|
| You're only paying taxes if the business is profitable
| ignoring investments like R&D spending.
| jt2190 wrote:
| You seem extremely confused.
|
| Section 174 specifically made those R&D costs "ignorable"
| from a tax standpoint. When it ended R&D costs could no
| longer be used to offset income.
| Retric wrote:
| What specifically do you disagree with? That R&D is an
| investment? I mean outside of the tax code that's what it
| means to do R&D.
|
| As to my other point, the highest risk category of
| startup has zero customers for years they also have zero
| revenue, zero profit, and zero taxes to pay here. On the
| 5th year they can deduct R&D from each of those years
| making the net effect on them minimal vs a startup with
| profits on year 0.
| kelnos wrote:
| > _The economy is generally more efficient without
| central planning_
|
| Big fat "citation needed" there. I know you chose the
| term "central planning" to try to invoke the communism
| boogeyman, but overall, free markets do not exist, and
| have never existed. Governments constantly use various
| levers (taxation being one of them) to encourage or
| discourage certain kinds of business activity. This is
| nothing new, and I find it laughable to suggest that this
| kind of thing should be done away with entirely.
| Retric wrote:
| There's a lot of evidence for this outside of communism.
| Housing markets for example are a clear example of
| economic inefficiency created by subsides. But you also
| see problems with farm subsidies, flood insurance, and a
| host of other related issues.
|
| Markets operate on revealed preferences, which is just a
| massive advantage in terms of giving people what they
| want. There's definitely a role for governments in
| economies around information asymmetry, safety, etc, but
| allocation of resources specifically doesn't work well.
| kelnos wrote:
| > _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
| that removing the exemption has reduced the amount of R&D
| done.
|
| Or, you could also say that the "default state" is some
| low level of R&D, and the tax exemption encouraged and
| incentivized more of it.
|
| Either way you slice it, though, the status quo prior to
| 2022 was some level of encouraged/incentivized R&D. That
| status quo changed to encourage/incentivize less R&D, and
| companies have followed these lack of incentives and have
| fired a lot of their R&D staff. Is that a good thing for
| the US? I can't see how it could be.
| Retric wrote:
| > 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.
| profile53 wrote:
| It didn't create a level playing field, it just
| discouraged a very specific type of R&D while ignoring
| all others. All other types of employee salaries follow
| certain rules and some can optionally follow R&D rules.
| Software is now the only one required to follow 5 year
| R&D amortization so the deck is now stacked against
| software.
| Retric wrote:
| Software is an asset. If you pay people to build a
| building you don't get to deduct their salaries as an
| operating expense.
| anp wrote:
| The default situation is whatever was yesterday. I'd be
| astonished to learn that even a single significant
| civilization functioned without subsidies or patronage of
| priorities held by a society's leaders.
| Retric wrote:
| > The default situation is whatever was yesterday.
|
| If Amazon delivered you a TV yesterday that doesn't
| suddenly become the default where you can expect another
| one today and every day after that.
|
| The US government does a new budget every year, making
| every year a new ballgame.
| anp wrote:
| No but if a TV was in my house yesterday I'd bet that
| it'll be there today.
|
| And my point about there being no natural state of
| subsidies is more important.
| Retric wrote:
| Those subsidies lasted a long time, but just as with a TV
| they didn't last forever.
|
| So if your argument is some subsidy will probably happen
| next year sure, but individual subsidies change over
| time. No specific subsidy is the default.
| anp wrote:
| This doesn't seem connected at all to your previous
| claim. You said that the default is an absence of
| subsidies?
| Retric wrote:
| There's no contradiction between saying:
|
| For any specific situation the default is no subsidy.
|
| With millions of situations some of them are not going to
| be at the default.
|
| In 500 years will some specific things be subsidized? Vs
| in 500 years will _something_ be subsidized?
| twoodfin wrote:
| 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.
| demosthanos wrote:
| From a quick search it appears to me like construction
| labor is deductible as an expense in the year it is
| incurred. Do you have evidence that says otherwise?
| kgwgk wrote:
| > Dear ChatGPT, is construction labor deductible as an
| expense in the year it is incurred according to GAAP?
| Please answer in a few lines.
|
| Under GAAP, construction labor is not immediately
| deductible as an expense in the year it is incurred if it
| relates to the construction of a long-term asset (like a
| building). Instead, it is capitalized as part of the
| asset's cost and then expensed over time through
| depreciation. Only labor costs not tied to asset creation
| (e.g., routine maintenance) are expensed as incurred.
| sokoloff wrote:
| Though your answer is correct for the tax code as well as
| GAAP, Generally Accepted Accounting Principles are not
| necessarily followed by the tax code.
| twoodfin wrote:
| Unfortunately my understanding of the R&D expensing rule
| is that it is lifted directly from GAAP, which means
| private companies have to adhere to those (heavyweight)
| rules to comply.
| kgwgk wrote:
| Fair point. I changed the question to "according to the
| tax code" and it told me that
|
| Construction labor is generally not deductible as an
| expense in the year incurred if it is related to the
| construction or improvement of a capital asset (like a
| building). Instead, under the U.S. tax code (IRC SS263A),
| these costs must usually be capitalized and recovered
| through depreciation over time. Exceptions may apply for
| certain small taxpayers or repairs.
| sokoloff wrote:
| My reading of SS 1.263A-1 is that construction labor must
| be capitalized.
|
| SS 1.263A-1.a.3.A indicates that it's in scope: Real
| property and tangible personal property produced by the
| taxpayer
|
| SS 1.263A-1.e.2 specifies that Direct Costs are subject
| to capitalization: Producers. Producers must capitalize
| direct material costs and direct labor costs.
|
| (I'm just a taxpayer, not a tax lawyer or even an EA or
| CPA.)
|
| What tax code references or treasury regulations did you
| find to support your belief that construction labor can
| be expensed in the year performed?
| sitkack wrote:
| Software is like Art, it doesn't have value until sold or
| can be used. If they sell services based on the software,
| they are generating revenue and then taxation on that
| revenue can occur.
|
| Same as if they sell the software, either as a copy or
| ownership.
|
| But not being able to take salary as a business expense
| seems like as thing that would happen if software in and of
| itself has value, which is largely does not.
| thaumasiotes wrote:
| > But not being able to take salary as a business expense
| seems like as thing that would happen if software in and
| of itself has value, which is largely does not.
|
| To me it seems like a thing that just wouldn't happen.
| Forget software.
|
| Say you own a McDonald's, and as part of your operations
| you have some people on staff to take orders, prepare
| food, and clean the bathrooms. Why are their wages not a
| deductible business expense?
|
| If the answer is "they are, don't be stupid", then...
| what exactly was the R&D tax break?
| jay_kyburz wrote:
| The software itself has no value, it's the licence to use
| the software.
| mixdup wrote:
| But the employee time that had a one time use was turned
| into software. That software is the thing that has value
| longer than "right now"
| demosthanos wrote:
| And the value of that software will be taxed if and when
| it starts to draw cash.
| polotics wrote:
| I have seen a lot of software development where what's been
| done has been changed beyond recognition over the course of
| less than a year.
| bravesoul2 wrote:
| Ironically I think they would want to claim that over
| multiple years unless they have other profitable operations
| under the same company. E.g. other restaurants.
| gamblor956 wrote:
| The appropriate analogy is:
|
| Imagine a restaurant spends money on employees to build 100
| tables, 500 chairs, etc. Those tangible goods would be
| capital assets, so the labor costs of building them would
| also be capitalized.
|
| This change to the tax code is just bringing the tax
| treatment of software development in line with how _every
| other industry_ is treated. IOW, it was closing a loophole. A
| very valuable loophole, whose beneficiaries used it to get
| filthy rich, and bragged about how their industry was so much
| more valuable than everything else, even though a lot of that
| value was due to the exception software was getting in the
| tax code.
|
| Notably, in the current version of the budget as of 6/6, the
| loophole is temporarily coming back, though given the Musk-
| Trump feud, it's very possible it will get pulled again to
| try to mollify the hardline deficit caucus.
| tomrod wrote:
| They should have the choice.
|
| If software lasted longer than 18 months or was otherwise
| tangible, this could also make sense.
| altairprime wrote:
| It makes sense when you consider that there is no minimum tax
| rate on businesses.
|
| Given the choice, Amazon would rather spend 100% of its profits
| on itself than allow any of its profits to be paid out in
| taxes. Section 174 was implemented without a minimum tax on
| corporate profits _before_ voluntary deductions such as
| research. Therefore, it's exploitable and all companies ought
| to hire and fire staff to ensure their profits show as 0%.
|
| This tax code defect is now closed by accident, but could have
| been done much more intelligently than it was. Oh well.
|
| (EDIT: My first sentence is potentially confusing when I reread
| it later. To restate: section 174 was defective as implemented
| due to the uncapped 100% deduction, but the _concept_ of a
| significant research exemption is still excellent. Just need to
| close the effective 0% corporate tax rate loophole.)
| thayne wrote:
| 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 paid.
| warkdarrior wrote:
| 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).
| bboygravity wrote:
| Yeah, make everybody equally poor. That'll solve things.
| altairprime wrote:
| If you look at happiness and indexes versus taxation
| rates - yes, making everybody poorer _does_ tend to solve
| things. Not too soon in the growth curve - but certainly
| not _never_.
| mattmillr wrote:
| Those two scenarios are only comparable if you isolate
| happiness and taxation and completely ignore things like
| social services and inequality.
|
| I think you're referring to Nordic countries which
| consistently rank as the happiest countries and also have
| relatively high tax rates (4 of 5 Nordic countries rank
| in the top 11 tax rates globally. Norway has oil.) The
| high taxes that "make everybody poorer" also fund
| extensive social services that contribute to happiness.
|
| However, this conversation is about making (a class of)
| workers poorer by using tax policy that puts downward
| pressure on their salaries. Tax revenues will stay the
| same, so social services will not be increased. Economic
| inequality increases because the workers became poorer,
| the C-Suite and Board Members don't.
| systemf_omega wrote:
| If you want equalized poverty, feel free to move to the
| EU. Say goodbye to owning a nice house, or building any
| kind of wealth - that's reserved for the old money class.
|
| In the US, software is one of the few remaining ways to
| achieve the American dream. I came to this country to
| work hard and earn money.
| azemetre wrote:
| Weird, I live in the USA make $180k yet still can't own a
| house and building wealth is extremely hard.
|
| EU has better societal benefits than the US (access to
| healthcare, education, mandated vacation time (often
| starting at 3-4 weeks).
|
| The vast majority of people care about living a life
| without suffering. In the US this is only reserved for
| the rich it seems.
| ciberado wrote:
| I don't think we share the same definition of poverty.
| californical wrote:
| Don't forget the other stakeholder - the general public.
|
| Yes it sucks for developers, but does it make any
| difference for any other employee? Why does Joe's plumbing
| have to pay those taxes, but Jane's AdTech company doesn't?
|
| Sure, there are benefits to investing in R&D in general,
| and tech has fueled a lot of growth, so incentivizing it
| has likely paid off for the whole economy. But will that
| forever be true? Maybe?
| klipt wrote:
| If Joe's plumbing hires an assistant plumber, they get to
| fully deduct the assistant's salary.
|
| Why do I, the hardworking tax payer, have to subsidize
| Joe Plumber, who already has a big house with a pool?
| jay_kyburz wrote:
| In some parts of the world we have a sales tax which is a
| form of minimum tax on business outputs. The consumers of
| plumbing and software pay 10% regardless on a businesses
| profitability.
| altairprime wrote:
| Yeah, VAT would help tremendously in alternative here,
| but for _gestures at United States sociopolitics_ reasons
| the existing U.S. taxation methods can't keep up and
| won't be repaired any time soon. I could boil the ocean
| on this down to bedrock (citizens should be taxed on
| [redacted] in excess of threshold, services and goods
| should be VATed) but I stand by "section 174 with a
| sub-100% cap" as what _at minimum_ would have balanced
| research and taxation.
| thayne wrote:
| In many parts of the US there _are_ sales taxes, but they
| are state or local taxes, not federal taxes.
| thayne wrote:
| Joe's plumbing doesn't have to pay those taxes.
| Operational costs, including paying employees for normal
| operations, is deductable.
|
| But with the change, the cost of R&D employees is now
| only partially deductible (right now, you can eventually
| deduct the full amount over the course of several years),
| and software development has to be considered R&D.
| Hilift wrote:
| The company does not pay payroll taxes. Individuals pay
| those taxes.
| bix6 wrote:
| It's split but the company pays more. Both pay SS and
| Medicare. Company also pays unemployment.
| thayne wrote:
| It doesn't actually matter that much who actually writes
| the check to the government (although in the US, both
| parties pay taxes).
|
| Either way, the total cost of employment is higher for
| the employer than the after-tax income of the employee.
| samrus wrote:
| It matters alot. Both the employee and employer are
| benefitting from government spending, the employee
| shouldnt have to foot the whole bill. That is dytopian
|
| If corporations were able to operate in a high trust
| fashion and actually take responsinility for their tax
| burden properly, instead of trying to shirk it, then this
| policing wouldnt be needed, but we dont live in that
| world
| thayne wrote:
| Suppose amount of money an employer is willing to pay for
| an employee is $100,000. For the employer, if there is a
| $20,000 payroll tax, then the employer would only pay the
| employee $80,000 to keep the total cost at $100,000. If
| the employee pays the tax, then the employer will pay the
| employee $100,000, then the employee pays $20,000 and has
| $80,000 after taxes. Either way the employer pays
| $100,000 and the employee gets $80,000. It doesn't matter
| which party is paying the government $20,000*.
|
| Now, there are other tax schemes that aren't based on how
| much an employee is paid, but that is a completely
| different matter.
|
| And FWIW sales/vat tax is somewhat similar. It doesn't
| matter if the buyer or the seller pays the tax, either
| has the same effect on the total amount paid.
| myroon5 wrote:
| For anyone wanting to read more on the topic:
|
| https://wikipedia.org/wiki/Tax_incidence
| cyberax wrote:
| > 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.
| californical wrote:
| 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 also unlock innovation by giving the
| bottom-quartile of earners a chance to improve their
| situation.
| cyberax wrote:
| > 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.
| shafyy wrote:
| Jesus man, how can you look at the economic history of
| the past 30 years and still think neoliberalism is the
| way to go?
| cyberax wrote:
| I used to think like you, until I saw what the lack of
| neoliberalism does to countries. And before I witnessed
| the magic of market economy that adapts to changes far,
| far, far better than anything else.
|
| If you want a static economy that supports gradual
| decline (preferably with a mineral-based income stream),
| then a lot of state spending is fine.
| klipt wrote:
| Real neoliberalism (with land value tax and pigouvian
| tax) has never been tried.
| kfkdjajgjic wrote:
| https://en.wikipedia.org/wiki/No_true_Scotsman
| tomrod wrote:
| Then you misunderstand, the markets and economies of the
| past 5 decades have been two children playing Candyland.
| Saying it's not is a No True Scotsman fallacy, because
| clearly since I labeled it as Candyland economy it must
| be so.
| GuinansEyebrows wrote:
| because a high percentage people on HN fall into the
| group that benefits more from neoliberal economics than
| the larger group of people within those economies who
| don't benefit.
| shigawire wrote:
| The brand of neoliberalism where the fox sets up shop in
| the henhouse does not work.
|
| State spending is not a panacea.
| tomrod wrote:
| Same as the communists, in that it hasn't been truly
| implemented anywhere?
| Nasrudith wrote:
| I don't have the brain-rot of calling all of mainstream
| economics 'neoliberalism' so I have absolutely no idea
| what you are trying to say here.
| duped wrote:
| It can do both, by eliminating corporate taxes.
| philjohn wrote:
| At that point, do we need to fundamentally rethink
| political donations by companies (outright ban them) and
| SuperPACs? No representation without taxation.
| cyberax wrote:
| Absolutely, companies should not be involved in politics.
| It's impossible to _fully_ get them out of politics, but
| we can at least minimize it.
| zdragnar wrote:
| Those salaries are also taxed, and at the highest tax
| brackets. The government may end up getting more revenue
| that way.
| xiphias2 wrote:
| The answer is simple: it's the biggest growth generator
| in USA.
|
| Growth has its own problems of course (I don't want to
| estimate the health impact of Coca Cola), but it's a
| prerequisite of a country not falling behind others.
| orwin wrote:
| Mostly, Amazon will do stock buybacks, so that its investor
| can invest into other top stocks.
| cyberax wrote:
| Funds for the stock buybacks are not R&D, they'll be
| taxed.
| jwlake wrote:
| In this theory you should tax revenue and not profit. Welcome
| to VAT.
| vpribish wrote:
| after 5 years then every year is deducting a whole year's
| worth of R&D - as long as that investment is not too lumpy
| from year to year you are back where you started
| masterjack wrote:
| Which is fine for steady companies, but perpetually drags
| down any rapidly growing company
| vpribish wrote:
| exactly. so this policy which was ostensibly about
| closing a loophole used by big tech is actually a benefit
| to big tech because it keeps disruptive new competitors
| from arising. regulatory capture strikes again.
| runeks wrote:
| > Given the choice, Amazon would rather spend 100% of its
| profits on itself than allow any of its profits to be paid
| out in taxes.
|
| _" on itself"_???
|
| You mean it would rather spend its profits on hiring more
| developers than sit on it? That sounds great, doesn't it?
| Nasrudith wrote:
| That isn't a loophole. It is working exactly as was intended.
| Reinvesting is good.
|
| The deal is that you can delay taxes by reinvesting (and
| either make the government more money at the end or lose it
| all if you were a fool, but you gain nothing by losing it
| all) but you cannot skip them when it comes to taking the
| profit out. The entire point of it was to promote investment
| into businesses which has kind of been a crucial factor in
| international competitiveness since the Industrial
| Revolution. Remember the fall of US Steel? That happened
| because they didn't reinvest.
| mountainriver wrote:
| It was literally just a shot at California and New York, that's
| all it was. "Own the libs" ya know
|
| "if we aren't rich then no one else will be"
| patmcc wrote:
| Employee salary cost isn't _always_ 100% an expense.
|
| Imagine you are BigCarCo, you make cars. The salary for your
| factory workers that build cars to be sold is an expense,
| incurred in that year, to be matched against the revenues
| earned by selling those cars. But the cost to build the factory
| needs to be amortized over the lifetime of the factory - and
| that's true whether you buy a factory from BigFactoryCo or hire
| a bunch of people to build it.
|
| Now, I'd argue that a) most software dev work is closer to the
| factory worker than the factory builder and b) the lifetime for
| most software is less than 5 years, but the idea that _some_
| cost of developing software should be amortizable is pretty
| reasonable.
| jillesvangurp wrote:
| Actually, if the company isn't selling the software they
| build, what their software devs do is closer to building a
| factory rather than working in it.
|
| Mostly developing software is about automating things that
| are expensive and slow to do manually. So, to stick with the
| factory analogy, it makes the factory a bit better and more
| efficient. If you stop doing that because it is too
| expensive, you fall behind with your factory.
|
| Of course the whole issue in the US is that it outsourced
| much of what happens in factories to China and software has
| become one of the main things the country runs on.
| patmcc wrote:
| If the restaurant buys e.g. a fancy oven or a delivery truck,
| it can't expense 100% of that cost in year 1, it has to spread
| that cost over the lifetime of the oven or truck.
|
| Labor that operates the business day-to-day would be an
| expense, labor that creates a capital asset is more
| complicated.
|
| I happen to think _most_ employee time in software dev is more
| on the day-to-day operation side, and should be expensed, but I
| can see an argument that some should (or could) be amortized.
| DSMan195276 wrote:
| > If the restaurant buys e.g. a fancy oven or a delivery
| truck, it can't expense 100% of that cost in year 1, it has
| to spread that cost over the lifetime of the oven or truck.
|
| The difference of course is that you'll have a truck or oven
| that can be sold. If you could count the full value in the
| first year then you could sell and buy one each year to
| reduce your taxes without actually changing anything.
|
| Thus if we want to go that route for software the salary of
| the R&D employees should be counted against the value of the
| software they created (As in, the value were it to be sold
| wholesale to another company). The time spent by the
| employees is not an asset, once you pay the employees for
| their time it's gone even if they generated nothing of value.
| The actual value is that of the software, but that's
| obviously not easily assigned a value.
| rpeden wrote:
| It's a lot easier to get financing for a tangible asset like
| an oven or a delivery truck, which mitigates the cash flow
| issue.
|
| Sure, you can only deduct a certain percentage of the asset's
| value as an expense each year, but your cash expenditures to
| pay for it are also spread over a multi year period.
| gnopgnip wrote:
| It's the same for movies, other intangible assets that are
| valuable and produce income over several years. And it's done
| for many tangible goods, like servers in a datacenter, the
| kitchen equipment in a restaurant.
| Schiendelman wrote:
| I think you may misunderstand. For most of those, you get the
| _choice_ to amortize if you prefer. In this instance, you
| _must_ amortize, which is a big problem for startups.
| gnopgnip wrote:
| Generally it's not a choice. Valuable assets are required
| to be amortized over their useful life with limited
| exceptions
| rpeden wrote:
| For the tangible ones, it's often relatively easy to get
| financing that lets you spread the payment over the
| asset's useful life, which solves most of the cash flow
| issues you get if you pay in cash up front but have to
| spread the expense over many years.
| Schiendelman wrote:
| Your previous comment mixed tangible and intangible. R&D
| is intangible, so I focused there. Your response mostly
| applies to tangible. I think the other reply to you here
| makes a great point. Let's try not to talk past each
| other!
| dang wrote:
| Related. Others?
|
| _Big Beautiful Bill R &D Tax: Will tech go on a hiring spree
| again?_ - https://news.ycombinator.com/item?id=44028106 - May
| 2025 (19 comments)
|
| _The Consequences of Limiting the Tax Deductibility of R &D_ -
| https://news.ycombinator.com/item?id=43639202 - April 2025 (64
| comments)
|
| _House restores immediate R &D deduction in new tax bill_ -
| https://news.ycombinator.com/item?id=39212650 - Feb 2024 (8
| comments)
|
| _Ask HN: Best country to run a boostrapped startup from? (After
| Section 174)_ - https://news.ycombinator.com/item?id=39098371 -
| Jan 2024 (31 comments)
|
| _US tech innovation dreams soured by changed R &D tax laws_ -
| https://news.ycombinator.com/item?id=38988129 - Jan 2024 (3
| comments)
|
| _Ask HN: IRS section 174 - cause of layoffs?_ -
| https://news.ycombinator.com/item?id=38957651 - Jan 2024 (21
| comments)
|
| _Will US companies hire fewer engineers due to Section 174?_ -
| https://news.ycombinator.com/item?id=38931860 - Jan 2024 (37
| comments)
|
| _Will US companies hire fewer engineers due to Section 174?_ -
| https://news.ycombinator.com/item?id=38870429 - Jan 2024 (20
| comments)
|
| _IRS tax code change in Section 174: R &D is an expense_ -
| https://news.ycombinator.com/item?id=38642461 - Dec 2023 (23
| comments)
|
| _New tax rules on R &D expenses may lead to layoffs for devs_ -
| https://news.ycombinator.com/item?id=38636866 - Dec 2023 (7
| comments)
|
| _Tell HN: People laid off in my company due to IRS Section 174
| changes_ - https://news.ycombinator.com/item?id=38633668 - Dec
| 2023 (6 comments)
|
| _Tell HN: Submit comments to IRS re tax treatment of software
| dev expenses_ - https://news.ycombinator.com/item?id=38120388 -
| Nov 2023 (225 comments)
|
| _Software firms across US facing tax bills that threaten
| survival_ - https://news.ycombinator.com/item?id=35614313 - April
| 2023 (981 comments)
|
| _Ask HN: How are you handling Section 174 changes for
| bootstrapped companies?_ -
| https://news.ycombinator.com/item?id=34627712 - Feb 2023 (187
| comments)
|
| https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...
| dmoy wrote:
| Not a big thread, but a layoff one from a year ago:
| https://news.ycombinator.com/item?id=38633668
| dang wrote:
| Added. Thanks!
| timhigins wrote:
| 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.
| margalabargala wrote:
| "I'll give you a candy bar if you let me stab you multiple
| times"
| kelnos wrote:
| If the article is to be believed, though, the damage is already
| done. Companies have already laid off large portions of their
| R&D staff, and have canceled lots of forward-looking technical
| work. Re-hiring those people and restarting those projects can
| take years, and that's if companies feel confident enough that
| the exemption will stick around, and not get removed again in a
| few years.
| almosthere wrote:
| It's always young companies that hire everyone, so it still
| helps.
| EricDeb wrote:
| Still, I'll take it
| jmyeet wrote:
| I 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 a massive opportunity. A few
| companies may have needed to do layoffs but that created the
| opportunity for everyone else. Big Tech just went full Corporate
| America with a page straight out of Jack Welch: fire the bottom
| 5-10% every year. Call it "layoffs". It's a direct pay decrease
| for those who remain (who get assigned the work). Those are still
| there won't be asking for raises because they're now afraid of
| their jobs.
|
| Very little of this was ever necessary. None of the big tech
| companies ever came close to making a loss. They've remaining
| insanely profitable, in total and on a per-worker basis. At
| different times Google's per-worker profit has approached or
| exceeded $1 million.
|
| The other factor is these companies eventually reached their size
| limits where antitrust stopped them making any more significant
| acquisitions.
|
| Consider the timing: this change came in 2017. Where were the
| mass layoffs in 2018? 2019?
|
| Also, the 2017 tax cuts contained a massive tax holiday for the
| repatriation of foreign profits.
|
| Mass layoffs are simply wage suppression. It's the end state for
| any company that can't keep growing the way the market demands:
| eventually it comes down to cutting costs to make those quarterly
| profit targets. And in that, they sow the seeds of their own
| demise.
|
| [1]: https://en.wikipedia.org/wiki/Zero_interest-rate_policy
| Seattle3503 wrote:
| > 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.
| khuey wrote:
| Things can have more than one cause. Even the article only
| claims this change "has contributed to the loss".
| jmyeet wrote:
| Yes. And I reject that claim.
|
| Big tech companies are both doing mass layoffs AND hiring.
| How does this fit the narrative that the tax change is at
| least in part responsible? The new hires still have the same
| deduction issue, right? So what impact does this really have?
|
| Think of it this way: if this passes, will the layoffs end?
| Or reduce? Absolutely not. All this does is give line the
| pockets of shareholders. That's it.
|
| I'm a big fan of tying certain benefits to NOT doing layoffs.
| This can include:
|
| 1. You get this deduction only if you've fired fewer than 1%
| of your workforce in the last calendar year;
|
| 2. You don't get to sponsor for an H1B if you've conducted
| ANY layoffs in the last calendar year; and
|
| 3. The tax deduction only applies to unionized workers.
|
| And while we're at it, let's roll back this ridiculous tax
| structure where IP can be "sold" to a subsidiary in Ireland
| and then royalties paid.
| sylens wrote:
| Things wouldn't be called layoffs then, people would just
| be aggressively PIPed out
| jmyeet wrote:
| That's a solvable problem and probably already solved.
| Fire more than a certain threshold of your employees over
| a certain period for any reason and it's a layoff in
| effect, say 3% over 12 months.
| jen20 wrote:
| > Big Tech just went full Corporate America with a page
| straight out of Jack Welch: fire the bottom 5-10% every year
|
| Plenty of "big tech" already did it. Microsoft could not be
| more famous for stack ranking dating back to the 90s. Amazon
| have long had that kind of culture too.
| svara wrote:
| > 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?
| dadoprso wrote:
| I thought you could carry forward losses or something. i.e.
| Once profitable you can use your previous losses as 'tax
| credits'.
| satya71 wrote:
| Yes, but businesses operate on cash, not tax credits.
| edoceo wrote:
| If you make it that far.
| mNovak wrote:
| So you're essentially giving the government a 0% interest 5
| year loan, in the amount of the pre-paid taxes
| mppm wrote:
| 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.
| deanputney wrote:
| That is kind of strangely worded, but I think I see what
| they're getting at.
|
| Say you would have been exactly not-profitable ($0) if you
| could expense all of your R&D as in the old system, therefore
| avoiding tax. Now with the new rules you may be on-paper
| profitable because you can only deduct 20% of the R&D as an
| expense this year. The remaining 80% of that expense tips you
| over, becomes profit, and that's taxable.
| orangecat wrote:
| Right. With concrete numbers, say your main expense is $1
| million in developer salaries and you have $500k in revenue.
| Going by the previous rules, you have a loss of $500k and
| don't owe income tax. With the new rules, you can only deduct
| $200k of expenses which gives you a "profit" of $300k, on
| which you'll owe $62k in taxes.
| wdaher wrote:
| Here's a toy example that hopefully makes this clear:
|
| In 2024, your business has $1m in revenue and has $2m in
| expenses. 100% of these expenses are R&D salaries (engineers
| you hire.)
|
| Your company loses $1m/year. (You brought in $1m and spent
| $2m.)
|
| Under the old rules, you'd owe no tax because you were
| unprofitable.
|
| After Sec 174, what the IRS now says is:
|
| You had revenues of $1m. But you only had $400k in expenses
| (because you now have to spread that $2m in R&D expense over 5
| years).
|
| So actually you had a profit of $600k! And you owe tax on that
| $600k profit (~$120k)
|
| So you now have an additional $120k tax expense, making your
| business even more cash-flow negative.
|
| .
|
| Amusingly, if you're pre-revenue, none of this matters (you
| have no income at all, so it doesn't matter what your expenses
| are.) You get hardest hit by this change when you have _some_
| revenue and when you do a fair bit of R &D.
| svara wrote:
| 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.
| wdaher wrote:
| This is what the Sec 174 change said: it says that you _do_
| have to capitalize it.
| mppm wrote:
| 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.
| svara wrote:
| 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 ;)
| mppm wrote:
| 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 :(
| bravesoul2 wrote:
| I was confused and has to double check. In Australia you
| can deduct them https://www.ato.gov.au/businesses-and-
| organisations/income-d...
| 0xWTF wrote:
| Came here to ask about the Aussie RDTI. So, if I spend
| $10M on R&D and make $5M, what's the difference between
| US and Aussie net?
| anticensor wrote:
| Some countries have uniform accounting where the tax
| accounting rules closely follow IFRS.
| paulcole wrote:
| But nobody's forcing you to classify software developers as
| R&D.
| demosthanos wrote:
| No, that's literally the Section 174 change. You now must
| count them as R&D.
|
| The relevant paragraph from Section 174:
|
| > (3) Software development
|
| > For purposes of this section, any amount paid or incurred
| in connection with the development of any software shall be
| treated as a research or experimental expenditure.
|
| https://www.law.cornell.edu/uscode/text/26/174
| mring33621 wrote:
| what if you don't call it "software development"?
|
| how about "business process mechanization"?
| nsxwolf wrote:
| Then you risk going to jail.
| brookst wrote:
| At that point you're so into tax fraud that you light as
| well call them "postage and shipping"
| acedTrex wrote:
| I mean sometimes fraud works, sometimes it doesnt.
| xhkkffbf wrote:
| What if some executive tweaks a "no code" tool?
| Technically, the name says that there's no coding
| involved.
| zdragnar wrote:
| Presumably that still counts as "developing software"-
| the regulation doesn't mention "coding" at all.
| xhkkffbf wrote:
| A fair point.
|
| Or is it "using software"?
|
| A person typing an essay with a word processor in doing
| more work than many of the users tweaking no code
| software.
| zdragnar wrote:
| A person typing an essay with a word processor is
| producing an essay. A person using a no-code tool to
| modify a software process is producing software
| processes.
|
| The nature of the tweak involved probably determines the
| classification of the effort, but for tax purposes and
| R&D expense amortization, it is a percentage of time
| basis.
|
| If the executive tweaks the code once, the percentage is
| so small it won't count as far as anyone cares.
|
| If 20% of the executive's time is tweaking the tool, then
| odds are the company cannot expense 20% of the
| executive's salary and instead must claim that portion as
| R&D over five years.
|
| Back before 174, I worked for a company that _did_ claim
| R &D but only for one of the projects I worked on. As
| such, I had to be careful filling out my timesheet
| because they wanted an accurate accounting of what was
| salary expense and what was R&D.
| inChargeOfIT wrote:
| So that would include everything? - cloud/hosting
| expenses - system administrators/devops engineers and
| their laptops, workstations - project management
| software, office software, support, etc - project
| managers, designers, technical writers, qa engineers -
| software licenses, domain names, certificates, etc -
| internet bandwidth, data-centers, HVAC, backups
| demosthanos wrote:
| What "in connection with" means is vague. I think a
| reasonably competent tax attorney could probably argue
| that the costs of running your production cloud serving
| existing customers don't count, but IANAL.
| croes wrote:
| How would that help? R&D developers helped saving taxes,
| now they don't.
|
| Classifying them as non R&D doesn't help saving taxes
| again.
| jorvi wrote:
| > Amusingly, if you're pre-revenue, none of this matters (you
| have no income at all, so it doesn't matter what your
| expenses are.)
|
| https://youtu.be/BzAdXyPYKQo
| lostlogin wrote:
| There is so much gold in that show. Just rewatching it now.
| Fucking billionaires...
| throwawaymaths wrote:
| so you are okay, if you start getting revenue when you're
| five years in?
| singron wrote:
| You can deduct 100% of salaries paid 5 years ago, but only
| 20% of salaries last year (etc.), and since companies tend
| to hire more people over time, most of your expenses will
| have been in the last few years that are still amortizing.
| You might have enough losses to carry forward in your first
| year of revenue, but 6 years in that could run out. It
| depends on the exact circumstances.
| MattPalmer1086 wrote:
| 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.
| gruez wrote:
| >Wait - they are saying that employee salaries are not
| expenses?
|
| >That is surely wrong? Just because those salaries are for
| R&D?
|
| The same would be true if you hired a bunch of
| scientists/engineers and got them to do R&D.
| triceratops wrote:
| Would it also be true if you hired a bunch of
| construction workers and got them to build a stadium?
| gruez wrote:
| Buildings have to be depreciated, so probably? If you
| have to depreciate a building if you buy it, why should
| you get a free pass just because you built it yourself?
| mixdup wrote:
| 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
| MattPalmer1086 wrote:
| So? They are all costs, whatever their source.
|
| In the UK, business gets taxed on _profit_ , which is
| what is left from revenue after subtracting costs.
| tomrod wrote:
| This was my first reaction when I heard about it before it
| passed. I was horrified.
| antognini wrote:
| They are expenses, but amortized over 5 years. So if you
| spent $2m on employee salaries, you would then deduct $400k
| from your revenue every year for 5 years.
|
| If your employee expenses remained constant, then by year 5
| you would be deducting $2m from your revenue since you'd be
| accumulating the deductions from the previous four years.
|
| So in steady state it wouldn't necessarily be a big
| problem. But for a startup which is hiring many new
| employees and whose revenue is growing it's a huge problem.
| svara wrote:
| Based on my exchange with wdaher, who seems to understand
| this well, it's a bit more subtle than that:
|
| The salaries are of course expenses, but they are exactly
| offset by the value of the IP created by the R&D
| activities.
|
| It's a bit as if you spent money on buying some materials.
| As long as the material doesn't degrade, the cash is gone
| but the value is the same and therefore won't reduce your
| taxes.
|
| If that IP is amortized over a single year, it does not
| contribute to taxation, but it does if it is amortized over
| a longer period.
| patmcc wrote:
| They're still expenses, they just now need to be amortized.
|
| Buying a truck is an expense, as is buying gas for the
| truck. But the former you have to amortize over x years,
| the latter you can expense immediately.
|
| The law used to be "employee salaries for software are like
| buying gas" and now it's "employee salaries for software
| are like buying a truck".
| jandrewrogers wrote:
| 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.
| patmcc wrote:
| 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. It would be entirely appropriate to amortize
| the cost of creating that software over those ten years,
| based on the matching principle (a fundamental idea of
| accounting, matching expenses with revenue).
|
| The issue in the real world is that's not how the
| software industry actually works, 99% of the time.
| jandrewrogers wrote:
| As anyone that has ever sold software IP knows, most of
| the value is vested in the person that wrote the code,
| not the code itself. The code is not a factory, it is the
| output of the factory.
| simoncion wrote:
| > ...most of the value is vested in the person that wrote
| the code, not the code itself.
|
| You must have misphrased what you intended to say. If
| what you wrote was true, a software company's most
| valuable asset would be the specific programmers in its
| employ. If true, average tenure of a programmer would be
| _way_ longer than 1.5- >2 years as companies worked
| _really_ , _really_ hard to keep their most valuable
| assets from walking out the door into the doors of
| another company just to get reasonable pay increases.
|
| Perhaps your opinion is influenced by doing post-
| collapse-sales of a whole bunch of software houses that
| built just plain bad software? I can't see why else you'd
| be selling "software IP" independently of the rest of the
| business.
|
| Anyway. Given that information, how should you have
| phrased what you wanted to say?
| jandrewrogers wrote:
| Most programmers do approximately zero work that is R&D.
| The most you lose if they walk out the door is
| institutional knowledge.
|
| On the other hand, I've worked almost exclusively on
| software R&D for decades and seen the loss of a single
| person effectively end a project even when the software
| was essentially finished. Software R&D is about
| developing abstract knowledge, concrete implementation
| code is just a useful byproduct of that since R&D is
| typically motivated by a specific novel requirement.
|
| If the software IP that results from R&D is not core to
| your business or a competitive risk, there is money to be
| made by licensing it. I've licensed this type of IP to
| big tech companies a number of times. If you are not
| actually doing software R&D, you are unlikely to be in a
| position where this is a possibility.
|
| In almost every IP sale and licensing deal for software
| R&D I've seen, the value of any code is almost entirely
| conditional on retaining the services of person(s) that
| designed and wrote it. The entire "acquihire" phenomenon
| is an explicit admission of this. This is true even when
| the code is in a mostly finished form. Companies are
| buying capability, not revenue, so the code can't be a
| black box to their engineers. Companies usually spend
| more to acquire people with the code knowledge than the
| actual code.
|
| The practical reality is that it is difficult to reverse
| engineer abstract knowledge from a concrete
| implementation. No one wants your code per se, they want
| to adapt your code to a different application that
| requires having a deep understanding of the domain the
| code represents -- they don't know what they don't know.
|
| If you are just grinding out software that could be vibe
| coded then there is minimal asset value being created in
| the software artifacts. Anyone else would be better off
| reimplementing it themselves.
|
| So yes, almost all of the value of code produced by
| software R&D vests in the people that wrote it. This is
| evident across many software IP transactions.
| simoncion wrote:
| > Most programmers do approximately zero work that is
| R&D.
|
| So, what you're saying is one or more of the following:
|
| 1) The work of most programmers should not be considered
| R&D, and shouldn't be covered by tax schemes intended for
| R&D.
|
| 2) Most "software IP" in the industry is _not_ the result
| of R &D.
|
| 3) You've rarely been involved in the sale of non-R&D
| "software IP". (Do recall that your original statement
| was "As anyone that has ever sold software IP knows, most
| of the value is vested in the person that wrote the code,
| not the code itself.")
| demosito666 wrote:
| > The issue in the real world is that's not how the
| software industry actually works, 99% of the time.
|
| What would be a more appropriate model from accounting
| perspective?
| 8note wrote:
| the company owns the IP that the employee made though.
|
| if anything, the amortization should match copyrights or
| patent lengths
| gamblor956 wrote:
| _What taxes do unprofitable US businesses owe that this would
| be deducted against?_
|
| An unprofitable business doesn't pay income taxes. Businesses
| are taxed on their net income (i.e., profit).
|
| People are railing against this as the cause of tech's recent
| underperformance, but it was a non-factor for the vast majority
| of tech companies, because most tech companies aren't
| profitable and wouldn't have paid taxes anyway.
| sitkack wrote:
| Is there a flaw in saying, "salaries should always be considered
| a business expense and cannot be amortized over many years." ?
| warkdarrior wrote:
| That's not what the law says. You'll have to take it up with
| Congress.
| fluidcruft wrote:
| I think they're asking whether there would be a flaw with
| making that change.
| eximius wrote:
| Considering they are probably the largest component of R&D
| expenses... yes, _if_ you think R&D should be tax-subsidized in
| some way.
| sitkack wrote:
| I don't understand how that is a subsidy, are the people
| paying the employer?
|
| The employer makes less profit due to salaries, but they
| won't "lose less" or make more money due to salaries.
|
| Under that argument, the government would have a direct
| incentive to dictate how businesses do business to maximize
| taxable revenue.
| eximius wrote:
| Tax subsidies are when the government taxes you less,
| thereby reducing your tax burden. You don't receive funds,
| you just owe less.
| holtkam2 wrote:
| I would say, yes there is a flaw there, because salaries are
| often a huge chunk of R&D expenses, and for the sake of long
| term growth, we want to disproportionately incentivize R&D
| spending
| sitkack wrote:
| I think you inverted your understanding. My phrasing is
| inline with incentivizing R&D, or not dis-incentivizing it.
| creer wrote:
| How about the salaries of employees being paid to create a new
| line of business? Say, the business runs restaurants and you
| decide to break into the tax software business. Can you avoid
| taxes on restaurant profits right now in order to build your
| new unrelated venture. ISFICR, tax law allowed outright
| deducting of costs of the current business, but not costs for
| starting a new one. Not deducting the new costs against the old
| profits.
|
| After that, we can nitpick: should the development costs of new
| software be encouraged the same as maintenance costs of
| existing software. If you want to encourage startups, then yes
| they should. If you want to discourage startups or very
| temporarily increase tax collection, then no.
| sitkack wrote:
| > restaurant profits
|
| lol
|
| Discouraging starting new businesses would be
| unconstitutional. All freedom in the US is derived from being
| able to participate in controlling capital.
| anticensor wrote:
| They may want to encourage certain kinds of business over
| others.
| patmcc wrote:
| Yes, I think there are two similar but subtly different flaws
| in that _always_.
|
| 1) Accounting rules are to match revenue with the expenses
| responsible for them, which I think is a good principle. If
| your workers make something now that provides revenue for 5
| years, it makes sense to spread that expense over 5 years too.
| In many cases, you would want to do that as a business, makes
| it more clear how your business is profitable vs not.
|
| 2) Decisions whether to "build vs buy" a capital asset should
| not have massive tax implications. If I buy CoolSoftwareProduct
| from someone and resell it for the next 5 years, I'd have to
| amortize that. Should be similar if I hire a coder to write
| CoolSoftwareProduct instead.
|
| (This doesn't mean that "salaries should _always_ be amortized
| " is the right answer, of course, I think it's a very silly
| law)
| sitkack wrote:
| Thank you.
| encoderer wrote:
| How this impacted our business is that when you are doing next
| year planning, and the goal is to grow the business, it made ads
| and other marketing investments more appealing versus tech hiring
| to expand product capabilities.
| wdaher wrote:
| 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.
| NewJazz wrote:
| That's crazy. We're 3 years into a 5 year depreciation cycle,
| and now they "change their minds". Sure convenient when you
| know you are in power to supercharge growth and leave a time
| bomb for the next admin.
| xbar wrote:
| 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.
| naijaboiler wrote:
| Why sent tech companies and tech workers kick up a fuss when
| this bill passed in 2017. I remember being mad about it
| sanderjd wrote:
| Yeah I think we did kick up a fuss?
|
| The better question is why the tech industry seemed to
| forget that the first Trump administration was terrible...
| _dark_matter_ wrote:
| Lol only for it to kick back in in 2029 during the next
| administration. Your employment has now become a bargaining
| chip in the GOP's handbook.
| bequanna wrote:
| I don't follow. Why is the GOP to blame here?
|
| If the other party allows these cuts to expire, why
| wouldn't you blame that party?
| _dark_matter_ wrote:
| These were... Introduced, and passed, by the Republican
| party? Seems kinda obvious that we should blame them. Let
| me know who you blame for cancer: the tumor or the doc
| who "let it happen"
| walterbell wrote:
| _> ends this particular change_
|
| Temporarily, for 5 years.
| badloginagain wrote:
| If remember correctly, this was put in by Trump first round,
| set to activate when Biden was in office.
|
| Now Trump second round fixes it, but expires in next
| (presumably) Democrat administration.
| heymijo wrote:
| That is correct. Some historical context is much
| appreciated in this thread.
|
| > _tl;dr on Section 174, Research & Experimentation costs
| went from being fully deductible in the year incurred to
| being deductible over a 5 year period.
|
| Larger tax bills and a tightening on what roles/activities
| are deductible as R&E are likely what OP is pointing at
| with his comment.
|
| To the best of my non-inside baseball research, Section 174
| changes were simply one part of a package of revenue
| generating measures to offset the large tax cuts from the
| broader tax act they were a part of.
|
| The changes came from The Tax Cuts & Jobs Act of 2017 that
| was introduced to the House of Representatives by
| Congressman Kevin Brady (R) Texas. The bill passed both
| houses of Congress along party lines. Then President Trump
| signed the bill into law. Section 174 changes did not take
| effect until 2021._
|
| https://news.ycombinator.com/threads?id=heymijo&next=433209
| 8...
| lifeisstillgood wrote:
| I'm not sure I fully understand the problem here
|
| 1. I start "Facebook for dogs" It's gonna be massive. For the
| first year me and five guys code away in the garage and I use my
| savings / credit card / family trust fund to pay them 100k each.
| Expenses are 500k, revenue is, amazingly, 1.5M and taxes owed is
| 500k.
|
| At this point turning round and saying the development was R&D,
| and claiming 500k of tax breaks is just (to me) ripping off the
| American Taxpayer.
|
| And I'm not even an American Taxpayer.
|
| If the revenue was zero would anyone suggest that the taxpayer
| give me 500k to help ? (Ok _I_ would because I like free money
| but most people won't)
|
| Or am I missing something?
| wdaher wrote:
| See my example here for where it ends up biting you:
| https://news.ycombinator.com/item?id=44180533#44204246
| lowkey_ wrote:
| Everything you just said but imagine revenue is $500K, and you
| spent $500K on salaries for the team.
|
| You can only expense $100K of the salary costs this year, so
| even though you're break-even, you pay taxes on $400K in
| income.
|
| Or, even worse, imagine revenue is $250K, and you spent $500K
| on salaries for the team.
|
| You can only expense $100K of the salary costs this year,
| you're already -$250K on the year, and now you're paying taxes
| on $400K in income. You're destroyed.
|
| VC-backed startups aren't designed to get profitable quickly,
| and I don't see that as a problem for the American taxpayer,
| and nobody is saying the taxpayer is giving money or helping. A
| business losing money should not have to pay taxes on income,
| as if it's not losing money.
| xivzgrev wrote:
| the idea is that normal business expense are deductible.
|
| in this case, your taxable income is $1.0M, and cash flow is
| $500k ($1.5M - $500k salaries - $500k taxes).
|
| now you have to amoritize it over 5 years. so your taxable
| income is $1.4M ($1.5-500k*20%), taxes are 700k, and cash flow
| is $300k.
|
| Uncle Sam just reduced your cash flows by 40% by a simple tax
| change. You eventually make up the difference, but for fast
| growing tech companies, that's a large shift in current flows
| and significantly changes their investment strategy.
| padjo wrote:
| "Some spoke on condition of anonymity to discuss sensitive
| political matters." - yep this is fine.
| demosthanos wrote:
| 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 requires that all
| software development expenses be counted as a "research or
| experimental expenditure".
|
| That's it. All software expenses must be treated as research and
| experimental expenses, and no research and experimental expense
| can be deducted instead of amortized. Ergo, all software expenses
| must be amortized over 5 years.
|
| I strongly recommend reading the section before forming an
| opinion. It really is quite unambiguous and is unambiguously
| _bad_ for anyone who builds software and _especially_ for
| companies that aren 't yet thoroughly established in their space
| (i.e. startups).
|
| Also note that this makes Software a _special_ case of R &D. It's
| the only form of R&D that Section 174 _requires_ you to
| categorize as such and therefore amortize.
|
| [0] https://www.law.cornell.edu/uscode/text/26/174
| radley wrote:
| It's not really targeted at tech, insomuch as at Democrats.
|
| Everyone assumed it was a traditional accounting hack. But
| given the timing and the reinitialization, it's clearly
| political, not economic.
|
| The code is a strategic time-bomb designed to cause a high-
| profile economic downturn during a presidential election cycle,
| specifically when the following president is a Democrat and
| Republicans have a house majority.
|
| It was used to harm Biden's economy, and it will happen again
| in 2030 if the next president is a Democrat. While deferred, it
| will be spun as a major Trump "economic achievement" for the
| midterms, because companies will be able to afford to hire
| again.
|
| The tech industry is merely high-profile fodder for extreme
| politics. It really is that petty.
| victoro wrote:
| The Democrats had control of the presidency and the house in
| 2022 when this provision first went into effect but had 2
| fewer senators (1 fewer if you count the tie-breaking VP).
| Why didn't they try to change it? Is there some reason a
| change in the tax code like this can't be modified or
| repealed once its in place?
| tomrod wrote:
| They tried. They had Senate spoilers.
| candiddevmike wrote:
| As a progressive, it seems like the Democrats always have
| Senate spoilers...
| SpicyLemonZest wrote:
| Providing spoilers was the explicitly designed purpose of
| the US Senate. It's not a one-sided problem - Senate
| spoilers are also why the Affordable Care Act didn't get
| repealed in 2017.
| tomrod wrote:
| Explicitly?
| glompers wrote:
| US Senator was an office initially designed to be
| selected by state legislatures rather than by direct
| popular election like the representatives. To a populist
| or a party boss, that might count as a spoiler to the
| will of the people or to the will of those in DC, or to
| both. But I may misinterpret GP's point.
| mayneack wrote:
| I assume the person you're replying to is talking about
| the Filibuster and supermajority requirements not the
| direct election history. The filibuster is a senate rule
| not a constitutional design, so it wasn't part of the
| "design". Maybe they're both different ways of adding
| veto points to the same effect, but I think spoilers as
| "explicit design" is probably not how I'd describe it.
|
| https://en.wikipedia.org/wiki/Filibuster_in_the_United_St
| ate...
| dboreham wrote:
| Not parent but the founders were like folks writing smart
| contract code, thinking about various exploits and
| vulnerabilities (that might reduce the wealth of their
| class) so many of the seemingly dysfunctional elements of
| the system turn out to be designed deliberately to be
| dysfunctional. Feature not bug.
| wvenable wrote:
| They were not thinking about various exploits and
| vulnerabilities but rather making whatever compromises
| were necessary in order to form the union. It was
| negotiation, not planning.
| bbarnett wrote:
| A compromise can also be a feature to resolve a bug, from
| the point of view of the one demanding it.
| dragonwriter wrote:
| > As a progressive, it seems like the Democrats always
| have Senate spoilers...
|
| With Republicans usually being dominant in a number of
| states, _if_ Democrats have a Senate majority, it is
| usually both narrow and dependent on a very small number
| of Democratic and /or Dem-leading moderate independent
| Senators from Republican-majority states who vote with
| the party on leadership, but are soft (or firmly opposed
| to the progressive preference) on a number of issues
| important to progressives.
|
| If the US were approximately an equal democracy, this
| might be less of an issue.
| tomrod wrote:
| Hell, just first past the post would eviscerate the
| current parties.
| tomrod wrote:
| Argh. Too late to edit. Something else outside first past
| the post* like ranked choice voting.
| Filligree wrote:
| Which is why they'll never vote for it. Such changes are
| remarkable rare. :(
| rayiner wrote:
| > If the US were approximately an equal democracy, this
| might be less of an issue
|
| Equal to what?
| paulryanrogers wrote:
| Equal in voting rights. Gerrymandering has been perfected
| by Republicans. Through that they manage to dilute votes
| of the opposition. Other measures discourage voters
| likely to vote against them, like people who cannot
| easily take time off to vote in person or who have
| changed their name. Blocking rank choice and maintaining
| first past the post also disenfranchise third parties,
| and reinforces the power of incumbents.
|
| Trump himself admitted it's better for Republicans when
| fewer people vote.
| jimbob45 wrote:
| ?? Both sides happily gerrymander. It's been around since
| 1812 and both sides are equally guilty at this point.
| paulryanrogers wrote:
| I didn't say democrats were innocent. I said Republicans
| perfected the (ab)use of districting.
|
| https://www.brennancenter.org/our-work/analysis-
| opinion/how-...
| Braxton1980 wrote:
| Governors are elected by popular vote.
| Kamq wrote:
| > Equal in voting rights. Gerrymandering has been
| perfected by Republicans. Through that they manage to
| dilute votes of the opposition.
|
| This thread is talking about the Senate. The senate isn't
| gerrymandered. Both senators are state-wide races.
|
| If you want to view it that way, you can view the senate
| as "pre-gerrymandered". But the last time that was an
| option was in 1959, and both of those are just "the
| entire area the US owned, but wasn't a state yet. To get
| senate gerrymandering, you have to go back to 1912 and
| the admission of New Mexico/Arizona.
| Brybry wrote:
| Gerrymandering can affect voter sentiment and trigger
| polling location changes during redistricting, both of
| which can affect voter turnout[1][2][3] (though the
| research doesn't seem conclusive on the effect).
|
| And thinking about it more, though I haven't seen if
| there are studies on it: there are probably
| manpower/fundraising effects from gerrymandering.
|
| If you're able to protect your political power in one
| area that probably better enables you to amass resources
| to use in the area you can't gerrymander.
|
| But all that said, both parties practice gerrymandering
| and I don't think there's strong evidence of a
| significant advantage over a major party from current
| gerrymandering at the national level.
|
| [1] https://da.lib.kobe-u.ac.jp/da/kernel/90008864/900088
| 64.pdf
|
| [2] https://electionlab.mit.edu/articles/gerrymandering-
| turnout-...
|
| [3] https://stateline.org/2022/05/20/check-your-polling-
| place-re...
| paulryanrogers wrote:
| > On a percentage basis, over three times as many
| districts were competitive in states where independent
| commissions drew maps as in states where Republicans drew
| maps.
|
| https://www.brennancenter.org/our-work/analysis-
| opinion/how-...
| xyzzyz wrote:
| That's just confusing cause and effect. If your seats are
| safe, you have no reason to agree to forming an
| independent commission. The same is true in both heavily
| blue and heavily red states. Are districts more
| competitive in states where Democrats draw maps? I don't
| think so.
| throwaway173738 wrote:
| This totally ignores values and motivations, and I would
| argue that only one group in your comment values winning
| at any cost.
| xyzzyz wrote:
| I don't even know which group you mean, but "my group has
| good values and motivations, but the enemy group just
| values winning at any cost" is exactly what a total
| partisan who values winning at any cost would say.
| paulryanrogers wrote:
| The evidence is that independent commissions drawing maps
| makes for more competitive districts. Which party is most
| opposed to such commissions? Which party is gleefully
| dismantling all accountability and oversight positions
| and departments? Which party is openly inviting
| corruption and pardoning those they should be
| prosecuting?
| rayiner wrote:
| I wonder why one party would be seeking to change a civil
| service that's 90% staffed by members of the other party?
| I guess "democracy" means Democrats running the country
| no matter who wins the election, right?
| int_19h wrote:
| Democracy means "one person, one vote".
|
| We all know which party is fighting tooth and nail
| against that on practically every issue that affects it.
| shadowgovt wrote:
| Are most members of the civil service Democrats? This is
| the first I've heard of this.
| tomrod wrote:
| OP asserts this unsource. While it does seem to tilt
| towards Democrats since it is ethics and mission oriented
| and typically requires a degree, 90/10 sounds wild in my
| experience.
|
| My prior is based on experience. Most of the civilian
| govies are centrist, "I just want to grill" types.
| shadowgovt wrote:
| That makes sense to me. This is why I suspected that
| attempting to claim the election was stolen would be a
| losing proposition; I was sadly surprised to the
| contrary.
|
| Elections are run by Republicans as well as Democrats. In
| fact several of the key locations that Trump claimed were
| stealing the election from him were basically locations
| where the Republican party had a lock on the
| administration of the election. As I remind people often,
| when they talk about someone stealing the election,
| that's not a hypothetical "someone," that's Betty three
| houses down that has the nice flower garden and organizes
| the bake sale at church every month.
| tomrod wrote:
| First, your stats are wild. Please provide and unbiased
| citation.
|
| Second, your solution was in place in the 1800s and was
| referred to as the spoils system. It led to bad outcomes
| and was rightfully abandoned. Your beef is with the fact
| that educated people tend to choose policies that you
| don't like (assuming your 90/10 split, which is still
| wild). You/the GOP have three options. First is to
| recognize that the policies pursued do not attract people
| which education (which I consider a red flag). Second is
| to re-adopt the spoils system despite it being illegal,
| and frankly just sort of dumb since when the other side
| is in power you suffee, but at least then you never need
| to think deeply about making policy for the whole country
| instead of a subset of supporters. Third, you/the GOP
| self-own via tearing up all the intellectual capital and
| international good will built up over the decades without
| a replacement, massively reducing American influence on
| the world in all dimensions.
| vineyardmike wrote:
| > If you want to view it that way, you can view the
| senate as "pre-gerrymandered".
|
| That is quite explicitly the history of the US Senate
| (and House), FWIW.
|
| The Connecticut Compromise was reached to give low-
| populations states outsized legislative power in the
| senate. This is the main reason the senate exists.
|
| Building on that, the 3/5th compromise was reached as
| part of this to give slave states outsized legislative
| power in the house.
|
| The state of Maine used to be part of Massachusetts, but
| it was later set up as an independent state in order to
| increase the number of anti-slavery states in the senate
| (the Missouri compromise).
| Braxton1980 wrote:
| >If the US were approximately an equal democracy, this
| might be less of an issue.
|
| How? Evenly divided voters and representatives are the
| issue. Each side can barely afford to lose 10% or so
| during votes
| dragonwriter wrote:
| No, the reason the "there is always an in-party Senate
| spoiler" effect (when they have a Senate majority) seems
| to be more true of Democrats is because it _is_ more true
| of Democrats, and the reason is that when the two parties
| in rough balance by popular support (or even rough
| balance in Presidential electoral prospects, which has
| the same directional bias as the Senate but of lesser
| magnitude), the Republican Party has a systematic edge in
| dominance of states, which translates into a systematic
| advantage in the Senate, which means that _when_ the
| Democrats have a Senate majority, it tends to have a
| decisive segment in red-state Democratic Senators who are
| unreliable on key priorities.
|
| The issue being discussed in the Senate is _not_ a
| symmetric issue resulting from near balance in support
| between the parties.
| K0balt wrote:
| It's also because republicans politically punish dissent,
| while it is more tolerated in the Democratic Party. The
| consequences of "disloyalty" are higher in the Republican
| Party.
| hedora wrote:
| This might change. After party leadership got 20% of
| democratic senators to vote for trump's procedural blank
| check, the party's approval rating dropped to 27%.
|
| If it doesn't change, I suspect the party will split.
| kenjackson wrote:
| But this is the type of thing that progressives would
| like support (tax big corporate America).
| bloppe wrote:
| This tax is far more consequential for small companies
| than for large ones. It probably actually benefits larger
| companies because it hobbles competition.
| rezonant wrote:
| 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 individuals. The R &D
| exemption removed in the 2017 bill, and discussed in the
| article, is key to that, because it encourages
| corporations to reinvest their income in building new
| products and paying workers rather than taking it
| directly as profit-- after all, at least they could reap
| the rewards (in growth and revenue) of the R&D later,
| instead of just giving the money to the government as
| taxes.
| rayiner wrote:
| I don't think most progressives think about it in that
| detail. Raise taxes on the rich tech companies that are
| gentrifying san francisco.
| dgb23 wrote:
| I'm not American but the above description of a tax
| policy is what I hear a lot from progressives in media.
| stahtops wrote:
| At first glance I support ... "social and economic
| equality" and "reforms to improve human conditions,
| combat corruption, and reduce inequality". Am I
| progressive?
|
| 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?
| hedora wrote:
| Recently the progressives have latched on to culture war
| agendas against the wealthy, educated, white, male,
| straight and/or over the age of 35 crowd.
|
| In other words, they have a popular agenda, but are
| political morons that are going to eventually wonder why
| they can't break out of solidly blue districts.
|
| https://runforsomething.net/run/candidate-support-system/
| kenjackson wrote:
| I think that is a misrepresentation of the fundamental
| progressive position, which is to make progress but never
| at the cost of the marginalized. Because we historically
| make most progress at the cost of the marginalized it can
| feel limiting or even discriminatory when we make sure
| they don't beat the brunt of continued progress.
|
| There is nothing against the group you mention except
| that it might be the group that most fights against
| progress toward equality.
| rayiner wrote:
| > I think that is a misrepresentation of the fundamental
| progressive position, which is to make progress but never
| at the cost of the marginalized.
|
| That just means that the marginalized become an anchor
| preventing progress. We can't have nice things until we
| solve the problems of the bottom quantile--which we never
| will.
|
| If progressives had been in charge, America and
| everything it created wouldn't exist. They never would
| have allowed us to displace the Indian tribes so the land
| could be put to better use.
| int_19h wrote:
| What do you think is the best way to turn tables around
| and ensure that the marginalized are a net positive for
| progress? Perhaps we should reintroduce slavery? Or do
| you think that turning them into food or fertilizer would
| have more net benefit?
| shadowgovt wrote:
| Progressives have been in charge, over and over again.
| You're discounting America starting from what is, by
| modern standards, a very regressive position.
|
| Was the end of slavery a progressive or regressive move?
| kenjackson wrote:
| "That just means that the marginalized become an anchor
| preventing progress."
|
| And that's the difference. Progressives view it as
| important that we progress all groups and that challenge
| is fundamental to society, whereas you view them as an
| anchor.
| const_cast wrote:
| But this doesn't raise taxes on rich tech companies, it
| effectively does the opposite - the tax burden is
| proportionally lower the larger/more successful the tech
| company is.
|
| Therefore, even by your own admission, this isn't
| progressive policy.
| Braxton1980 wrote:
| What makes you think this?
| wvenable wrote:
| This time bomb was created because the bill slashed the
| corporate tax rate from 35% to 21%. Maintaining the
| status quo would mean taxing big corporate America more
| than this bill does.
| stahtops wrote:
| But it isn't tax big corporate America. Did you read the
| article?
|
| It's a 10% tax cut for big corporate America, with some
| economic poison for blue states in the future.
| Braxton1980 wrote:
| And get blamed for it. If every single Republican and two
| Democrats vote against something guess who people blame?
| cma wrote:
| Both parties tend to when there is a narrow majority,
| e.g. McCain thumbs downing at the repeal of the ACA.
| naijaboiler wrote:
| Why should they? Why did we allow a president to put in tax
| raise for the future. Replicants were playing politics from
| the start. Pass a bad bill, and then hope to get about it
| when the bad parts kick in when the other side woo be in
| power
| vineyardmike wrote:
| Politics are complicated.
|
| Generally, in tax bills they try to keep them "neutral"
| where any tax cuts or tax breaks are coupled with tax
| increases elsewhere BUT they tend to report the 10-year
| affect for whatever reason. This bill provided a ~30% cut
| in corporate tax on profits, with a delayed increase in tax
| cost on Software R&D pushed to the next term.
|
| If the next party wants to reverse it, they'd have to find
| the money with an increase in tax - directly undoing it
| would be a ~50% increase in corporate tax rate, which (I
| guess?) would be a tough sell politically. Meanwhile, the
| tax code on software engineering sounds too niche to expend
| political capital on.
|
| Either way, its another example of how corporate America is
| trading long-term growth (R&D, product development) for
| short term gain (lower taxes today).
| _heimdall wrote:
| If this was passed in 2017 to go into effect during the next
| presidential term, wouldn't that only work as a time bomb for
| Biden's presidency if Trump didn't expect to win a second
| consecutive term?
|
| Given the history of prior presidents winning 2 consecutive
| terms, it seems like Trump could have reasonably expected a
| 2022/2023 tax change to be his problem.
| kenjackson wrote:
| No. It's after re-election. Bad news late in your second
| term isn't that big of a deal, unless you care about
| legacy.
| _heimdall wrote:
| Most presidents care about legacy, at least to me it
| seems like trump holds that as a higher priority than
| most.
| paulryanrogers wrote:
| Trump seems to care what people think today, every day.
| He doesn't seem like someone who puts a lot of thought
| into the future.
| bbarnett wrote:
| You know, I wonder if that's a sad but valuable trait for
| a politician.
|
| Public opinion can change daily, and external events can
| appear with no warning. These things can make a prior
| path of action vanish, or even make it madness to pursue.
|
| If you try to plan everything long term, I bet you hit a
| lot of disappoint as a politician. If you only see today,
| then you're not fighting for things that are now not
| possible.
|
| I imagine one would be far less stressed as a result. And
| maybe more popular than otherwise.
| paulryanrogers wrote:
| Some problems require years or even decades to address.
| Consider how quickly a COVID vaccine was developed, yet
| it depended upon many years of quietly studying SARS and
| R&D around MRNA. Or consider trying to address developing
| or maintaining infrastructure.
|
| A chaotic politican whose mind is changed by the last
| person they spoke with won't do well facing serious long
| term problems.
|
| It gets worse if the only things they consistently stand
| for is their own power, personal wealth, their
| sycophants, and their grade-school-level
| (mis)understanding of complex matters.
| Braxton1980 wrote:
| >me it seems like trump holds that as a higher priority
| than most
|
| Why?
| _heimdall wrote:
| He seems to care immensely about being viewed as the
| "winner" and the "best" at everything.
|
| I also have to assume that anyone interested in slapping
| their name in big gold letters on as many buildings as
| possible is interested in the perception of legacy.
| Braxton1980 wrote:
| I misinterpreted your original comment. I thought you
| meant he would act as the ideal benevolent leader to
| obtain this perception
| _heimdall wrote:
| Hah, oh yeah I could see reading it that way being very
| confusing! Trump and benevolent don't belong in the same
| dictionary.
| adgjlsfhk1 wrote:
| if you retain power, you can fix it. the US government
| currently has the significant problem that one party
| campaigns on the government being dysfunctional, so they do
| their best to make it so.
| _heimdall wrote:
| But what would trump have done if he retained the
| presidency and lost congress? That's also been pretty
| common over the last few decades if I'm mistaken, a
| president with one or both sides of Congress is reelected
| but Congress flips to the opposition party.
| devmor wrote:
| I would suppose that the Democrats would remove the
| policy regardless of who was in charge.
| Braxton1980 wrote:
| How?
| ajmurmann wrote:
| Vote with Republicans in removing it
| jyounker wrote:
| But Republicans put it in. The proposed. They were the
| vast majority of the votes for it. It was signed by
| Trump. It was their baby.
| Braxton1980 wrote:
| 2020 - Trump goes after tiktok
| https://www.bloomberg.com/news/articles/2020-07-31/trump-
| to-...
|
| In 2024 two bills (merged later) went through the
| Republican controlled House with a bipartisan vote (350+
| for) [1] then the Democrat controlled Senate [2] with
| another bipartisan vote (79-18, attached to an Israeli
| funding bill) basically following whatTrump wanted.
|
| Late 2024 - Trump then offered to save the service when
| the Public turned against the ban and used it as a
| campaign item.
|
| 2025 - His supporters were all over Tiktok praising him,
| including the CEO of Tiktok when he put a pause on the
| required sale. He's also extended the deadline multiple
| times now.
|
| ----------------------------
|
| Republicans might start using this tactic more now that
| it's been shown to work. It's similar to the "Fuck the
| next admin" tax bill that he put in his first term.
|
| [1] https://www.reuters.com/technology/us-house-vote-
| force-byted... [2] https://apnews.com/article/tiktok-ban-
| congress-bill-1c48466d...
| happyopossum wrote:
| But they didn't, so that supposition is bunk
| devmor wrote:
| When did they have control of the senate without a BD
| being the lynchpin?
| Braxton1980 wrote:
| He would do nothing because his supporters believe
| misinformation and worship him.
|
| Prices haven't gone down at all nor will bringing
| manufacturing to the US do this (likely causing them to
| go up) but his approval rating is 50%
| _heimdall wrote:
| > He would do nothing because his supporters believe
| misinformation and worship him.
|
| Interesting, that hasn't been my experience.
|
| I live in a very red part of the country and most people
| I know are Trump supporters, including some family
| members have been very MAGA since 2016.
|
| I've been hearing more and more complaints over missed
| promises: no Epstein files, raising budgets, RFK is
| starting to water down his promises, no end to the
| Ukraine or Gaza wars, etc.
| jacobolus wrote:
| He missed effectively every promise from 2016. Why did
| these people vote for him 2 more times, especially after
| an attempted coup? Maybe these "complaints" are just an
| attempt to dodge personal responsibility for having
| supported a catastrophe.
| Braxton1980 wrote:
| He's removing the illegal immigrants and being very
| aggressive about it.
| _heimdall wrote:
| Sure you can guess at a person's intentions or reasoning,
| but my experience here is that there weren't many
| complaints in the first term for whatever reason and now
| there are.
|
| I couldn't get inside their head to say why. My read on
| them is largely that the complaints are legitimate
| frustrations though. This isn't exactly a part of the
| country where voters are somewhat evenly split and Trump
| supports would need to save face or smooth over
| interpersonal friction by giving a nod to the idea that
| he may not deliver.
| waht315 wrote:
| Hey, you knew a guy (Physics BA) who almost aced the LSAT
| cold. Do you remember what his score was and how old he
| was when he took it?
| jacobolus wrote:
| I don't remember his score, but he was probably about 22?
| Braxton1980 wrote:
| > I've been hearing more and more complaints over missed
| promises: no Epstein files, raising budgets, RFK is
| starting to water down his promises, no end to the
| Ukraine or Gaza wars, etc.
|
| I based my argument on the poll averages as shown below,
| most are high 40s similar to the past few months. I would
| think if people were upset about missed promises it would
| be reflected in these. It's been ~5 months.
|
| You might say people are giving him a chance to implement
| a plan or that some action would take time therefore they
| are willing to give a thumbs up for now, hence the polls.
| The reason I discounted this is because I'm not aware of
| any plan or current actions by Trump that would reduce
| prices. The trade wars will either increase prices due to
| tariffs or increase prices if products are made in the
| US.*1
|
| I believe you but maybe float a question to your
| neighbors - "If prices don't come down would you vote
| Democrat in 2027?"
|
| https://www.realclearpolling.com/polls/approval/donald-
| trump...
| _heimdall wrote:
| Political polls are extremely misleading. Ask someone if
| they still agree with a decision they already made, they
| will more often than not find a reason to say yes.
|
| > I believe you but maybe float a question to your
| neighbors - "If prices don't come down would you vote
| Democrat in 2027?"
|
| The fact that you're assuming people should align with
| one party or the other _is_ the problem.
|
| Who gives a shit what letter is next to a candidates
| name? What matters is what the candidate stands for, what
| matters to them, and whether you believe they'll stuck to
| their guns when the political machine that is DC fights
| back.
| motorest wrote:
| > But what would trump have done if he retained the
| presidency and lost congress?
|
| Trump is blaming Biden for the obvious outcome of Trump's
| tarrif nonsense. What do you think Trump would have done?
| _heimdall wrote:
| You have to be fair though, politicians always blame
| someone else and its usually the last person that was in
| charge.
|
| How often do you hear any one politician claim the glory
| of a situation that they had nothing to do with? And when
| was the last time you actually heard a politician own
| their failing or apologize?
| motorest wrote:
| > You have to be fair though, politicians always blame
| someone else and its usually the last person that was in
| charge.
|
| I don't think this is a reasonable or informed take. It's
| quite obvious that the tarrif lunacy is single handedly
| causing an economic downturn. Trump himself has
| downplayed the relevance of this downturn with inane
| comments over how tarrifs would also be painful to the US
| economy. If you see a politician like Trump claiming both
| that tarrifs will be painful to the US and that the
| economic pain caused by Trump's tarrifs is blamed on
| whoever was there before him, you need to be massively
| disingenuous or naive to claim that "politicians always
| blame both sides". There is nothing normal about Trump's
| actions.
| _heimdall wrote:
| My claim wasn't whether trump is responsible, of course
| his tariffs are having a very real impact. My point was
| that one should never expect a politician to admit that,
| at best they dodge claiming responsibility but more often
| than not they point at someone else, often the last
| person in office.
|
| If you'd like to say my claim is uninformed that's fine,
| but I ask again for examples when a politician directly
| owned their failure or apologized for it.
| motorest wrote:
| > My point was that one should never expect a politician
| to admit that, (...)
|
| That's the problem with your false dichotomy: Trump
| already admitted tarrifs create economic problems.
|
| https://fortune.com/2025/02/02/trump-tariffs-americans-
| some-...
|
| Trump blaming predecessors for the problems created by
| his tarrifs policy goes way beyond your run-of-the-mill
| predecessor blaming. Trump is simultaneously warning his
| tarrifs policy will cause economic damage and that the
| economic damage created by his policies were caused by
| someone else.
| _heimdall wrote:
| To be clear, this is the quote that article references.
|
| > "WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!),"
| Trump said in a social media post. "BUT WE WILL MAKE
| AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE
| THAT MUST BE PAID."
|
| That doesn't read to me as Trump claiming responsibility
| for any pain that we might see, and it isn't an apology.
| Even better, he ultimately doubles down on the tariffs
| and claims the end result will be worth any of the pain
| that he doesn't directly acknowledge he will have caused.
| rayiner wrote:
| That's a cute quip but remind me which party controls the
| governments in Baltimore, California, Detroit, etc?
|
| Are there any parties running in a track record of
| functional government?
| glompers wrote:
| This civic control correlation can simply have more to do
| with the most-white-supremacist Democrats switching to
| the GOP en masse and also simultaneously leaving
| multiethnic cities and school districts en masse after
| the 1960s. That self-selection left Republicans not a
| competitive amount of credibility or voter pool behind to
| work with. Your implication that policy dysfunction has
| ensued on that account rather than because of fiscal
| drain -- that's a separate topic. Individual states and
| individual cities have too many fiscal policy
| similarities and differences, overlapping, to responsibly
| compare in any online discussion.
| rayiner wrote:
| > That self-selection left Republicans not a competitive
| amount of credibility or voter pool behind to work with.
|
| So by your logic New York is a better governed state than
| Florida? Net internal migration would seem to disagree.
| _heimdall wrote:
| Is it your opinion that the only factor relevant for
| those deciding what state to move to is quality of
| government?
|
| I'm surprised that things like the job market wouldn't
| come into play, for example.
| hollerith wrote:
| The two are related: bad governmental policy can make
| employers leave a state and make employers that choose to
| stay less prosperous.
| rayiner wrote:
| I think quality of governance is a major reason, yes.
| When my parents immigrated to this country, they moved to
| a deep red state (Virginia) instead of the deep blue
| state next door (Maryland). Why? A focus on good schools,
| low crime, and low taxes, instead of a focus on economic
| redistribution.
| _heimdall wrote:
| I may have misunderstood, when you said internal
| migration in the earlier comment I assumed that was
| referring to people moving from one state to another
| rather than immigrating from another country.
|
| > A focus on good schools, low crime, and low taxes,
| instead of a focus on economic redistribution.
|
| That's also interesting. I wouldn't have rolled that up
| to quality of governance, but I could see why you would.
| To me that falls more into a sign of long standing
| culture, I could see a place with existing policies that
| match now having a terrible administration in charge.
| rayiner wrote:
| > may have misunderstood, when you said internal
| migration in the earlier comment I assumed that was
| referring to people moving from one state to another
| rather than immigrating from another country.
|
| I was just giving an example--people moving within the
| U.S. make the same choice. When I was growing up,
| Virginia was like Florida is today: a red state with a
| booming economy, low taxes, and a good business climate.
| Why did AOL start in the farmland of Loudon County
| instead of the farmland of eastern PG County (which is
| closer to DC)?
|
| > That's also interesting. I wouldn't have rolled that up
| to quality of governance, but I could see why you would.
|
| It's a cultural trait that strongly affects governance.
| The government can focus its energies on making things
| better for middle class people and businesses, as
| Virginia long did, or it can focus on poor people and
| minorities, as Maryland long did. And the resulting
| differences in governance are quite apparent. Virginia
| has better schools, ore employment, and has grown faster
| than Maryland over the last 50 years.
| shadowgovt wrote:
| To be clear: if they moved to Virginia, they did not move
| to a deep red state.
|
| Maryland is a deep-blue state. Virginia is about as red
| as Pennsylvania.
| PaulDavisThe1st wrote:
| ... because nobody moves to Florida for (what they
| perceive of) the weather, right? Especially not retirees
| tired of the idea of one more winter in NY.
| shadowgovt wrote:
| Exactly. If I'm looking for an explanation of Florida
| immigration / New York emigration, "an aging populace" is
| where I'd start.
| jacobolus wrote:
| > New York is a better governed state than Florida
|
| Yes, New York is significantly more successful than
| Florida in almost every way: Better education, better
| healthcare, longer life expectancy, less pollution, lower
| crime, more productivity, higher wages, more amenities,
| better transportation infrastructure, less poverty,
| happier residents, and so on.
| const_cast wrote:
| > So by your logic New York is a better governed state
| than Florida? Net internal migration would seem to
| disagree.
|
| Yes, and it's not even close. Choose just about any
| metric and NY is running laps around Florida.
|
| And, not just Florida, but red states in general. If you
| look at the metrics, they typically are some of the
| poorest states with the worst outcomes. Bad
| infrastructure, bad education, not a lot of job
| opportunities, horribly impoverished, under-developed.
|
| It's just that nobody cares. Nobody expects Louisiana or
| Florida to be decent places to live. But since California
| is the economic powerhouse of the US, people _do_ expect
| it to be decent. That 's the issue, the blue states are
| essentially carrying the economy of everything else on
| their back, so they now get a new, unfair set of
| standards.
|
| There's some exceptions here, mainly Texas.
| Braxton1980 wrote:
| What makes California's government dysfunctional?
|
| What about Detroit?
| riehwvfbk wrote:
| A government that runs the richest city in the country
| (SF trades this spot with NY every few years) and makes
| it look the way it does is the definition of dysfunction.
|
| And Detroit... well, I guess now that they've bulldozed
| all the abandoned buildings it looks less like a post
| apocalyptic hellscape and more just abandoned. An
| improvement I suppose.
| shigawire wrote:
| You are all over this thread treating HN like reddit or
| twitter. Please go.
| hedora wrote:
| California also has easily solvable housing, education,
| transportation and mental health crises that are entirely
| driven by mismanagement by the state government. They
| haven't done anything meaningful to address these issues
| in 25-40 years depending on the issue.
|
| Heck, they ignored the water crisis for twenty years, and
| what they're doing now for aquifer replenishment is still
| less than what makes sense.
|
| I say they are easily addressed because simply reverting
| to California's policies from ~ 1975 would greatly
| improve the current situation.
| jacobolus wrote:
| The biggest root problem with California governmental
| structure is harmful constitutional features added by
| public referendum, especially Proposition 13 (1978). I
| guess you can blame "government" for that, but it doesn't
| seem like quite the right target.
|
| The water crisis is a difficult problem because water
| rights are complicated and central valley farmers are an
| influential political group very focused on short-term
| preservation of water access and not as concerned with
| long-term sustainability.
|
| > _easily solvable housing, education, transportation and
| mental health crises_
|
| I submit that these are much less "easily solvable" than
| you claim. (What have you personally done to work on
| these problems, if they are so "easy"?) Legislators don't
| get to wave a magic wand, but need support of a wide
| variety of stakeholders who have contradictory demands
| and expectations (some of which are fairly unrealistic,
| but anyway..).
|
| Education for example has competing goals of local
| funding vs. inter-city equity. Should the wealthiest
| towns get to spend arbitrarily much local property tax
| money on their own children's public schools while the
| poorer town next door is running out of toilet paper, or
| should the state try to equalize funding between schools
| to give every child the best opportunity? There's not
| really a "correct" answer to this, and every possible
| choice has some serious disadvantages.
| antif wrote:
| So.. criminal racketeering?
| efitz wrote:
| This is just wrong. It was passed in 2017 (during Trump's
| presidency). It was to go into effect in 2020 (a presidential
| election year during Trump's presidency). He hoped to be re-
| elected.
| demosthanos wrote:
| No. It went into effect in 2022 [0], which means the
| timeline absolutely _does_ track with OP 's theory. That
| gives a hypothetical Trump term 2 a full year to fix it but
| also imposes enough of a time crunch that they could plan
| on sabotaging attempts to fix it by another party.
|
| I'm not saying it's the actual story, but the timeline does
| track.
|
| [0] Page 60, Sec 1306(e) sets the date:
| https://www.congress.gov/115/bills/hr1/BILLS-115hr1enr.pdf
| efitz wrote:
| I don't think it really changes the narrative. 2020 was
| also a congressional election year, even had Trump won
| (as he appeared to want desperately) he could not have
| been assured of a Republican congress.
|
| My argument is simple: Occam's Razor
|
| The Republicans in congress put the provision in solely
| as a gimmick to get past the CBO.
|
| Frankly I don't think legislators in either party are
| competent enough to have foreseen the consequences and
| even if they had been they wouldn't have put a bomb like
| this in that would be more likely than not to backfire
| and affect them.
|
| I just think that too often people interpret incompetence
| as malice, especially nowadays when things are so
| polarized that it's fashionable to hate people who differ
| with one's political opinions.
| throwaway173738 wrote:
| I think you're wrong that legislators are incompetent.
| They're human, and they've spent much of their lives
| learning how to get votes, but they're not incompetent. A
| lot of them aren't malicious, but there seems to be a
| small group of people outside of the legislative branch
| who are hell bent on taking control at all costs. And if
| you want to keep the votes rolling in you have to work
| with those people or get primaried. The dysfunction
| follows from fear more than incompetence these days.
| efitz wrote:
| I think legislators are skilled politicians and many are
| lawyers of varying competence. I would not expect them to
| deeply understand the negative downstream economic
| consequences of changing an obscure provision of the tax
| code. Maybe some of them could but would those have even
| been in the room? I get the impression most legislation
| is written by staffers (polysci or lawyers) and
| particularly spending legislation is tightly controlled
| in committee; only a handful of lawmakers ever saw the
| actual legislation before it was passed.
| jweir wrote:
| We are small and so have been on a hiring freeze since 2022.
| I'd like to hire but the upfront cost is high.
|
| For those around when this went into effect many business
| owners were surprised. Our accountants told us they seriously
| thought congress would fix this before it went into effect.
| spwa4 wrote:
| ... they did that because that's exactly how Trump presented
| the change. The article points that out: this change was an
| attempt to lie to the congressional budget office, not
| intended to be an actual tax change.
|
| And then it suddenly _was_ an actual tax change.
|
| Like so many Trump actions: "oops".
| youngtaff wrote:
| I worked for a UK company that amortised it's development
| costs... it led to the false belief that the company was
| profitable when it really wasn't
| Reason077 wrote:
| Exactly. And if you're more profitable on paper, you have to
| pay more tax, making you even less profitable in reality.
| trhway wrote:
| Yes, that is tremendously important aspect here - the US tech
| would look better on paper - higher paper profits due lower
| paper expenses - while getting increased cash flow stress due
| to decreased deductability of the salaries which are among
| the main expenses in software dev business.
| itsoktocry wrote:
| > _Yes, that is tremendously important aspect here - the US
| tech would look better on paper_
|
| It's completely unimportant. Nobody is getting fooled "on
| paper" by amortized salaries.
| trhway wrote:
| Except for example the millions of stock market casual
| participants.
| kgwgk wrote:
| People is getting fooled by "adjusted" earnings that
| reduce salaries "on paper" by hiding the "non cash"
| component.
| youngtaff wrote:
| Want a bet?
|
| I've seen it used in UK listed companies to massage the
| profit numbers and make divisions of the company seem
| more profitable than they are
| pclmulqdq wrote:
| "Profitable" in an accounting sense has nothing to do with
| your cash position. This is something that people in tech
| don't really seem to understand.
| coderatlarge wrote:
| i think people in tech are usually focused on free cash
| flow, aka playing around money.
| disgruntledphd2 wrote:
| Tech likes free cash flow because share based
| compensation isn't included in it.
| hollerith wrote:
| OK, but you've changed the topic from tax accounting to
| financial accounting/reporting.
|
| In the US, it remains the case that programmers salaries must
| be treated as an expense (i.e., _cannot_ be amortized) when
| calculating the company 's income statement, balance sheet,
| etc. Not following that rule will get the accounting firm
| signing off on those financial reports in trouble (with the
| SEC, the Public Company Accounting Oversight Board, and maybe
| even the Justice Department if the purpose of the violation
| was to defraud investors).
| trhway wrote:
| 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 an
| accountant, i'd just speculate, out of sheer fantasy, that some
| hardware chip/gadget added to your software may similarly
| convert your software development into hardware/gadget one.
| vlovich123 wrote:
| I'm not sure I buy into this. Sure, compared with Russia it's
| probably a lot less, at least in terms of being something
| everyday people engage in. But in terms of comparing with
| countries like Germany or Sweden I don't know.
|
| Here's some food for thought:
|
| * Global financial crises: Banks were paying (bribing)
| ratings agencies to rate junk bonds AAA.
|
| * Savings & loan crisis: widespread fraud & insider abuse.
|
| * Bernie Madoff: Ran the largest Ponzi scheme ever, with an
| estimated fraud total of $65B raking in $17.5B in invested
| cash.
|
| * Enron: straight up accounting fraud sprinkled with
| intentionally causing brownouts in California to pad their
| pockets with a side bonus of making Gov Davis unpopular & get
| him recalled (Enron was closely aligned with the Bush
| administration).
|
| * Nixon straight up using psy-ops against Democrats & finally
| trying to burgal the DNC offices.
|
| In terms of stats, the FBI does a few hundred bribery and
| corruption cases annually. Are they good at catching white
| collar crime? Well such crimes regularly take more than 5
| years to investigate.
|
| And hell, some things that are basically lying and cheating
| are straight up legal. Usury is legal with minimal to no
| regulation of payday loans. Pyramid schemes are legal as long
| as you call it multi-level marketing.
|
| The list goes on and on.
| bluGill wrote:
| If the list doesn't go on and on that is a clear sign that
| corruption is being hid.
| lucianbr wrote:
| Could be a sign that the commenter was not willing to
| spend all his day writing, especially once his point was
| made.
| vlovich123 wrote:
| I can't tell if they're trying to refute the point (ie
| the list being long means that it's definitionally not
| being hid) or support (ie the list I made is finite and
| therefore the corruption is hid).
|
| But I think of it like trying to estimate the size of an
| iceberg by observing the tip. Just because you know a
| little bit doesn't mean you actually know about the
| scale. And there's every reason to believe it's quite
| extensive given how easily money flows from corrupt
| countries through USD and US persons and companies (eg
| the major bank that's constantly getting fined for
| laundering terrorist and drug cartel money - either
| they're the only ones and they're making a killing
| providing this service anyway or they're the only ones
| anyone is bothering to investigate, but that business is
| clearly lucrative to continue to engage in).
| bluGill wrote:
| There is corruption everywhere. If there is a short list
| that means that the truth is being hid, or your have way
| too much police (often both).
|
| As you state, the size of the iceberg cannot be
| understood by what we can easially observe. While there
| is corruption in the US, it isn't really much worse than
| other places that are not known for corruption - though
| understand that the US has a lot higher population and so
| it might seem that way. (though often those other places
| are just hiding truth)
| vlovich123 wrote:
| The US also sees a huge amount of wealth directly or
| indirectly flowing through it. I would say that's the
| attraction for illegal activities, less the amount of
| people.
|
| And I don't know how small you think the list is, but I
| suspect it's quite small because whether you get
| prosecuted from some corrupt act is pretty random since
| someone has to notice the corruption and try to
| investigate. Additionally the recent moves by SCOTUS is
| to significantly raise the bar for prosecuting
| corruption. So however you think America is fairing
| compared to other countries, I'd say America today is
| allowing once more, more institutionalized corruption
| than it had in the second half of the 20th century (and
| America's history is filled with top-to-bottom
| corruption).
| RankingMember wrote:
| > 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
|
| I thought you were being sarcastic here at first because,
| good lord, there is plenty of corruption here in the US
| (though those doing it used to care more about hiding it).
| The US, especially in its current state, is certainly not a
| place I'd describe with "almost no lying or cheating". I do
| understand that Russia is on another level, though, given the
| open assassinations and doing things like what was done to
| Navalny.
| selimthegrim wrote:
| You forgot putting a dead guy on trial.
| MoonGhost wrote:
| > I thought you were being sarcastic here at first because,
|
| You've never been in Russia. There is no clear law abiding
| business there. That opens a lot of opportunities for those
| with some power. Corruption is one of them, selective
| punishment is another. I'm sure in most 3d world situation
| is not better, but they at least don't have laws to cheat
| and bribing isn't a crime.
| mlrtime wrote:
| You have no idea about corruption if you haven't lived it
| in a BRIC country.
|
| The funny thing, is that people not from America say that
| there IS corruption, but at least it happens in the open. I
| think OP is saying the same.
| Braxton1980 wrote:
| >say that there IS corruption, but at least it happens in
| the open
|
| How is that corruption?
| saghm wrote:
| Breaking the law is still breaking the law even if you
| don't hide it. If anything, not getting in trouble for
| breaking the law noticeably often means that there's also
| corruption from the ones who should be holding the
| corrupt accountable.
| Braxton1980 wrote:
| Breaking the law isn't "corruption"
|
| A good definition from AI "Is when government officials
| misuse their power for personal gain or to benefit their
| friends or associates"
| fc417fc802 wrote:
| Right, which is illegal. Thus breaking the law. And
| remains both corruption and breaking the law even when it
| happens in the open.
| StackRanker3000 wrote:
| Where in that definition does it say that it can't be
| done in the open?
|
| See for example Trump's shenanigans, which are done in
| plain sight for all to see, but with few if any
| repercussions (a very brief selection: having foreign
| dignitaries stay at his hotel in DC while he's in office;
| having the Secret Service stay at his resorts when he
| goes golfing; scamming the public with his family's meme
| coins; etc)
| coliveira wrote:
| Because this is SO much better..../s The only difference
| in style is that the American billionaire will corrupt
| everything and still say it is for your own good.
| coliveira wrote:
| > almost no lying and cheating here
|
| Are you living in an alternate world?
| bjt wrote:
| Or are cynical Americans living in an alternate world,
| blind to how much better the rule of law is here than most
| other countries? The commenter's comparison was to Russia.
| When was the last time Putin lost an election?
|
| I'd say we're slightly behind western Europe as far as rule
| of law goes, not really sure about the advanced east
| (Japan, Korea), and miles ahead of just about everywhere
| else (eastern Europe, Russia, Africa, China, etc). Yes,
| even with Trump in office, though he really makes me worry.
| jmknoll wrote:
| I mean, the sitting President was shilling cars on the
| White House lawn and runs an active meme coin bribery
| slush fund.
|
| This is not slightly behind Western Europe. This is miles
| behind any developed country. China may be corrupt, but
| Xi Jinping hasn't yet sold beans or cars via press
| conference.
| 9x39 wrote:
| The rule of law gets down to nitty-gritty levels, too,
| not just a reality show at the highest altitudes: trust
| the police don't extort you, the ability to gain relief
| in court (small claims or civil), trust things you build
| won't be looted overnight, trust in your neighborhood to
| walk at night or leave something unlocked, trust in your
| bank to wire things, trust in your title companies, trust
| in your package deliveries, etc.
|
| It's not perfect, but you could do so, so much worse.
| rini17 wrote:
| "Could be much worse" is a platitude not an argument. "It
| is improving" might be, if it were true.
| 9x39 wrote:
| I often couch my arguments in soft language like a
| conversation would be in order to have a discussion. The
| idea that the US is miles behind developed nations is
| nonsense.
| rini17 wrote:
| Depends. Would you still insist it's nonsense if any of
| these things you mentioned happened to you or your
| family?
| lucianbr wrote:
| Why are these alternatives? I believe it is true that the
| situation in the US is better than many other countries
| (not most), and also that "almost no corruption" is
| false.
|
| Being better than others really isn't the only thing that
| matters.
| edflsafoiewq wrote:
| If you pursue excellence, you compare yourself against
| the best, not the worst.
| rat9988 wrote:
| Then the russian fellow shouldn't have dared to compare
| USA to his country?
| hattmall wrote:
| No, he's saying that people respect the law, which they do.
| It's all about finding loopholes, and sticking to the
| letter of the law while working around the law to do
| whatever the law prohibits but doing it in a way that
| remains legal. This entire situation came up because of
| loopholes. A great way to offshore money was to spend it on
| software developed by overseas subsidiaries.
| bombcar wrote:
| 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.
| throwaway173738 wrote:
| Like tipping the licensing agent every time you had to
| renew your driver's license or get plates. Or tipping the
| judge for a favorable judgement.
| coliveira wrote:
| A growing number of activities in the US require tipping,
| so it's getting there.
| yencabulator wrote:
| USA is pretty darn corrupt. Just because worse places exist
| does not make USA good.
|
| https://en.wikipedia.org/wiki/Corruption_Perceptions_Index#2.
| ..
| e40 wrote:
| And if the R&D uses foreign workers, because you can't afford
| to pay US wages, then the 5 years goes to 15 years!
|
| This hurts small companies (like mine) that were priced out of
| the US developer market.
| deeth_starr_v wrote:
| I'm not sure this is exactly true. If your foreign workers
| are a service contract then those are services expenses
| immediately deductible. Same if you are using local service
| contracts. My understanding is this creates a drag for
| companies that want to hire f/t.
| fhd2 wrote:
| Foreign workers are to my knowledge effectively always a
| service contract, since it's pretty complicated (if even
| possible) to hire FTEs across borders without subsidiaries,
| which are expensive to maintain.
|
| I'm curious if contract work is really exempt, would look
| like a major loophole to me.
| K0balt wrote:
| Tax law is full of major loopholes. It's highly political
| law, so doing one thing while saying you are doing
| another is a feature, not a bug.
| e40 wrote:
| There are definitely gray areas to the law, but in my
| decades of experience dealing with lawyers, they won't
| steer you to do something very far over the line. I think
| the companies that do step far over the line, to game the
| system, are doing so knowing full well they are breaking
| the law, but they believe they are unlikely to be caught.
| And they're very likely right. You could separate
| CEO's/CFO's in to two camps: stay legal and do what you
| need to do to make the almighty $$. In the 80's the
| phrase "greed is good" was born, but the last 2 decades
| have really upped the ante on this.
| e40 wrote:
| _> Foreign workers are to my knowledge effectively always
| a service contract, since it 's pretty complicated (if
| even possible) to hire FTEs across borders without
| subsidiaries, which are expensive to maintain._
|
| It's impossible (yes, I'm being absolute) to hire an
| employee who lives in or outside the US who is not a
| citizen or doesn't have a green card. All employees must
| have an SSN and go through i9 verification, which
| requires _in person verification of legal ability to work
| in the US_.
|
| The foreign developers I'm talking about are not US
| citizens and do not have green cards.
|
| Their work is subject to 15 year amortization per section
| 174. Period.
| iancmceachern wrote:
| Not if they are contractors. That's the point the parent
| commenter was making. All the reasons you list make it so
| they need to do so, instead of "hiring" them directly.
| hoodwink wrote:
| It doesn't matter if the foreign workers are contractors
| or employees. The expense is considered R&D and must be
| amortized over 15 years. I've dealt with this personally
| since 2023 for my company working with a legion of tax
| consultants. There's no loophole here, I assure you.
| e40 wrote:
| This is simply not true. Says my lawyer and CPA. And every
| other CEO/CFO I've talked with.
| hoodwink wrote:
| Same.
| rbultje wrote:
| We don't talk about this enough. International R&D is not
| offshoring of call-centers to India. International R&D is the
| IP for the next generation of global communication standards
| being owned by US-based or foreign corporations, because
| international (e.g. Canadian, European) standards
| experts/developers become un-affordable for US-based
| corporations and are forced to work for our "adversaries"
| instead. Crazy.
| mountainriver wrote:
| This is one of the worst things MAGA has done. Tech startups
| are the source of so much of our wealth, and this makes it very
| challenging to ever build one.
|
| I can't believe this still exists, and no one has changed it.
| We truly are governed by morons
| toofy wrote:
| for anyone curious, this wasn't specifically trump, but it
| was indeed a republican congress bill. texas republican was
| the initial sponsor and then republicans lined up to
| cosponsor.
|
| this was done to fuel their tax cuts to a small group of a
| certain people.
|
| you can see all of the sponsors here:
| https://www.congress.gov/bill/115th-congress/house-
| bill/1/co...
| leereeves wrote:
| It was indeed passed by Republicans in Congress (with
| Democrats mostly voting Nay), but it was signed by Obama
| (12/22/2017). Why did he sign it?
| albertsondev wrote:
| I encourage you to look closer at the "in office" section
| here.
|
| https://en.wikipedia.org/wiki/Barack_Obama
| drgo wrote:
| Thanks Obama! singing terrible bills even after he left
| office.
| jyounker wrote:
| Pay attention to the dates. It was signed on 12/22/2017.
| Obama's last day in office was 01/20/2017. That means it
| was signed by Trump.
| jeffybefffy519 wrote:
| Democracy is broken... its so hard to tell who did this.
| NooneAtAll3 wrote:
| what do you mean by "sponsor"?
| bradleyjg wrote:
| In the U.S. Congress when a bill is introduced in either
| House it needs to have one or more members to formally
| ask the chamber to consider the bill--they are known as
| the bill's sponsors.
| dyauspitr wrote:
| That sounds exactly like what the parent comment said- a
| MAGA bill.
| cma wrote:
| A dead post below says it was biden and somehow Obama, but
| sibling reply link says it passed into law in 2017, not 2022,
| the first year it went into effect I think.
| wvenable wrote:
| The article is pretty clear that the law was from 2017 had
| a scheduled start date of 2022. Although probably not the
| actual intended effect, it does have the effect of
| confusing who would be responsible for it by those who
| don't read past the effective date.
| vineyardmike wrote:
| > Although probably not the actual intended effect
|
| This is actually a really common intention in laws like
| this. Get the tax cuts during your term, and then kick
| the can down the road so your successor's term is marred
| by the bad law. If your successor wants to fix it, they
| need to pass a different tax to recoup the costs, and
| incur the publicity of "raising taxes".
| matthewdgreen wrote:
| I think it's partly that and partly the fact that tax
| bills tend to be scored on a ten year time window. Note
| that this law doesn't actually change the amount of tax
| that software companies can deduct, it just requires them
| to spread the deduction over several years. So if you're
| scoring your new tax bill on a ten year window and five
| years into the bill this thing kicks in, then it looks
| like more tax is being collected in years 5-10. But
| that's just an illusion because all the deductions are
| still there, they're just being pushed out beyond the end
| of the window where they don't "count". At least this is
| my understanding.
| teitoklien wrote:
| Cashflow is king.
|
| You're operating cashflow decides the health of your
| business, not your accounting profits, not anything else.
|
| Only the operating cashflow and whether that grows as
| your startup/business grows decides whether your business
| lives or dies, everything else is for investors, mommy
| and daddy for final report card.
|
| A business operator's #1 focus is Operating Cashflow and
| this tax insanity law hurts cashflow tremendously for
| american service businesses who need to compete with all
| other major economies who dont have such an insane law.
| throwaway173738 wrote:
| This is 100% the intended effect of leaving a bomb like
| this unaddressed then stalling all legislation halfway
| through your opponent's term. You make them look
| incompetent and then you complain about how they never
| fix anything, even though they never get anything done
| because you've stopped cooperating. And even though
| you've stopped you can keep complaining about how they
| always include things you don't like in legislation so
| that's why you never cooperate. The solution is simple in
| your eyes: just do exactly what you want and only what
| you want and then you'll cooperate. This is how a lot of
| a certain party was talking on the news from 2021 to 2025
| when they were interviewed.
| jbverschoor wrote:
| It is being roled back partly
| https://news.ycombinator.com/item?id=44028106
| FrustratedMonky wrote:
| too little too late?
|
| as we are seeing now on a number of issues, sure things can
| be rolled back, but that doesn't mean a return to normal.
|
| Yes, you can kick over a bee hive, then pick it up and set
| it back upright, but you are not going to put all the bees
| back in immediately. There are long term consequences.
| lostlogin wrote:
| Off topic! Having knocked over a beehive and got 50+
| stings as they crawled up my trouser leg in the dark, I
| can confirm.
|
| When I got to bed, my heart was beating so hard that it
| kept my wife awake.
| hnjobsearch wrote:
| You went back to bed after being stung 50+ times by bees?
| That sounds like a medical emergency. I'm glad you are
| okay, but I'm amazed you were able to just shrug it off.
| PaulDavisThe1st wrote:
| Until is _is_ rolled back, it isn 't rolled back.
| chemmail wrote:
| But we are great now. What else do we need?
| rbultje wrote:
| The way this is "fixed" right now, every five years we need
| another round of republican government to make things great
| again. If only enough democrats cared to fix this.
| yencabulator wrote:
| The problem was created in the first place by
| republicans.
|
| https://www.congress.gov/bill/115th-congress/house-
| bill/1/co...
| droopyEyelids wrote:
| Who sponsored this text in the bill?
| curtis3389 wrote:
| Here's the cosponsors of the bill:
|
| https://www.congress.gov/bill/115th-congress/house-
| bill/1/co...
|
| I think the purpose of the change was to "increase revenue":
|
| > Requiring that certain research or experimental
| expenditures be amortized over a five-year period or longer,
| starting in 2023, would increase revenues by $109 billion
| over the period from 2023 to 2027.
|
| https://www.congress.gov/congressional-report/115th-
| congress...
| mjevans wrote:
| They want to call it anything other than a tax.
|
| It's a specific tax, on a particular class of better
| educated workers in specific jobs.
| kasey_junk wrote:
| That typically don't vote for that party and are
| unsympathetic.
| Braxton1980 wrote:
| Unsympathetic because?
| largbae wrote:
| Generally R&D software developers aren't considered to be
| poor or disadvantaged.
| Braxton1980 wrote:
| What if they lose their job?
| randomNumber7 wrote:
| Then they are still arrogant brats.
| rcpt wrote:
| Also, that administration was pissed off at tech.
| jdminhbg wrote:
| > I think the purpose of the change was to "increase
| revenue"
|
| Yes, but in a specific way: they were trying to offset the
| tax cuts they wanted so they could pass it via the
| reconciliation process and avoid the Senate filibuster.
| They didn't actually care about this revenue and the
| assumption from most people was that the specific carve-out
| would disappear in some future bill.
| saghm wrote:
| And now with their attempts to keep the tax cuts around,
| they've just decided to ignore the rule entirely and
| pretend that extending a temporary tax cut counts as not
| costing anything. Of course, there's nothing that would
| stop them from getting rid of the filibuster entirely
| either, but that honestly just makes it weirder to
| pretend that this somehow fulfills the requirements
| rather than just is taking advantage of the rules being
| only self-enforced.
| getcrunk wrote:
| Idk but it was under trump. And the meta issue was balancing
| the budget after all his tax cuts so he needed to find more
| tax revenues. Which this accomplishes pretty handily
| gertlex wrote:
| I think partially dismissing the question due to the bill
| happening "under trump" doesn't help the conversation here.
| If the bill was sponsored by particular reps/senators, then
| it's worth identifying those, so their voters can factor
| this bill in to their decision to vote for/against in the
| future, etc.
| sandworm101 wrote:
| But where an established company invests steadily in software,
| whether it is amoritized or deducted year to year is a wash.
| Rather than harm tech, this would seem to protect established
| US companies at the expense of startups. Thats probably great
| for shareholders in publicly traded companies. It seems just
| another querk of taxation meant to maintain the established
| order
| rileymat2 wrote:
| Only bootstrapped startups, funded startups will get the
| amortization by the time they need to deduct from earnings.
| subarctic wrote:
| This is what I was thinking too
| Uvix wrote:
| 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.
| demosthanos wrote:
| 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. By year 4, if they make it that far (which most
| startups don't) they'll finally be at 90% of a full
| deduction.
|
| Add to that the fact that startups also _by definition_
| have a much higher rate of growth than established
| companies and you 'll find that a startup almost
| definitionally will be paying substantially more in taxes
| as long as it remains a startup, because they only get to
| deduct an average of the last _5 years_ of expenses from
| this year 's revenue in order to calculate this year's
| profit. That's fine when your last five years are more or
| less similar to this one, but it's _terrible_ when you 've
| been growing.
|
| The net effect of this change can only be to disincentive
| startups and cement big, slow established players.
| rurban wrote:
| The net effect of this change can only be more tax income
| which benefits the society. Tax the rich
| mr_toad wrote:
| Increasing taxes does not always increase tax revenue.
| It's easy to do enough damage to the economy that total
| tax revenues fall. Past that point is easy for the
| economy and government revenue to fall into a dwindling
| spiral.
| StackRanker3000 wrote:
| Not if it limits growth to a commensurate extent (or
| more)
|
| A big part of why America is as rich as it is in 2025 is
| Big Tech. If laws and regulations had prevented that
| industry from taking off by stifling the now-giants back
| when they were starting up, you may have been more equal
| today (you'd have fewer billionaires), but there would
| also have been a lot less wealth to go around, even for
| the working class
| madmask wrote:
| Yes. See Europe
| gscott wrote:
| I thought wages were deductible anyway. Say you pay a developer
| $250,000 a year. The employee pays the tax on their own wages.
| walterbell wrote:
| W2 salary is different from fully loaded labor cost.
| notimetorelax wrote:
| No, not in this case. 250k is an expense for the company.
| Company had to amortize this expense over 5 or 15 years. (15
| for software engineers outside of the US)
| Tade0 wrote:
| > (15 for software engineers outside of the US)
|
| Yikes. Does that apply to outsourcing?
| ChuckMcM wrote:
| Excellent summary.
| cma wrote:
| > All software expenses must be treated as research and
| experimental expenses
|
| From what I've read, not for software fixes to ongoing
| products, but for new products and I can't remember for new
| feature work. Also if you contract for someone else I heard you
| can still write off expenses without amortization.
| nlitened wrote:
| I would guess that because in these cases software
| development costs would be classified as "cost of goods sold"
| instead of "research and development"
| arkis22 wrote:
| salary is already counted as an expense right? does that mean
| we were double billed as two expenses? salary and R&D?
| ridomune wrote:
| more like triple. do not forget the sales tax when you're
| spending it.
| bunnie wrote:
| 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 globally competitive technology race.
|
| The rules are even worse than the article notes because it
| double-dings open source developers. See Section 6.4 of
| https://www.irs.gov/pub/irs-drop/n-23-63.pdf. The relevant bit
| is here:
|
| > "However, even if the research provider does not bear
| financial risk under the terms of the contract with the
| research recipient, if the research provider has a right to use
| any resulting SRE product ... costs paid or incurred by the
| research provider that are incident to the SRE activities
| performed by the research provider under the contract are SRE
| expenditures of the research provider for which no deduction is
| allowed ..."
|
| The rule as written means contractors who write Windows drivers
| could deduct their expenses (as they would have no residual
| rights to a closed-source work product), but contractors who
| write Linux drivers may not (as they would have some rights to
| open-source Linux drivers).
| djfivyvusn wrote:
| Just pledge copyright of contributions to eff or something.
| bunnie wrote:
| Work-for-hire open source contributions often already bear
| a copyright holder of the entity paying for the work. The
| problem isn't who is the copyright holder.
|
| The problem is that the license assigned says that _anyone_
| is free to use the code. Anyone is a set of people that
| includes the contributor, which then triggers the
| interpretation that the research is incrementally in the
| contributor 's benefit and thus disqualified from
| preferential tax treatment.
|
| You'd need a custom license where everyone in the world
| could use the results except for the contributor, and then
| like, a source control system that hides the source files
| from the contributor's view of the repository.
| anticensor wrote:
| > a source control system that hides the source files
| from the contributor's view of the repository.
|
| How would that work?
|
| > You'd need a custom license where everyone in the world
| could use the results except for the contributor
|
| That one is incompatible with copyright laws in many
| countries outside USA.
| hiatus wrote:
| > That one is incompatible with copyright laws in many
| countries outside USA.
|
| How so? You can't sign away your interest in a
| copywrighted work?
| jashmatthews wrote:
| The USA hasn't managed to completely impose their idea of
| intellectual property on everyone yet. Some countries you
| can't sign away authorship even if you can commercial
| rights.
| hiatus wrote:
| Parent objected to:
|
| > You'd need a custom license where everyone in the world
| could use the results except for the contributor
|
| > That one is incompatible with copyright laws in many
| countries outside USA.
|
| Does authorship confer usage rights?
| anticensor wrote:
| In fact, many countries don't let you sign away your
| statutory rights in general.
| mystified5016 wrote:
| The point is that it's a ridiculous and impractical
| workaround that makes no sense
| bunnie wrote:
| ^^ this
| walterbell wrote:
| _> Anyone is a set of people that includes the
| contributor_
|
| Should every other member of that set, i.e. everyone
| minus contributor, also amortize their software
| development expenses because they have a hypothetical,
| non-exercised right to use some (i.e. all) open-source
| "R&D" software... somewhere? Or should the tax liability
| be invoked starting on the date of first use of any open-
| source code?
|
| If some code is upstreamed to Linux kernel or userspace,
| should this obligate every Linux distro consumer to
| amortize their Linux software development expenses?
|
| There must be _some_ legal boundary for dispersal of the
| tax obligation with respect to open-source code, since it
| self-evidently cannot be intended to apply to the entire
| universe of businesses and union of all OSS development.
| If necessary, a court case can establish this
| distinction.
| Retric wrote:
| Create a shell company with an X$ investment.
|
| Have the shell company write code. (Or more risky pay your
| company to write code as a work for higher.)
|
| Devolve the shell contributing its assets to OSS.
|
| Take a X$ loss in that year.
|
| Argue that it is perfectly legal to the IRS.
| jay_kyburz wrote:
| I wonder of you could also just pay bounties for specific
| features to be written for OSS.
|
| Or have your shell company operating out of any other
| country.
| irf1 wrote:
| Algora.io for OSS bounties!
| dataflow wrote:
| > The rule as written means contractors who write Windows
| drivers could deduct their expenses (as they would have no
| residual rights to a closed-source work product), but
| contractors who write Linux drivers may not (as they would
| have some rights to open-source Linux drivers).
|
| Is it just me or are you conflating two orthogonal things?
|
| An open-source Windows driver would have the same issue, no?
| And a closed-source proprietary Linux driver privately
| written for some company wouldn't have this issue either,
| right?
| bunnie wrote:
| You are correct. I picked this example under the general
| assumption that the Windows driver would be closed-source,
| but you are correct that it doesn't necessarily have to be
| closed source.
|
| The problem goes with the license, not with the OS.
| CBLT wrote:
| You're right, the law text doesn't specifically call out
| the Windows operating system or the Linux operating system.
| The example you gave of Open Source Windows drivers is
| valid.
|
| The Grandparent's point about that "it double-dings open
| source developers" is still correct and poignant even with
| this clarification.
| dataflow wrote:
| > The Grandparent's point about that "it double-dings
| open source developers" is still correct and poignant
| even with this clarification.
|
| I feel like I'm missing what subset of people this is,
| exactly. We're talking about _businesses_ here that would
| struggle with these tax rules. Which I guess is, mainly,
| contractors or startups. How common is it for such
| businesses to release their software as open-source, vs.
| as closed-source? I would 've (naively) expected most
| paid OSS developers to be funded by large
| organizations/businesses that have plenty of money to
| fund them, not small businesses/contractors that would be
| severely impacted by this law. Is this actually a large
| set of people?
| pabs3 wrote:
| There are lots of small OSS businesses that are
| contractors to the big companies you mention. My go-to
| example is Igalia, who work on web browser and other core
| OSS tech, but there lots of others, some mentioned on the
| FOSSjobs wiki.
|
| https://www.igalia.com/
| https://github.com/fossjobs/fossjobs/wiki/resources
| kmacdough wrote:
| I could see it being inferred that way but, the way I read
| it, they are not meant as unilateral facts. Rather, they
| serve as rhetorical examples of where you might find
| contractors doing similar work, but where the one more in
| service of "public good" is taxed higher because it's open
| source. Strictly speaking, Windows bits are not all closed
| source and there exist closed source Linux bits. But it's
| not a point that really matters in the context of the
| conversation.
|
| I think it's fair to use Windows and Linux as stand-ins for
| closed vs open source because it's a very accessible
| example. And knowing the technicalities clearly doesn't
| undermine the argument.
| dataflow wrote:
| > I think it's fair to use Windows and Linux as stand-ins
| for closed vs open source because it's a very accessible
| example
|
| We're talking about _businesses_ here that would struggle
| with these tax rules. Which I guess is, mainly,
| contractors or startups. How common is it for them to
| write open-source drivers vs. closed-source ones? I would
| 've imagined the majority of drivers in such cases are
| closed-source, on every platform. But I would find it
| interesting to hear if things are somehow different on
| Linux.
| travisb wrote:
| Linux kernel drivers often end up being GPL'd, but out of
| tree. This is because Linux releases many very useful
| (and sometimes critical to the use-case!) functions
| behind a GPL-license API restriction. This is
| EXPORT_SYMBOL_GPL.
| dataflow wrote:
| Are you sure this is exactly what it means? You're
| basically saying that if I start hacking on a driver that
| consumes such an API tonight, I _must_ release it as GPL
| somewhere publicly the moment I start consuming the API?
| I can 't even work on it for a bit privately?
|
| I'm surprised if so, because usually these sorts of
| licenses only apply _if_ you 're redistributing the code,
| not if you're just using it privately.
| econ wrote:
| What would happen if closed source is [later] released as
| open?
| Retric wrote:
| You're likely overreacting.
|
| It makes software temporarily 16.7% more expensive in year
| one if you're operating a profitable company, but you do
| eventually get to deduct that over time. Pay 8% on a 4 year
| loan and that drops to ~4%.
| demosthanos wrote:
| 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 redefined "profitable" for tax
| purposes to include companies who:
|
| * Are in year 1 with no history of expenses to draw on.
|
| * Have spent <900% of their year 1 revenue on software
| development expenses.
|
| i.e., a startup that earns $1mil and spent $8mil in
| software dev expenses is only able to deduct 10% * 8mil =
| $800k of expenses, which means that as far as the
| government is concerned they made a profit of $200k and owe
| taxes on that _on top of_ their already-net-loss of $7mil.
|
| You can keep ignoring this fact, but ignoring it doesn't
| help your case. If you want to argue that this is fine and
| dandy you need to explain why the above math doesn't
| prevent new companies from competing on fair terms with big
| tech.
| Retric wrote:
| > You keep saying this across this thread, and keep
| ignoring that Section 174 has now redefined "profitable"
| for tax purposes to include companies who:
|
| Because generating an asset IE software isn't a pure loss
| that's why you're doing it in the first place. Companies
| with a cash flow problem are different than companies
| which an actual loss.
|
| > i.e., a startup that earns $1mil and spent $8mil in
| software dev expenses is only able to deduct 10% * 8mil =
| $800k of expenses, which means that as far as the
| government is concerned they made a profit of $200k and
| owe taxes on that on top of their already-net-loss of
| $7mil.
|
| That assumes 100% of expenses are software development
| related. But the numbers are imaginary so using your
| example taxes are 21% of 200k, so 7 million in losses =
| 7.042 million in losses. A 1/2 of 1% increase, the sky is
| fucking falling.
|
| Further a competent account would likely want you to
| carry the majority of those expenses to the future. Given
| the option many companies voluntarily did so because it
| made financial sense. You can only carry 80% of losses
| forward a likely future issue, but these expenses don't
| fall under that category.
| demosthanos wrote:
| > Because generating an asset IE software isn't a pure
| loss that's why you're doing it in the first place.
|
| Tell me you're not an experienced software engineer
| without telling me you're not an experienced software
| engineer.
|
| Code is a liability, not an asset.
| Retric wrote:
| > Code is a liability, not an asset.
|
| So you have no idea what that phrase means. If you don't
| think code is an asset _don't write it._
|
| O wait obviously that's not what code is a liability
| means. Code is a liability in the same way roads or
| buildings are a liability, they incur an ongoing cost,
| but removing the US highway system would be just as
| idiotic as a startup deleting their source repository
| from a misunderstood idea.
|
| More importantly valueless code stops being a liability
| because you can abandon it. Calling it a liability
| _implies_ it has value.
| demosthanos wrote:
| > O wait obviously that's not what code is a liability
| means. Code is a liability in the same way roads or
| buildings are a liability, they incur an ongoing cost,
| but removing the US highway system would be just as
| idiotic as a startup deleting their source repository
| from a misunderstood idea.
|
| I love this example! It perfectly illustrates a case
| where the government intentionally subsidizes a liability
| that no sane company would take on without government
| funding. Well said.
|
| So we're agreed that the government should incentivize
| R&D with a favorable tax code that makes it not
| completely insane to take on the risk of doing something
| new.
| Retric wrote:
| > It perfectly illustrates a case where the government
| intentionally subsidizes a liability that no sane company
| would take on without government funding. Well said.
|
| LOL, try again liabilities like buildings don't need
| incentives. _Software that is only barely worth
| maintaining isn't worth subsidizing,_ highly valuable
| software needs no incentives.
|
| If anything you're making a solid argument government
| should discourage the creation of software so only the
| most valuable software is created and maintained. Except
| the optimum economic efficiency as so often happens
| occurs without government incentives.
| AnthonyMouse wrote:
| > More importantly valueless code stops being a liability
| because you can abandon it. Calling it a liability
| _implies_ it has value.
|
| This is kind of missing the issue though.
|
| Suppose you pay a million dollars this year to develop
| something that will also cost a million dollars a year to
| maintain, but is _worth_ over a million dollars a year,
| so you do it anyway.
|
| So this year you spend a million dollars, make $1.1M,
| have a profit of $100k. Next year you'll spend a million
| dollars, make $1.1M, have a profit of $100k. But if you
| don't do the maintenance, it ceases to comply with
| changing regulatory requirements and not only has to be
| shut down but causes you to incur criminal penalties, or
| develops public security vulnerabilities and then
| criminals break in and destroy your business and cause
| you to be sued into bankruptcy by your customers.
|
| In other words, the code creates an _obligation_ that
| offsets the value of the asset. These two things can
| easily cancel out so that the total value is ~0 -- or
| even negative in ways that don 't allow you to walk away,
| e.g. because you entered into a contract to supply this
| thing for a defined price but underestimated the
| maintenance cost.
|
| But now the government is telling you that you have
| something worth most of a million dollars even though
| it's not worth a dime without putting another million
| dollars _into_ it -- and even then it still wouldn 't be
| worth _two_ million dollars.
|
| The reason you continue to do it is that the continued
| development made you $100k _this year_ , not because what
| you had left at the end of the year that would be worth
| something without further investment.
| AnthonyMouse wrote:
| > That assumes 100% of expenses are software development
| related. But the numbers are imaginary so using your
| example taxes are 21% of 200k, so 7 million in losses =
| 7.042 million in losses. A 1/2 of 1% increase, the sky is
| fucking falling.
|
| The problem here is that the losses are often in time or
| future liabilities but the government expects to be paid
| in cash. Your developers were mostly working for stock
| options or some other deferred compensation, which may
| cost you tomorrow but tomorrow you'll have more revenue.
| Where are you getting the cash to pay the government
| _right now_?
| majormajor wrote:
| > 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" theory, especially if it's net-
| advantageous for big tech vs up and comers.
| PunchyHamster wrote:
| Article theory is bullshit, but it can still be some
| factor for startups, as research costs for them are
| effectively higher they probably just hire less.
| AnthonyMouse wrote:
| > 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.
| deadbabe wrote:
| Wow all this time I thought the key to a successful
| startup was to just be better and more disruptive than
| the competition but really I guess it all comes down to
| being more tax efficient.
| rayiner wrote:
| > 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 paid.
| qcic wrote:
| It doesn't matter. Jim Bean doesn't compete with an R&D
| software company. The R&D software company does compete
| with other companies in different jurisdictions with better
| regulations.
| monkeywork wrote:
| Jim Bean competes with other beverage makers who also
| operate out of different jurisdictions that may have
| different regulations ... not sure your point is as much
| of a "gotcha" as you think it is.
| bunnie wrote:
| The comparison with Jim Beam is misplaced. Both TSMC and
| Jim Beam already have to amortize their production
| equipment over several years. I'm not arguing that this
| should be changed. This is because the primary risk taken
| in a distillery build-out or a fab build-out is if there is
| market demand for a known product. It's primarily a
| _business_ risk, not a _research_ risk. Tax code is a
| reasonable tool to regulate business risk.
|
| The people this tax code change hurts are those doing basic
| research. In the context of semiconductors, that would be a
| company like ASML (except they are Dutch, so they can
| happily continue their research practices) who took a
| decades-long bet to build their EUV steppers.
|
| In the case of basic research, one could be spending
| millions of dollars on hardware prototypes when you _know_
| it can 't produce any salable product. There's no upside
| profit to amortize expenses against: it's like building a
| distillery that you know can't produce a single drop of
| salable bourbon because you're working out a radical new
| distillation technique.
|
| In summary: in basic hardware research, one could be
| spending millions of dollars to put a whole system together
| just so you can learn how it fails. It's a true "expense",
| with no path to amortization.
|
| Now, in addition to making the right technical decisions,
| the tax law changes force the R&D teams to also consider
| how to amortize their experiments over many years. You now
| have have pressure from management to do things like stage
| prototypes and expenses in the right tax year so the
| company can continue to show a profit for the shareholders.
| You could argue that the lessons learned are perhaps IP
| that have "goodwill" value, but now you're opening a can of
| worms trying to price a fair market value on a negative
| result, and you're now having senior research staff spend
| more time arguing with accountants than directing research.
| You also have to _get_ to that negative result within a tax
| year - which effectively penalizes any research project
| that takes more than 12 months to complete.
|
| Same-year 100% deduction of R&D expenses is simple and it
| reflects the actual nature of basic research risk. Yes, it
| allows companies to convert short-term windfalls into long-
| term research gains by converting taxable profits into
| research projects, but I'd argue that's not actually a bad
| social policy.
|
| I think US is probably unique among developed nations in
| having a tax code that punishes basic research; other
| countries at least allow it to be deducted. Some even allow
| super-deductions (e.g. you can deduct $2 for every $1 of
| R&D expense) or the research is explicitly subsidized
| through grants.
|
| The argument for special treatment of research is that
| pioneers put their careers on the line to discover new
| things, so the rest of us can live in risk-free comfort;
| so, as a collective we give them some reward for taking
| that risk.
|
| I suppose the counter-argument is that research incentives
| and subsidies are socialist "market manipulation" and
| violate the "free market" principle, and thus America is
| justified in sanctioning and trade warring with the rest of
| the world that is socializing basic research costs. That's
| an opinion one is entitled to hold, but we'll have to agree
| to disagree on that opinion.
| magicalhippo wrote:
| Norway did something similar with oil[1]. Companies could
| get most of their oil search expenses covered by the
| state, to encourage finding new oil fields.
|
| But if a company starts extracting oil from a field they
| have to pay heavy taxes on that oil.
|
| [1]: https://www.offshorenorge.no/om-
| oss/nyheter/2019/01/leterefu...
| patapong wrote:
| 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.
| gbacon wrote:
| "The power to tax is the power to destroy."
| ant6n wrote:
| I don't get the big hoopla. Here in Germany I'm opting to turn
| development costs into assets (I simplify a bit). I need assets
| on the balance sheet, otherwise we're over-indebted. As long as
| the development costs are much higher than income (I.e. as long
| as you're not profitable), then it shouldn't matter. And once
| you are profitable, you pay some more corporate taxes, but
| aren't they kind of not too high in the us anyway?
| PaulDavisThe1st wrote:
| the big hoopla is this: you're a newish startup. You have
| $300k/yr revenue and $$270k/yr expenses of which $250k is
| paying your programmers.
|
| prior to this rule change, what you pay your programmers is
| just a deductible expense, so you owe taxes (in this very
| simplified example with no other expenses etc. etc.) on just
| $50k.
|
| after the rule change, you can deduct only $50k of the labor
| cost (in this year), so now you owe tax on $250k.
|
| there is a very good chance you do not have the cash
| available to make this payment.
|
| of course, after 5 years, things all balance out and are
| effectively "back to normal". but you have to get through
| those 5 years first.
| ant6n wrote:
| How does this work, in your first year, to have 300K
| revenue on 270K development cost. It sounds like some very
| specific boot strapping case, and even then after 70K
| deductions its 230K profit, so like 50K in taxes on 30K
| profit. Sure it's annoying, but it doesnt sound like total
| doom. Its more likely youll have 250K programmer expense in
| the first year, 100K in revenue, need 200K in outside
| investment, and pay very little taxes. After a couple of
| years it evens out anyway.
|
| Consider some sort of logistics company. They might pay
| 250K for their hardware (e.g. vehicles), 50K in expenses,
| get 300K in revenue. Theyll be taxed the same as the
| startup building up their IT assets.
| PaulDavisThe1st wrote:
| The logistics company example is not really relevant. The
| critical point about the rule change is the fact that
| _all_ software related expenses, including salaries or
| contract labor costs, _must_ now be amortized over 5 or
| 15 years. What was previously deductible no longer is,
| and this changes the cash flow situation dramatically for
| a software-intensive business, for 5 years.
|
| Sure, for heavily capitalized startups that are losing
| money, the rule change is not an issue. But for companies
| that manage to get to profitable status soon, even if it
| is only a small profit, the rule change can be
| devastating. A quick search for past HN articles about
| this will provide lots of example links to follow.
| netcan wrote:
| What are the implications of this.
|
| 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.
| calderwoodra wrote:
| I'm not an accountant, but as I understand it, you don't pay
| taxes on profits, but on revenue.
|
| So previously, some 20% of all revenue would be owned as
| corporate income tax, and startups would deduct it all as
| they're spending much more on R&D than they owe in corporate
| income tax. But with this tax change, the deduction would be
| much lower (80% lower IIUC).
| testrun wrote:
| No, you pay taxes on profits. What this does is reduce your
| upfront deduction.
| epr wrote:
| Yes, but the main thing here is that ALL software
| development is now "profit" in the short term. In theory
| you've developed a capital good that benefits you over
| time, hence the amortization.
|
| Simplified 2021 example before 174:
| 100k Revenue 100k Software Dev Costs No
| profit or tax
|
| Simplified 2022 example after 174: 100k
| Revenue 100k Software Dev Costs 90k
| "profit" 18.9k taxes
|
| Above example is year one of suddenly having these taxes,
| because if your software costs are the same or lower over
| time it gets easier. It's just extremely painful for
| smaller and especially fast growing companies like
| startups without a lot of cash, especially when interest
| rates are so high.
|
| Accountants: If I am wrong about the above, please
| correct me
| testrun wrote:
| The profit is 80k, not 90k, but the principle is correct.
| This will affect cash flow.
| mrweasel wrote:
| If companies paid tax on revenue the US budget would be
| perfectly fine.
| rbultje wrote:
| Large companies always find a way to not pay taxes. It's
| the little guys that end up paying (a lot!) more, to the
| extend that it cripples and kills them. But
| transformative innovation happens with the little guys.
| As a result, this tax change cements monopolies for
| megacorps. They will be fine and still pay nothing.
| datavirtue wrote:
| The little guy always pays all taxes. Corporate tax is
| just a way to palatably shift tax burden to the low and
| middle classes and away from the owner class. It is pure
| double speak.
| cyberax wrote:
| Yeah. Let's bankrupt grocery stores that operate with
| margins measured in single percents. If that.
| nayuki wrote:
| If companies paid tax on revenue, then there would be a
| tremendous incentive toward
| https://en.wikipedia.org/wiki/Vertical_integration ,
| because you wouldn't be allowed to deduct the expenses
| paid to your suppliers.
| akoboldfrying wrote:
| > you don't pay taxes on profits, but on revenue.
|
| That can't be right. It definitely isn't in my country.
|
| If own a car dealership, and I sell a car for $50,000 that
| I bought from the manufacturer for $40,000, surely I would
| pay tax on the $10,000 profit? The tax on the the full
| $50,000 revenue might _exceed_ my profit!
| billy99k wrote:
| Welcome to the Democrat version of taxes. In Michigan,
| restaurant owners had to pay a tax on revenue and not
| profit around 2008 or so.
|
| lots of retaurants went out of business overnight.
| hollerith wrote:
| _Sales_ tax (which most US states collect) specifically
| _is_ a tax on revenue, but it is the exception.
| int_19h wrote:
| When taxes are paid on revenue rather than profits, the
| rate is obviously much lower, so that it would add up to
| roughly the same thing.
|
| However, there are many benefits overall. For one, it
| completely kills off the various convoluted schemes to
| avoid classifying something that is obviously a profit as
| such (by shuffling things around subsidiaries etc, for
| example). See also: Hollywood accounting.
| speakfreely wrote:
| I am so interested in what business you work in that you
| would think this could be true.
| juliennakache wrote:
| The R&D credits are deducted from Payroll taxes, so they
| impact pre-revenue startups as well.
| fauigerzigerk wrote:
| That was my first thought as well, but on second thought I
| can see how this might cause problems:
|
| For established profitable software companies there was a
| cliff edge in 2022 when this change kicked in. Staff costs
| for previous years had already been fully expensed while only
| 20% of the current year's costs could be deducted.
|
| Second, any sudden increase in research expenditures is now
| discouraged. This could make companies less nimble.
|
| For unprofitable startups it could cause issues during a
| phase of very high revenue growth. They could suddenly be
| liable to pay corporation tax in spite of the fact that they
| are not profitable in any reasonable sense of the word. It
| would smooth out later, but that may be too late for some.
|
| What I do not believe for a second is that this is causing
| major job losses. Companies like Microsoft or Meta do not
| reduce research or software development just because there is
| a temporary tax hit. It could be an extra incentive for an
| efficiency drive I guess.
| netcan wrote:
| > For unprofitable startups it could cause issues during a
| phase of very high revenue growth.
|
| So I guess my most question is "how this work irl?"
|
| Say a new startup raises money and hires 20 people. Pays
| $5m in salaries, office space and such. All 20 people are
| developing a software product. Are 100% of this startups
| expenses amorotized?
|
| Then they sell the product. They receive $2m in revenue.
| What does the P&L look like.
| t0mas88 wrote:
| 1 million profit, while they have 3 million negative
| cashflow, that's exactly the problem. They can only take
| 20% of that 5 million in R&D investment as depreciation
| in the first year.
| fauigerzigerk wrote:
| If they hire 20 devs in their first year paying $5m in
| salaries, only $1m or $500k (if the mid-year convention
| applies) would count as a business expense in that first
| year.
|
| If their revenue was $2m, that would leave them with $1m
| (or $1.5m) of taxable profits unless that was eaten by
| other costs.
|
| It doesn't have to be a problem, but if revenue grows
| fast and they go on another hiring spree in the following
| year then it could become a problem.
|
| That said, if revenue grows so fast, it seems likely that
| they would have huge marketing and sales costs that could
| be expensed immediately. So maybe this isn't really a
| problem for many startups. I'm not sure.
| freeone3000 wrote:
| Your analysis is correct, but _most_ software companies
| _were_ mostly profitable or fast-growing. For every Google,
| there's 1000 wordpress vendors you've never heard of.
|
| In another year the initial shock will stabilize, but _any_
| growth now has a 5-year tax hit attached. And even Facebook
| doesn't want to pay that if it doesn't have to.
| Klonoar wrote:
| Google was reportedly amortizing (by choice) long before this
| was in effect, so while it might "affect them", in practice
| it's likely business as usual.
| nostrademons wrote:
| It depends on the department. My salary (in a mature
| product) was already amortized - I suspect the same is true
| of all their other mature products like Search, Maps,
| GMail, Chrome, YouTube, etc. But I think they were
| deducting salaries in the more research-like areas like
| Gemini, Jax, Assistant, etc. So there is net still a fairly
| large charge related to it, even if it isn't as large as it
| could be.
| Tokumei-no-hito wrote:
| pardon my ignorance but why would they amortize some and
| not others?
| gortok wrote:
| > A startup isn't likely to be making a profit yet, under
| either accounting rule. Is there a benefit to reporting a
| larger loss?
|
| As an example, A two person software startup; both drawing a
| salary, each making $100,000 per year. Each doing things
| related to software development.
|
| Startup brings in 200,000K in revenue.
|
| Under pre Section 174 changes, the profit is zero. Both
| salaries are expensible in the year they were incurred.
|
| Post Section 174, the profit is now $160,000 each year. Now
| they pay taxes on $160,000, even though they literally have
| no money left over because revenues equaled expenditures.
|
| At 25% tax rate, that's $40,000 in taxes, for a business that
| made literally no money.
|
| That's why this is so devastating to small software
| businesses; unless you're highly profitable and have cash
| reserves, this change hits hard.
| datavirtue wrote:
| Yeah, this provision is a complete fuck up.
| roflmao123 wrote:
| > Post Section 174, the profit is now $160,000 each year.
| Now they pay taxes on $160,000, even though they literally
| have no money left over because revenues equaled
| expenditures.
|
| They have the $200k they pulled from their startup, far
| more than what most people earn. If you make enough to pay
| yourself $100k then you make enough to pay taxes.
| ccleve wrote:
| They do pay taxes. They each pay personal income tax on
| their $100k.
| roflmao123 wrote:
| Still plenty left to pay their business taxes.
| maaaaattttt wrote:
| And if it's employees? Do you ask them to contribute to
| the company's taxes as well? After they've paid their
| own?
| roflmao123 wrote:
| You pay them less money so you can afford your taxes,
| like literally everyone else.
| spwa4 wrote:
| ... or you never have the startup, and just have 2 people
| unemployed and no produce nothing of use to anyone.
|
| Which is what's happening.
| roflmao123 wrote:
| If you can't afford your taxes your business model was
| flawed to begin with. In the above example there is more
| than enough money for it to still be worth doing.
| spwa4 wrote:
| Well, I said elsewhere, this effectively means (heavily)
| taxing anyone who's doing something new (meaning adding
| additional taxes _on top of_ income tax). Essentially all
| of Europe does this, and people here often decry how they
| totally lack innovation across the entire continent.
|
| I don't think these two are unrelated.
|
| I also don't understand the objection. It's not like
| anyone's getting away from taxes due to this rule. This
| is about a temporary exemption from company income tax IF
| AND ONLY IF companies have someone pay income tax on that
| money (and only up to the point where that keeps makes
| sense). This "exemption" lets you not add 15%-20% tax on
| top of 40-55% income tax just to try a new business as a
| company.
| speakfreely wrote:
| You don't seem to understand the implications here. This
| requires bootstrapped startups to have gross margins
| substantially above incumbents in order to compete and
| not be cash flow negative after paying taxes.
|
| It makes it substantially more cashflow intensive to
| build a new software business, which entrenches
| incumbents and reduces competition. It favors companies
| who have the cash to wait for the full 5-year
| depreciation cycle, i.e. the opposite of most
| bootstrapped startups.
|
| Quick example:
|
| $10,000 revenue
|
| $8,000 paid to software developer
|
| $1,000 paid to AWS
|
| leaves $1000 in profit.
|
| You received $10,000 into your business account, but
| spent 8000+1000 = $9000. Your business account has a
| balance of $1000 at the end of the year.
|
| Section 174 means you can only deduct 1/10th of the $8000
| in the first year, $800. Your total deductible business
| expenses for the year will be 800+1000 = $1800.
|
| Your taxable profit for the year is 10000-1800 = $8,200.
| If your effective tax rate is 25% (generously low), you
| owe $2,050 in taxes.
|
| You pay your $2,050 tax payment and your business account
| is overdrafted by $1,050. You need to add $1,050 from
| your personal funds to the business to cover the
| shortfall.
|
| Your business was cash flow negative for the year. This
| makes it extremely difficult to bootstrap a software
| company.
| dyauspitr wrote:
| So on the $200,000 it's reasonable to you that they have
| to pay $120,000 ($80k income+$40k business) in taxes?
| roflmao123 wrote:
| Two people earning $100k each would pay $28k income taxes
| each, totaling $56k. Where did this $80k come from?
| dyauspitr wrote:
| What about state and city taxes? 80k might be a tad too
| high but in NYC on $100k, you would only take home around
| $65k.
| jameshart wrote:
| The company doesn't have any money to pay those taxes
| with.
|
| If you give the company more money to use to cover its
| tax bill, then that further increases the company's
| taxable income.
| roflmao123 wrote:
| Pay less salary so you can pay your taxes? This isn't as
| complicated as y'all seem to want to make it.
| zmgsabst wrote:
| That's what makes them less competitive: they have to
| lower pay because they don't have the cash on hand and
| revenue to amortize the deductions.
| runeks wrote:
| The amounts are irrelevant. It would be the exact same
| situation if all amounts were divided by e.g. 10: paying
| taxes on non-existent profits.
| crystal_revenge wrote:
| This example only really has the emotional impact it does
| because of the specific numbers used, but doesn't really
| generalize for an arbitrary N.
|
| Clearly if two software engineers build a product that
| brings in $10M, and each pay themselves $5M, it doesn't
| seem so outrageous that the can't really claim they're
| running "a business that made literally no money." Clearly
| in this second example the problem is that the engineers
| are paying themselves way too high given the return on
| their efforts.
|
| What this means is that software engineers will be required
| to bring in more value to justify their high pay. In your
| example, it simply means that a software engineer that
| brings in $100,000 of value to the company, probably
| shouldn't be _paid_ $100,000.
|
| This seems entirely reasonable to me, and doubly so when I
| consider how many large corporate teams (who I think will
| ultimately be impacted more than startups) has huge numbers
| of highly paid engineers not doing all that much.
|
| In most startups I've worked in it was pretty common for
| engineers to be delivering multiples of their cost in
| value, and in every big company I've worked in, it was very
| common to be delivering fractions of one's cost in value.
| spwa4 wrote:
| In case you don't understand: obviously you still pay
| income tax. What you suggest would mean you now pay
| income tax on that $10M, which is going to be 40% or even
| 50% depending, far higher than corporate tax.
|
| So with your suggested tactic the engineers get $2.55
| million each. The rest, $4.5 million, is tax.
|
| If those 2 engineers paid themselves $0, and instead paid
| the $10 million as dividends, they'd get 4.25 million
| each, and only 1.5 million would be paid as tax.
|
| (Yes, this is a simplification, both situations are
| artificial and in both cases there'd be other taxes to
| pay, however, they'd be similar in both cases)
| mcv wrote:
| Wait, salary costs do not count as costs for the year
| they're made in? That is completely nuts, no matter what
| kind of company you have.
|
| Although for a startup it might be least bad, because for
| their first few years, their revenue might well be closer
| to zero; they tend to burn money, sometimes for quite a
| while.
| jameshart wrote:
| They count as costs, but towards a _capital_ expense. The
| expectation is that that expenditure resulted in the
| creation of a valuable asset (and not one which was sold
| for $200,000).
|
| Revenue: $200,000 Expenses: -$200,000 Assets: $200,000
|
| Net income: $200,000
|
| You're allowed to say 'ah, but over the year the value of
| that $200,000 asset actually fell by 1/5':
|
| Asset depreciation: -$40,000
|
| So your net income is now $160,000
|
| You owe taxes on that income.
| dummydummy1234 wrote:
| But no matter what you are doing, your not spending 100%
| of your time building a piece of software.
|
| How does it work when a company uses salaried employees
| to build a structure. Are the salaried employees not
| deductible at all?
| gortok wrote:
| The IRS releases guidance on tax code, and one of the
| issues with section 174 taking effect in 2022 (and the
| IRS believing it would be repealed before it went into
| effect) was that the guidance was released in 2023 under
| notice 2023-63
|
| https://www.irs.gov/pub/irs-drop/n-23-63.pdf
|
| To answer your question, the following are software
| development activities that are capitalizable (and
| instead of quoting the notice itself, I'm quoting from a
| better written blog post by accountants:
|
| https://www.cohnreznick.com/insights/additional-guidance-
| irs...
|
| > Section 4.03(1) of the Notice clarifies that labor
| costs - including those for contract employees and
| independent contractors - related to those who perform,
| supervise, or directly support SRE activities are
| considered Section 174 expenditures. All elements of
| compensation are to be included with the exception of
| severance, which is excludable and deducted by taxpayers
| in the period paid or incurred. SRE-related labor costs
| expenses included in the Notice expenses related to
| pension costs and stock-based compensation.
|
| Section 4.03(1)(e) provides guidance pertaining to
| certain costs related to operation and management (i.e.,
| rent, utilities, etc.) activities. Specifically, in
| addition to items such as rent, utilities, and insurance,
| expenditures such as taxes (i.e., property), repairs and
| maintenance, and security are now considered SREs subject
| to Section 174.
|
| So what software development activities don't count as
| "Specified Research Expenditures" (SRE)"?
|
| > Training of employees in the use of the software
|
| >Maintenance activities after the software is placed into
| service that do not constitute upgrades or enhancements
| (i.e., corrective maintenance to debug, diagnose, and fix
| programming errors)
|
| > Data conversion activities (except activities to
| develop computer software that facilitates access to
| existing data or data conversion)
|
| > Installation and other activities related to placing
| the software into service
|
| > Marketing and promotional activities
|
| > Distribution activities
|
| > Customer support
|
| If you're a startup and you have a software developer
| doing the above activities as well as SRE work, then in
| order to expense the SRE parts of their job you either
| have to estimate (and be able to defend) the estimations,
| or your employee needs to track their time for each type
| of activity they do.
| dwedge wrote:
| It might be "quite short" but it's full of click bait style
| text. This tax law will change everything, but we won't say
| what it is for 4 or 5 paragraphs, nor what changed for another
| 3
|
| Edit : sorry I just realised you meant the tax law is short.
| The article itself is very annoyingly written
| demosthanos wrote:
| Agreed. I think the article's text was responsible for the
| confusion in the comments prior to me posting this. They
| could have been much more clear and straightforward.
| hshdhdhj4444 wrote:
| Exactly!
|
| The change is very simple. And the predictable impact of the
| change is very clear.
|
| It shouldn't impact large companies that are already
| profitable. But it's devastating for software companies that
| are not profitable yet.
|
| And that's without even getting into the philosophical issues
| with it.
| datavirtue wrote:
| This was also a gift to big tech, boxing out competitors.
| MPSimmons wrote:
| I have no doubt it's bad, but I can't believe that it's both
| fueling mass layoffs and also almost nobody has heard of it.
| Those are unlikely to both be true.
| iancmceachern wrote:
| By what logic?
| MPSimmons wrote:
| At least one person at every company impacted knows why
| they're firing people, right? Likely several people who are
| in a decision making capacity. At every company.
|
| Those companies have R&D for a reason. A company _wants_ to
| make things, right? If this is impacting their ability to
| make things, wouldn't it be in a company's best interest to
| advocate openly against the tax code, rather than be silent
| about the reason, fire their staff, and just not make
| things?
|
| It doesn't make sense to me how so many people are aware of
| this to the point that many many companies are all doing
| the same thing for the same reason, but seemingly nobody
| was talking about it before this post. That doesn't make a
| lot of sense to me.
| iancmceachern wrote:
| It's not like this.
|
| It's like this: Company wants to do R&D, they have a
| budget, they do math that says they can afford to pay X
| number of R&D workers with Y budget.
|
| Government changes tax laws in unexpected way, that
| changes the math so that Y budget only can support X-A
| R&D workers because the "A" goes to taxes now.
|
| Also important to note, the tech R&D space is a very
| small part of the overall economy. We exist in a little
| thought bubble here on HN.
| eipipuz wrote:
| Assuming this change is causing the layoffs, then these
| companies know about this.
|
| If these companies don't know about this change, then why
| would we believe this change is causing it.
| iancmceachern wrote:
| They didn't know the change was coming. Then it happened,
| now they have to revisit their budgets. Some thought it
| was going to be changed back before it went into effect,
| it wasnt.
| demosthanos wrote:
| I'm not sure why TFA makes it sound like almost no one has
| heard of it, but it was extensively discussed on HN in early
| 2023 as being a primary cause of layoffs, before it was cool
| to blame AI.
|
| _Software firms across US facing tax bills that threaten
| survival_ (924 points, 981 comments) April 18, 2023
| https://news.ycombinator.com/item?id=35614313
|
| _Ask HN: How are you handling Section 174 changes for
| bootstrapped companies?_ (298 points, 187 comments) Feb 2,
| 2023 https://news.ycombinator.com/item?id=34627712
|
| Why the big tech firms that suddenly laid off a bunch of
| people the instant they started looking at their 2022 tax
| bill didn't tell everyone explicitly that that's what was
| happening I can't say, but it's not like this has been
| happening in secret.
|
| Obviously interest rates also play a role, and probably a
| larger one. But this is objectively a very very bad
| contributing factor, far worse than the impact of coding
| LLMs.
| mvdtnz wrote:
| > It really is quite unambiguous and is unambiguously bad for
| anyone who builds software
|
| Not "anyone". Anyone in America.
| rayiner wrote:
| In general, the tax code does not provide immediate deductions
| for purchase of assets that generate recurring income. Instead,
| the cost of the asset must be depreciated over time. The
| provision you point to excludes land, physical property, and
| software from treatment as R&D expenditures. Because all of
| those things generate recurring revenue over time. It's
| specifically listed in that statute, but it's not treated as a
| "special case."
|
| E.g. If a whiskey maker pays to build a distillation system, it
| can't deduct that cost immediately. Because that's a capital
| asset that generates recurring revenue. Software is properly
| treated the same way.
| demosthanos wrote:
| Historically, Section 174 allowed everyone to opt in or out
| of R&D amortization. That amortization is required from
| anyone for R&D is new.
|
| Further, software is the _only_ type of R &D explicitly
| called out as required to count as R&D. Which means it should
| be taken as a given that most other industries are finding
| ways to count their R&D as anything else, while we've been
| intentionally given the short straw for some reason by having
| our specific field be the _only_ one identified by name so as
| to leave no wiggle room. I 'd say that definitely counts as
| being a special case. The section is even labeled "Special
| Rules".
| beezle wrote:
| Bloomstink has a short article on R&D expenses/tax credits as
| does Reuters on some of the back and current history.
|
| But just as an accounting note: R&D expense has nothing to do
| with the company having revenues for an existing product, which
| already is allowed to deduct cost of goods sold, selling and
| admin expense. It is a cost related to future business and in
| that regard, it is not crazy to say it should be amortized. That
| in the past this did not happen, or that accelerated depreciation
| for other assets is in the IRS code is a function of the
| government wanting to effectively subsidize business investment.
|
| https://pro.bloombergtax.com/insights/federal-tax/rd-tax-cre...
|
| https://tax.thomsonreuters.com/news/the-future-of-rd-expensi...
| klipt wrote:
| But most employee salaries are deductible right? If you hire a
| chef at your restaurant, you aren't depreciating their salary.
|
| Doesn't that make software engineers one of the few employees
| with much worse tax treatment?
| ksec wrote:
| I think that is the simplest and best analogy I have read so
| far in the comments.
| luckylion wrote:
| The chef doesn't create a meal once that you can sell for
| the next 10 years though. You pay him for time X, he makes
| a meal, you sell that meal.
|
| That's fundamentally different from regular software
| development outside of agencies where there is no direct
| relationship. Software development is closer to an
| investment than an expense.
|
| Amortization sucks in general, yes, because the money is
| gone and it doesn't affect your taxes to the same amount,
| but that's not different for any company doing
| manufacturing or anyone needing specialized tools or
| vehicles that cost significant amounts.
| cake_robot wrote:
| When someone pays for labor to build an apartment
| building they profit off for decades, do they amortize
| that labor?
| ksec wrote:
| I think there is an argument that both could be valid. I
| wonder why we cant let the company decide to pick one
| over another and not be so fixated on one tax code to
| rule them all.
| triceratops wrote:
| A comment I read in the thread here says the answer is
| "Yes". To which I have to say, that sucks.
| beezle wrote:
| That is production, not R&D. Basic research into, for
| instance, semiconductors may one day lead to the
| production of a new product. The R&D costs would be
| amortized, the eventual production costs would not.
| klipt wrote:
| > The chef doesn't create a meal once that you can sell
| for the next 10 years though. You pay him for time X, he
| makes a meal, you sell that meal.
|
| What if the chef invents a new signature dish that makes
| your restaurant famous for the next 10 years?
| luckylion wrote:
| If El Bulli was in the US that would be an interesting
| question, but for "normal" cuisine it doesn't match, I
| think.
|
| For chains like McDonalds where they actually research
| and develop ways to make pink slime look like a burger,
| maybe? But do you call them chefs?
| latency-guy2 wrote:
| What is "Bloomstink"? Neither of your links references it,
| there are no references to the thing that makes sense when I do
| a web search.
| selimthegrim wrote:
| Bloomberg
| DyslexicAtheist wrote:
| 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...
| renewiltord wrote:
| That's a good policy but Switzerland is awful for startups:
| expensive, strict labour laws, few funding opportunities, risk-
| averse customers, fragmented European market.
|
| If I could start anywhere in the World, Switzerland would be
| above all the war-torn and crime-ridden places, but business-
| wise it's no good for a tech startup.
| holtkam2 wrote:
| Honest question, is there a community / grassroots effort I can
| participate in so that this this section 174 change can be
| reverted to its pre-2022 state?
|
| I'm wondering, if such a movement doesn't doesn't exist already,
| do I need to start it myself?
| linkjuice4all wrote:
| - Gather up about 10 million dollars (more will help)
|
| - Bribe the right people
|
| I hate to provide such a cynical and lazy response but we've
| got until midterms (maybe) before you really have a shot at
| 'democratically' influencing the system. For the time being
| you'll have to work with the mafia that's currently running
| things and outbid whoever wanted this to happen in the first
| place.
| ims wrote:
| 'mjwhansen founded the Small Software Business Alliance
| specifically to work on this issue: https://ssballiance.org/
| sampton wrote:
| 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.
| timewizard wrote:
| Is US software dominance because of our startups? Or because of
| the giant trillion dollar monopolies we have?
|
| Didn't AAPL, GOOG and FB all create products _before_ they had
| any taxable income? Would this change have had any actual
| impact on their foundings?
| typeofhuman wrote:
| HN has taken a sad turn over the last few years where we see
| genuine curiosity - such as your reply - met with downvotes
| instead of replies.
|
| I don't have an answer for you. But I support your intrigue.
| kopecs wrote:
| Well, presumably the claim would be that a factor in their
| not having taxable income was the fact that they didn't have
| to amortize their development cost.
| joshuanapoli wrote:
| Yeah; start-ups will start paying tax much sooner since
| salaries are the main expense in software development, and
| only a fraction can be deducted per year. The tax change
| must make things marginally more difficult for young
| companies that have some revenue, aren't cash-flow
| positive, and have a short horizon.
| tomrod wrote:
| It's not marginal. It significantly impacts sub-$10MM
| companies.
| anonym29 wrote:
| It's worth noting that FB was quite possibly being secretly
| funded with taxpayer money by national intelligence interests
| at inception, which would have substantially reduced or
| eliminated commercial pressure early on.
|
| DARPA was working on Project LifeLog starting in 2003, was to
| be "an ontology-based (sub)system that captures, stores, and
| makes accessible the flow of one person's experience in and
| interactions with the world in order to support a broad
| spectrum of associates/assistants and other system
| capabilities". The objective of the LifeLog concept was "to
| be able to trace the 'threads' of an individual's life in
| terms of events, states, and relationships", and it has the
| ability to "take in all of a subject's experience, from phone
| numbers dialed and e-mail messages viewed to every breath
| taken, step made and place gone".
|
| The program, at least officially and publicly, was cancelled
| on February 4th, 2004, the exact same day that Facebook was
| founded.
|
| https://en.m.wikipedia.org/wiki/DARPA_LifeLog
|
| https://en.m.wikipedia.org/wiki/Facebook
|
| You can call it a coincidence if you want, I just tend to be
| very skeptical of "coincidences" where massive, powerful,
| unaccountable, immoral, unethical institutions like the US
| intelligence community get exactly what they want at the
| expense of our civil liberties.
| trinsic2 wrote:
| I often wonder if national intelligence interests are
| behind or have taken control of major corporate players
| like Microsoft, Google and Apple. There was an article [0]
| back in 2015 that brought forth the proposition that google
| was created by the CIA. It would explain the current
| enshitification of these companies and the lengths they are
| going to take away choice.
|
| [0]: https://medium.com/insurge-intelligence/how-the-cia-
| made-goo...
| cjbgkagh wrote:
| Ever wonder why Microsoft bought Skype?
| hackandthink wrote:
| Google Is Not What It Seems
|
| https://wikileaks.org/google-is-not-what-it-seems/
| tomrod wrote:
| This impacts deductable expenses, not profits directly. The
| labor you pay for internally owned IP related to software
| must be amortorized. This screwed up an enormous number of
| business plans because software has more risk than many other
| endeavors. For small businesses, you basically can't do your
| own software.
|
| It applies to things like configuring your internal tools
| too. Good luck at audit time.
| madaxe_again wrote:
| I don't know how it works in the U.S., but we had HMRC in the
| U.K. write us a cheque every year, as if you have a greater
| R&D claim than your tax bill, you get a rebate.
| 9rx wrote:
| _> Is US software dominance because of our startups? Or
| because of the giant trillion dollar monopolies we have?_
|
| Most likely neither: It is its massive trade deficit, the one
| it strangely wants to get rid of now, that has allowed US
| consumers to consume more than they produce (i.e. you can
| take something with no real expectation of having to give
| anything back in return). Which, as it relates to tech, has
| enabled offering services for what is effectively free to
| dominate the market. Nobody else in the world can compete
| with that.
|
| _> Didn 't AAPL, GOOG and FB all create products _before_
| they had any taxable income?_
|
| Wouldn't you say they had no taxable income _because of it_?
| If Facebook brought in $100,000, and paid $100,000 to
| developers, then there would be no taxable income under
| normal regimes. But if the developers were not tax
| deductible, then that $100,000 in revenue _would_ be taxable,
| even though the bank account is empty. This isn 't nearly so
| simple, but it has changed the calculus in a similar way. The
| business models of old no longer work because of it.
| shrubble wrote:
| I'm not familiar enough with the very early days of Apple
| which started out as a hardware company to rebut you; but
| perhaps you mean the current Apple that has re-invented
| itself?
| hackernoops wrote:
| It started with small and nimble innovators. Then it was
| shifted to Big Tech with the squeeze of patent trolling in
| the 2000's applied. It was capturing massive created value
| into the hands of few, connected, corrupt shitbags.
| CactusRocket wrote:
| Hi, I'm just really curious about something. Why write AAPL,
| GOOG, and FB, and not Apple, Google/Alphabet, and
| Facebook/Meta?
| tomrod wrote:
| Stock tickers are common and more readable than FAANG
| jopsen wrote:
| Amortization makes sense for things that have some inherent
| value. Like a microscope or computer.
|
| A bankrupt company can still sell their computers. Selling you
| code, lol -- code is more of a liability really :)
| Supermancho wrote:
| > Selling you code, lol -- code is more of a liability really
| :)
|
| It's important to consider that lawmakers (who are not well
| informed or downright stupid) might think code has intrinsic
| value because of media married with a lack of real-world
| experience.
| tomrod wrote:
| Continuing your observation, this presumes they read and
| think deeply about the bills they vote on. They do not.
| Supermancho wrote:
| I remember the day I mentioned this in my high school^
| honors sociology class and the eventual valedictorian
| exclaimed that I was stupid to think that. The system has
| been broken for longer than I have been alive, but the
| indoctrination has been working to make up for it.
|
| This was a Blue Ribbon School 1992-1993 yup. https://www.
| ed.gov/sites/ed/files/programs/nclbbrs/list-2003...
| sigwinch wrote:
| Reading all bills that reach the Senate is like reading
| two Bibles per year. The swing vote legislator? Maybe.
| But the partisan extremes?
| bonoboTP wrote:
| Lawmaker is a misleading word. The people who actually make
| the law and lobby for it probably know quite a bit. The
| representatives are law voters not makers. They don't
| design the laws literally. They vote because they are told
| to.
| malshe wrote:
| > Amortization makes sense for things that have some inherent
| value. Like a microscope or computer.
|
| I am nitpicking but since a microscope or a computer is a
| _tangible_ asset, the correct term is depreciation.
| Amortization applies to intangible assets.
| bearjaws wrote:
| The software that companies make is sold off in bankruptcy
| all the time.
|
| I have a few friends who specialize in it with 2 ongoing
| contracts for splitting off pieces of software.
| tomrod wrote:
| The value is far less than the amount being amortized for
| its development.
| jppope wrote:
| Realistically that says more about the quality of software
| that we build than the concept of software as an asset
| kccqzy wrote:
| Amortization is bad policy, period. If cost is actually
| incurred, it should be fully deductible immediately. No matter
| if it's a piece of equipment or software.
| dsauerbrun wrote:
| i'd disagree heavily with that... let's say you have an
| expense of an insurance policy that covers you for the next
| 10 years. You're paying for 10 years of service, that should
| be amortized over 10 years.
| kccqzy wrote:
| Yeah but if the insurance policy requires me to pay
| upfront, I'm out the entire ten years' worth of insurance
| premium. Amortization forces it to be divorced from actual
| cash flow.
| charlieyu1 wrote:
| Amortisation is for accounting/tax purposes. A large
| negative on the first year does not make sense. It should
| be divorced from actual cash flow, because cash flow
| doesn't tell you the full picture of the company, while
| assets/profits do
| Hilift wrote:
| > end of US software dominance.
|
| What is that? Software sold by companies that have HQ in the
| US? Or software created by someone in the US? Because if it is
| only the first, good riddance.
| tempestn wrote:
| Based on the Shopify example in the article, it's the latter.
| luckylion wrote:
| Does a machine guarantee steady income during the period of its
| depreciation?
| entangledqubit wrote:
| From what I understand, this does not actually affect Google.
| They were already amortizing their R and D expenses.
|
| Over long time scales (and big company revenue streams), this is
| sort of a wash. I think this hurts startups a bit more due to the
| long timescales involved which eats up much needed cash in the
| short term.
| layer8 wrote:
| As a non-American, it seems strange to me that the cost of
| regular software development, i.e. that is neither "research" nor
| "experimental" in a conventional sense, would be deductible in
| the first place (amortized or not). Isn't that subsidizing a
| whole business sector? Maybe I'm misunderstanding something.
| pjc50 wrote:
| Most businesses let you deduct inputs and capital expenses from
| your revenue so that tax only applies to profit.
|
| Since this is done on annual buckets it's very common to try to
| move items in both columns between years to minimize tax.
| layer8 wrote:
| So if company A pays company B to develop some software, that
| revenue for company B (or rather, its profit) is still
| taxable? Then it makes sense I guess.
| monkeyelite wrote:
| The revenue minus expenses is taxable, yes. And if the
| business itself makes no money, that means all of it was
| taxed through payroll.
| simantel wrote:
| Businesses are taxed on profits, not revenue. Paying people to
| write code is an expense, so you'd normally deduct that expense
| (plus all your other expenses) from your revenue to arrive at
| an amount that should be taxed.
| bravesoul2 wrote:
| That's the rub. Is it an operational expense, like rent or a
| capital expense, like buying machinery?
|
| It is sort of between the two in my view and is highly
| dependant on what the software engineer does each day.
|
| Are they fixing a bug, helping a customer, refactoring? I
| think that is operational.
|
| Are they building out a new feature? That is capital. But it
| is not quite like buying equipment because it adds no value
| to the books. So depreciation seems off.
|
| But the same issue applies to other roles. Is a sales persons
| day trying to land a sale, or trying to develop the business.
|
| It all comes down to "intangible assets" and whether you are
| making them.
|
| I think it is easier to just say if you are paying someone to
| work then you can deduct. There must be better ways to claw
| it back.
|
| The whole reason for most business to exist is to use
| operations (operational costs) as a lever to increase the
| growth and intangible value of the business.
| Spivak wrote:
| The answer is that it's an operational experience when it's
| a salaried employee and a capital expense when it's a
| contractor. Like not in a theoretical sense, this is how
| it's classified right now.
| metaphor wrote:
| Source?
|
| Consider a contractor in a software maintainer role;
| accounting for this as capex makes zero sense.
| Spivak wrote:
| It's how they're classified at $dayjob. It doesn't matter
| what they do, it matters that their contract is a fixed
| expense rather than an ongoing one.
| bravesoul2 wrote:
| That's probably something they are doing wrong then.
| offnominal wrote:
| Salaries in general (not just of software developers) are tax
| deductible in many countries. This is desirable because we do
| not want companies to be paying taxes on revenue.
| kevinventullo wrote:
| I dunno, I pay taxes on revenue.
| offnominal wrote:
| Are you a company? If not, then you probably don't have
| revenue -- you have income.
| tomrod wrote:
| In the US, unless you are a C Corp then you probably also
| pay taxes on net income of some form. C Corps have some
| different accounting, where dividends are double taxed
| unfortunately.
|
| Small business owners are very impacted by the R&D
| schedule.
| crvdgc wrote:
| If only I can pay tax just for income - expenses (rent,
| food, etc.)
| whichfawkes wrote:
| Do you take a standard deduction?
|
| It's clearly not enough to cover all of the expenses that
| are required to generate your "revenue", but it's a gesture
| in that direction.
| cjbgkagh wrote:
| It stems from the difference in treatment of capital gains and
| income. Either way it's deductible, the difference being when
| it is deductible and how much tax is saved. Capital deductions
| are typically done later since they require a taxable event.
|
| It's a fudge to make projections look better to allow congress
| to pass a budget neutral reconciliation bill with the intent
| that congress would remove the fudge before the consequences
| triggered.
|
| Governments in general are pushing for capital gains tax
| normalization where instead of requiring a taxation event the
| capital gains tax would be levied yearly. In such a scenario
| the only difference remaining would stem from the difference
| taxation rates.
| yardstick wrote:
| > Governments in general are pushing for capital gains tax
| normalization where instead of requiring a taxation event the
| capital gains tax would be levied yearly.
|
| You're alluding to wealth taxes, right?
|
| Because taxing unrealised gains are wealth taxes.
|
| Or maybe I've misunderstood?
| dragonwriter wrote:
| > Because taxing unrealised gains are wealth taxes.
|
| No, wealth taxes are a tax on retained wealth (a stock).
| Taxing unrealized gains is a tax on income (a flow), it
| just changes the point at which taxation attaches from a
| realization event to the actual gain.
| aeonik wrote:
| But you haven't gained... you could be taxed over and
| over again, and if the stick drops or hits zero then
| what? It's all on paper and not "real".
| lesuorac wrote:
| imo, it's in the best interest of the market for people
| to have to realize their gains otherwise the price of an
| item is pretty imaginary if it's never realized.
| jandrewrogers wrote:
| Gains are frequently not realizable as a matter of law
| and/or contract, for good reason. Additionally, there are
| many assets with notional value conditional on not
| liquidating them, which makes them de facto not
| realizable. And of course, the majority of assets have no
| liquidity, so realizability is a practical fiction.
|
| The unrealized values are a fiction. There is significant
| value in treating values as unknowable when they are, in
| fact, unknowable. Forcing people to make up a fake
| valuation creates a lot of adverse incentives.
| dragonwriter wrote:
| > The unrealized values are a fiction.
|
| Then instead of taxing the gains, you'd accept the
| government nationalizing the assets by eminent domain and
| paying fair compensation that was significantly less than
| the "fictional" unrealized value?
|
| Or if someone unlawfully deprived you of the asset, you'd
| accept as restitution or seek as civil damages for the
| loss something significantly less than the "fictional"
| value?
|
| Or, when it was no longer an excuse to avoid fair
| taxation, would that "fiction" suddenly be a lot more
| real to you?
| sarchertech wrote:
| It would be much better to tax the benefits of the
| unrealized gain that a person realizes.
|
| It's much easier to do because there is no disputing the
| assessment since the person implicitly agrees to the
| valuation. And it allows people to forgo realizing any
| benefit from the unrealized value at all to avoid
| taxation.
|
| Say take x% of the top of the money lent to someone who
| uses their unrealized gain to secure a loan. Make the
| money paid count against any tax they owe if they sell
| the asset later.
| Dylan16807 wrote:
| "uses their unrealized gain to secure a loan" sounds
| impossible to define with enough precision that you could
| base taxes off of it.
| sarchertech wrote:
| Have you taken out a secured loan in the last year over x
| amount?
|
| Take the value of the asset assessed by the bank and the
| price paid for the asset to find the total value that is
| unrealized gain.
|
| Divide that by the total value to get percent of
| collateral that is unrealized gain. Multiply that by the
| loan value. Then multiply that by the tax percentage.
|
| All you need is for banks to report secured loans to the
| IRS and it's easy.
| Dylan16807 wrote:
| Secured loans of that form are easy, sure.
|
| But if those skyrocket in price from tax, they'll be more
| subtle about convincing banks they're good for the money
| and pay a slightly higher rate for unsecured loans.
|
| Or maybe they'll just treat the asset securing the loan
| as having the pre-gains price. Get the bank to agree it's
| worth at least what you paid, with no further analysis.
|
| If you try to plug those loopholes you lose the "much
| easier to do because there is no disputing the assessment
| since the person implicitly agrees to the valuation"
| factor.
| sarchertech wrote:
| >treat the asset securing the loan as having the pre-
| gains price
|
| That's no different than if the asset had no unrealized
| gain at all.
|
| >they'll be more subtle
|
| It only takes a small rise in interest rates before it's
| cheaper to pay the tax--assuming the tax isn't
| outrageous.
|
| Unsecured are much riskier because of the way unsecured
| creditors are treated in bankruptcy, so they already have
| higher interest rates.
|
| It would be very easy to tweak bankruptcy laws to make
| unsecured loans over a certain amount a bit riskier to
| increase the delta even more.
|
| We also already have regulations governing how banks
| assess creditworthiness, and the percent of their capital
| they can lend unsecured based on risk. As well as the
| amount of unsecured loans they can make to signal
| individual. If necessary tweak those values.
|
| Another easy way is to add a surcharge to large unsecured
| loans where the loan amount exceeds the taxpayer's assets
| based on acquisition price by some large margin.
|
| None of those impact implicitly agreeing to the valuation
| and they are all pretty easy to do.
| Dylan16807 wrote:
| > That's no different than if the asset had no unrealized
| gain at all.
|
| It lets you get loans based on 100% of your pre-gain
| money with zero taxes paid, which I think is too
| generous. You wouldn't do that if it was actually all
| your money. It _mostly_ fits the idea of only taxing the
| "used" money, but not entirely, and I don't really favor
| that idea in the first place.
|
| > It only takes a small rise in interest rates before
| it's cheaper to pay the tax--assuming the tax isn't
| outrageous.
|
| 15% tax is pretty big. And if we put capital gains back
| in line with income tax it would be double that.
|
| > Unsecured are much riskier because of the way unsecured
| creditors are treated in bankruptcy, so they already have
| higher interest rates.
|
| If the unsecured loans only go up to 90% of the post-gain
| asset value, that's not much riskier, is it?
|
| > We also already have regulations governing how banks
| assess creditworthiness, and the percent of their capital
| they can lend unsecured based on risk. As well as the
| amount of unsecured loans they can make to signal
| individual. If necessary tweak those values.
|
| Yeah okay we could stop unsecured loans from happening.
| That seems awkward though.
|
| > Another easy way is to add a surcharge to large
| unsecured loans where the loan amount exceeds the
| taxpayer's assets based on acquisition price by some
| large margin.
|
| I don't like this one at all.
| sarchertech wrote:
| >It lets you get loans based on 100% of your pre-gain
| money with zero taxes paid.
|
| You already paid taxes on the money you used to buy the
| asset. You aren't using any part of the unrealized gain.
|
| >You wouldn't do that if it was actually all your money.
|
| People take out loans secured by assets that haven't
| appreciated all the time, they even put up assets that
| haven't appreciated depreciated as collateral.
|
| >only to yo to 90% of the post--gain asset value
|
| Unsecured creditors come last in bankruptcy. They
| routinely end up taking pennies on the dollar. That's the
| extra risk of making an unsecured loan vs a secured loan
| and the reason interest rates on unsecured loans are
| generally somewhere around 20% higher.
|
| It would be very easy to some tweaks to bankruptcy law to
| increase the difference.
|
| >stop unsecured loans from happening
|
| We don't have to stop them, but I think stopping
| unsecured loans over some large value would be a lot less
| problematic than taxing unrealized gains.
|
| >15% tax is pretty big
|
| It shouldn't be the same rate as capital gains. You're
| not getting the same value as if you'd sold the asset
| because you have to pay back the money with interest.
|
| Even at 15% you only need to get the delta between a
| secured and unsecured loan to 3 points before the
| additional interest costs more than the tax.
|
| >I don't like this one at all
|
| Well I mean if you don't like it at all.
| jandrewrogers wrote:
| You are basically making my case for me. It is widely
| recognized that replacement value differs materially from
| notional value. In such cases you may be required to pay
| _much more_ than notional value because you have to pay
| for liquidity costs that only exist when transactions are
| forced to occur. The act of transacting can intrinsically
| change the asset value, sometimes by a large factor.
|
| Are you oblivious to the extensive litigation that occurs
| in cases like eminent domain because there are
| substantial differences of opinion on even the _notional_
| value, never mind the realizable value?
|
| Notional valuations are fiction, everywhere and at all
| times. Treating them as some kind of objective reality is
| just enabling a lot of abuse and motivated reasoning.
| dragonwriter wrote:
| > But you haven't gained...
|
| Yes, you have. You have an asset of greater value which
| you can leverage in a number of ways without liquidating
| it and "realizing" the gains. That's a real gain, with
| real value.
|
| > you could be taxed over and over again
|
| Only if you make new unrealized gains.
|
| > and if the stick drops or hits zero then what?
|
| Then you have a negative unrealized gain, or,
| equivalently, an unrealized loss. If you are taxing
| unrealized gains instead of taxing gains when realized,
| then the natural assumption would be, _just as is done
| with taxing gains at realization_ , that negative
| unrealized gains are either offset against current income
| or against future unrealized gains, and so effectively
| create (considered on their own) negative (current or
| future) taxes. The simplest form of this is to offset
| only against future gains, by the simple mechanism that
| when gains are recognized for tax purposes, they adjust
| the basis value of the asset, and when unrealized losses
| occur, they don't effect the basis value at all, so you
| don't have a taxable unrealized gain again until the
| market value exceeds the basis value established at the
| prior peak.
|
| More complex versions would allow you to offset some or
| all of the unrealized loss from the prior basis value
| against current income of other forms, but the amount of
| that offset would reduce the basis value of the asset.
| jandrewrogers wrote:
| The unrealized value is notional, not actual. This is a
| very important distinction. The notional value is often
| not remotely realizable. In many cases, the realizable
| value can be a tiny fraction of the notional value.
|
| Most laypeople grossly conflate notional and real value.
| Taxing notional value massively inflates the adverse
| impact of tax incidence on expected returns relative to
| people's casual intuition based on the relative tax rates
| for realized and unrealized gains.
|
| A tax on unrealized gains is in effect a way of
| laundering a steep tax rate so that it looks "small" and
| therefore reasonable to the unsophisticated.
| cjbgkagh wrote:
| For many assets, like real estate, there are liquid
| markets with market prices. There are a number of US
| states that already tax based on real estate value, you
| can dispute the assessed value but that impacts other
| things like insured value.
|
| Being difficult to assess value is a problem they'll make
| you pay an accountant for and punish you if you get it
| wrong, it's not going to stop them.
| jandrewrogers wrote:
| In the US, most recent studies of asset portfolios
| suggest that 60-70% of notional asset value has no liquid
| market. We already generate fictitious valuations for
| compliance purposes in many cases (e.g. 409A) that no one
| confuses with being representative of actual value. Tax
| policy based on overt fiction is bad policy.
|
| Even in the case of real estate, a large amount of value
| is locked up in extremely non-liquid markets. You might
| get a vaguely representative market-clearing transaction
| once per decade, with high price volatility that makes it
| nearly impossible to predict what the next market
| clearing transaction will look like. I've owned assets in
| these types of non-liquid markets; differences in
| subjective valuations can vary by an order of magnitude
| and there is no evidence from the market to support any
| of those values.
|
| If you only include extremely liquid markets for tax
| purposes in order to make valuations vaguely plausible,
| assets will be made non-liquid such that they are
| excluded from consideration. Ultimately this is why taxes
| on unrealized gains have been a challenging proposition
| in practice. We have no way to accurately model
| realizable value for the majority of assets and current
| simple approaches produce extremely wrong estimates a
| substantial percentage of the time.
| cjbgkagh wrote:
| They'll make up a number and make you spend money proving
| otherwise. The government won't care about your
| inconvenience when they need the money.
|
| Of course this is a prediction of something that hasn't
| happened before but looking at the chess prices move this
| does appear to be an intended destination.
| Fritatta wrote:
| If your asset valuations were swinging by an order of
| magnitude (10x), that wasn't real estate, it was gambling
| in the fog.
| jandrewrogers wrote:
| That isn't the asset valuation, that is the range of
| assessments interested parties make with respect to asset
| value. Because market clearing transactions are rare in
| many asset markets, those extremely high variance
| estimates of asset value are all you have to work with.
| It is only marginally better than no information at all.
| Too make matters worse, the rare transactions in these
| markets frequently have a lot of complicated structure
| such that the nominal price is not reflective of the
| underlying value.
|
| tl;dr: Many assets have no meaningfully assessable fair
| market value. These are investments with extremely long
| and indefinite time horizons before the asset value can
| be assessed in a reasonable way. You can look at it as a
| peculiar type of risk capital portfolio with an
| extraordinarily long time horizon.
| dragonwriter wrote:
| > The unrealized value is notional, not actual.
|
| No, its an actual thing, measurable by some mechanism.
| Otherwise, this would be a non-discussion, as taxing it
| would be impossible, not a possible thing that we can
| argue about the merits of.
|
| > The notional value is often not remotely realizable.
|
| Whether it is or is not immediately realizable is
| immaterial to the desirability of taxing it; it may be
| material to designing the forms of taxation that should
| be acceptable. E.g., if the difficulty of realizing the
| value is, across the tax base, likely to making
| collecting the tax in cash or equivalents difficult, it
| would argue for permitting a fallback option for the tax
| to be collected in-kind, e.g., by the taxing jurisdiction
| acquiring a proportional interest in the asset equal to
| the share of the value of the asset represented by the
| taxes not paid by other means.
|
| > A tax on unrealized gains is in effect a way of
| laundering a steep tax rate so that it looks "small" and
| therefore reasonable to the unsophisticated.
|
| If you allow carry forwarded losses, even just by the
| simple method of adjusting basis values, and include
| taxes on realized gains (and carry forward, offsetting
| against current income with perhaps a negative net, etc.,
| for realized losses), then taxing unrealized gains is
| identical to taxing realized gains _if_ the gains are
| eventually realized, but simply avoids the ability to
| find maneuvers to benefit from leveraging the value of
| the asset without paying taxes by avoiding realization.
| It doesn 't make a "steep" tax rate look small, it makes
| the tax rate look like exactly what it actually is,
| unlike taxing only realized gains, which makes an
| effectively non-existent tax on capital gains look like
| something more, when people can benefit from assets
| without realizing the gains.
| cjbgkagh wrote:
| If pegged to inflation then they are not, but I think they
| generally will not be pegged. People who might think this
| is great should understand that the government makes more
| money increasing wealth inequality aligning the interest of
| the government and the ultra rich.
| demosthanos wrote:
| We're not talking about a tax deduction in the sense of a
| special privilege, we're talking about simple calculations of
| profit.
|
| Before this change, tax for software development was calculated
| against:
|
| * Profit = Revenue - Expenses
|
| And software developer salaries fell neatly into Expenses
| unless you were looking for an R&D tax credit.
|
| After this change, tax for software development is calculated
| against this new equation:
|
| * Profit = Revenue - (1/5 * YearlyExpenses[-1]) - (1/5 *
| YearlyExpenses[-2]) - (1/5 * YearlyExpenses[-3]) - (1/5 *
| YearlyExpenses[-4]) - (1/5 * YearlyExpenses[-5])
|
| Which means that if you are in Year 1 of operation, your values
| for YearlyExpenses[-2:-5] are all 0 and you only get to deduct
| 1/5 of your actual operating costs for the year from your
| "profit". So you can be _in the hole_ but still owe taxes on
| your "profit" for the year because what you spent money on was
| classified as R&D.
| lesuorac wrote:
| It is a subsidy!
|
| Why should money spent on software _development_ not have to
| be deprecated over time like other money spent on
| _development_?
|
| I get that it sucks from a cash flow standpoint but the same
| is going to be true of other R&D expenses. It's just that
| we're more exposed to this specific R&D expenditure and not
| others.
| anp wrote:
| The root of this subthread makes it clear why the current
| provisions to force software expenses to be amortized are
| different than other kinds of R&D.
| lesuorac wrote:
| 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 incurred in
| carrying on a trade or business
|
| Straight-up, any deviation in the tax code for a special
| group is always a subsidy.
| demosthanos wrote:
| 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 development is
| named in Section 174 to explicitly require companies to
| amortize.
|
| So who is that subsidizing now?
| lesuorac wrote:
| > 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.
| demosthanos wrote:
| I mean, yes, it will be true for other R&D types. But
| that's also new and also broken for the same reason: it
| means _new_ R &D companies are at a massive disadvantage in
| their first few years compared to the established players
| who have lots of expenses queued up to deduct. It's wealth
| redistribution from young startups to established players
| who have 5 years of past expenses to use in their favor,
| and that is going to be a very bad thing for the health and
| vibrancy of our economy.
|
| And, as a sibling points out (and as I pointed out in a
| comment at the top level), software is in this regime
| singled out from all other possible R&D expenses, making it
| _particularly_ vulnerable. A skilled accountant /lawyer can
| probably turn big chunks of other R&D expenses into
| something that doesn't fall under 174. No amount of skill
| can do that for software, because we're _singled out_.
| tomrod wrote:
| Because you slinging a React component or Vibecoding a
| security pile requires no Technology Readiness Level
| assessment nor does it have development liability. Rather,
| what we call Software Development is more appropriately
| labeled Software Engineering.
| tommy_axle wrote:
| Wasn't there something when this went into effect about the
| mid-year being the start so it is 10% in years 1 and 6?
| demosthanos wrote:
| Yeah, I just read that. So it's actually 10-20-20-20-20-10,
| which is both weirder and also slightly worse than my
| formula above.
| rbultje wrote:
| _That_ part is not so weird, you didn 't pay all salaries
| on January 1st. But amortizing salaries in general is
| ridiculous.
| mountainriver wrote:
| Yes and part of the reason America is so rich
| gamblor956 wrote:
| No, you have it right. Software was getting a special exception
| from the normal rule that salaries spent on creating
| capitalized assets are capitalized (which is the general rule
| for most industries, as well as for software development in
| most of the EU).
| Hilift wrote:
| > Isn't that subsidizing a whole business sector?
|
| It is if the only thing your company does is create software.
| No operations, no sales, no physical assets to purchase sell or
| manage.
| Reason077 wrote:
| The OBBBA ("Big Beautiful Bill") suspends amortization
| requirements for domestic R&D expenditure, and explicitly allows
| domestic software development as an R&D expenditure eligible for
| immediate expensing.
|
| The new rules would apply from 2025 to Dec 31, 2029:
|
| https://www.crowell.com/en/insights/client-alerts/house-comm...
| tomrod wrote:
| That would be the one positive I have heard regarding OBBB.
| This should be put into its own bill.
| madaxe_again wrote:
| That isn't how legislation is passed. If anything, it needs a
| section about acceptable tar shingle application standards
| for roofs within 6 nautical miles of any heliport operated in
| a subarctic area on the west cost. Then it's looking like a
| bill.
| teeray wrote:
| You forgot renewing the Patriot Act :)
| aetherson wrote:
| There's a little of this, but more so, you only get one
| reconciliation bill per year. And anything that's not a
| reconciliation bill has to be bipartisan.
| AnonymousPlanet wrote:
| And it gets so bizzare that even legislators have to laugh
| when they read it out loud, like in this case here in
| Switzerland:
|
| https://www.youtube.com/watch?v=S9hztUCq15o
| runako wrote:
| Just last year, Congress snapped to attention and wrote and
| quickly passed a bill to ban the eminent national security
| threat of a video-sharing app. That bill doesn't do
| anything else.
|
| Just a reminder that Congress, even now, can rapidly act on
| a laser focus when it is sufficiently motivated.
| lostlogin wrote:
| Is there a good summary of that episode somewhere? I've
| tried to read up on it as I don't really understand how
| it was an eminent (imminent?) security threat.
| jmpetroske wrote:
| Is the TikTok debacle not a way higher profile case?
| tomrod wrote:
| I'm pretty sure that is precisely what GP referenced.
| jmpetroske wrote:
| Yeah that's my point
| runako wrote:
| Did it have a larger financial impact than the tax code
| issue being discussed here? Absolutely not.
|
| It was higher profile because Congress decided it should
| be higher profile.
| Braxton1980 wrote:
| Because almost no voters would be against the bill and it
| harms almost none of the supporters of representatives
| runako wrote:
| If you think no voters would be against the bill, I would
| suggest your model of our media landscape could use a
| refresher.
| Braxton1980 wrote:
| Can you be more specific? I don't think regular voters
| care about certain, targeted, tech bills.
| runako wrote:
| Quick statistics I pulled[1]:
|
| In the US, 170 million people use TikTok. TikTok's US
| revenue reached $10 billion in 2024. US adult users spend
| an average of 53.8 minutes per day on TikTok. In 2024,
| TikTok was downloaded 875.67 million times.
|
| (This data is going to include estimates. I am not going
| to quibble about the estimates, but whichever credible
| data source you choose will support the position that
| TikTok is not a niche outlet only used by a small segment
| of Americans.
|
| Also, this data does not explore the number of Americans
| who earn a living by posting to the platform. Not
| interested in a values discussion about this, but banning
| the platform would suddenly cut off some Americans'
| income.)
|
| Not a direct comparison, but CBS generally pulls ~5
| million viewers during prime time programming. It's
| entirely likely that more people watch TikTok regularly
| than watch any TV network. For better or worse, TikTok is
| a very popular media outlet in the US.
|
| This is "targeted" in the sense that it's targeted at
| essentially half of Americans and "tech" in the sense
| that every media uses tech.
|
| 1 - https://backlinko.com/tiktok-users
| fortenforge wrote:
| Perhaps not the best example to choose given that the
| president managed to fully ignore that law. Tik-Tok
| remains unbanned to this day despite there being no sale.
| runako wrote:
| The President is ignoring a lot of laws of various
| vintages. That's not generally under the purview of
| Congress.
| autobodie wrote:
| It was a perfectly fine example. Nothing in your comment
| has any relevance to what it's an example of.
| Terr_ wrote:
| That "suspends" should be understood as "continues to hold-
| hostage" / "renews as a time-bomb to screw over some other
| party".
| sherburt3 wrote:
| Removing it would make Congress less powerful, and we can't
| have that now can we.
| rurp wrote:
| If anything it has been the opposite problem, with modern
| congresses having been more than happy to delegate away
| their powers. You might have heard the recent tariff news
| for example.
| sherburt3 wrote:
| Presidencies last 4-8 years, congressional careers last
| decades.
| Braxton1980 wrote:
| Avg for house is 12.5 and 8.5 in senate
| sherburt3 wrote:
| Mitch McConnell has been serving in the senate since
| 1985. He's been a senator longer than most Americans have
| been alive.
|
| I think the outliers are far more consequential than the
| averages in this case.
| Braxton1980 wrote:
| Since each person has one vote why would outliers
| matters? It doesn't seem that length of terms doesn't
| even help with leadership roles The Democrats minority
| leader is Hakeem Sekou Jeffries who was elected about 12
| years ago and Mike Johnson has been in the house for 8~
| years. There are R and D members who have been in the
| house longer.
|
| * or whatever the threshold is
| Dylan16807 wrote:
| Modern being what? The main tariff laws in question
| happened 50+ years ago. The republicans in congress have
| been going out of their way to not interfere, but that's
| significantly different from creating new delegations.
| panzagl wrote:
| How could Congress get less powerful than now?
| coliveira wrote:
| That's how they like, more time to campaign and less work
| that may be impopular.
|
| Thinking about it, the US government is going exactly the
| same way of the Roman republic.
| AStonesThrow wrote:
| > US government is going exactly the same way of the
| Roman republic.
|
| We're gonna conquer and annex Egypt? What an awesome time
| to be alive!
| mr_toad wrote:
| That was the first imperial conquest. The republic had
| been gobbling up states long before that.
| Reason077 wrote:
| Egypt? No. But how about Greenland, Canada, and Panama?
| AStonesThrow wrote:
| _Kayfabe_
| avsteele wrote:
| That isn't the reason. They sunset in the bill so it has a
| lower CBO score (which calculates costs out to 10 years). If
| you sunset in the bill after 5 years, even if you know it
| will get renewed, the apparent cost goes down. Get it?
| bombcar wrote:
| The CBO score is a perfect example of the metric becoming
| the measure and teaching to the test.
| packtreefly wrote:
| "ThE tAx CuT pAyS fOr ItSeLf"
| gigatexal wrote:
| This is a highlight in an otherwise shitty bill.
|
| I saw let Trump's ugly bill die and then a small fix up to the
| tax code could be this. Should be able to pass.
| yieldcrv wrote:
| This bill is goated for upper middle class and tech and
| defense sector
|
| And I'm tired of pretending like we aren't going to be
| beneficiaries
|
| Every Congress increases the debt, we can acknowledge that
| the cuts they picked are going to wreck the lower class
| especially with the medicaid, we can acknowledge that it
| won't meet its goals of cuts
|
| but are you guys just scared to acknowledge its going to
| super charge things that you are a beneficiary of too? so
| busy saying it just benefits billionaires as if we're trying
| to avoid guillotines. not gonna happen and many people here
| are going to try to take advantage of new programs
| Hammershaft wrote:
| I agree but I think the huge cuts across public research &
| development basically hurt everybody in the long term.
| TechDebtDevin wrote:
| And China will pick up the slack.
| beardbandit wrote:
| You don't want to live in a society where an increasingly
| large percentage of the population have nothing to lose.
|
| Regardless of whether it benefits our industry or
| socioeconomic status, it'd be incredibly shortsighted to
| just do all of that at the expense of the lower classes.
| throwaway173738 wrote:
| Also someday you might find yourself needing things like
| medicaid. I once met a former SE who was on disability
| because he lost his sight. Protecting those things for
| others also protects them for yourself.
| testrun wrote:
| So true and so important. Hollowing out the middle class
| is a surefire way to destruction.
| shepherdjerred wrote:
| I don't have to be in support of something just because it
| benefits me
| yieldcrv wrote:
| I am very much in support of Section 174A no matter who
| does it, what riders goes alongside it, or what it was a
| rider to
|
| Congress can always pass anything else at any speed. This
| slow motion filibuster thing is a choice, and the
| powerlessness of doing anything about that choice just
| means everyone else should have a single they care about
| too to correct the laws and riders that shouldn't have
| passed.
| virgildotcodes wrote:
| > no matter who does it, what riders goes alongside it,
| or what it was a rider to
|
| Really? You can't think of anything you wouldn't support
| in order to get this thing that benefits you?
| yieldcrv wrote:
| the things I wouldn't support don't have consensus
|
| wont be in a reconciliation bill
|
| wont be supported by the courts
|
| and the rest of my observation about how Congress can
| deal with and has dealt with riders after the fact still
| stands
| Spivak wrote:
| In fact condemning something despite the fact that it
| would benefit you personally ought to be considered
| noble.
| dclowd9901 wrote:
| I have to say that you sound very biased in the way you're
| talking about the bill. If a primary goal of this
| administration is to cut and make government more
| efficient, this bill is about as big of a failure as one
| could conceive. Any reasonable person would have to admit
| that.
|
| I'm fine admitting that I would benefit greatly from this
| bill. I also hope to heaven it doesn't pass because an
| additional trillion dollars to suit _me_ sounds asinine. I
| don 't need help.
| yieldcrv wrote:
| Nobody likes everything in the bill, well since nobody
| knows everything in it I should say everyone has things
| they don't like about the bill
| Braxton1980 wrote:
| >Every Congress increases the debt,
|
| And yet only one party campaigns on fiscal responsibility,
| debt concerns, and reduced spending
| yxhuvud wrote:
| And funnily enough it is the other party that actually
| deliver improvements, while the party that campaigns on
| it just cut taxes when in power.
| tempestn wrote:
| Even if you're right, it's only true in the short term.
| Long term, everyone benefits from a sustainable country,
| and trillions of new debt isn't heading in that direction.
| slipnslider wrote:
| Repealing SB174 has bipartisan support. The house already
| passed its repeal but it died in Senate because a separate took
| (that also repealed it) took its place but that separate bill
| stalled out.
|
| 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.
|
| It's unfortunate because it appears both sides want this
| repealed to allow immediate amortization of domestic R&D
| expenses.
|
| https://abgi-usa.com/section174/latest-and-greatest
| cibyr wrote:
| It's so depressing to hear that congress can't even do small
| things that everyone agrees upon.
| dragonwriter wrote:
| If _everyone_ agreed on it, Congress would have no problem
| doing it (Congress itself, after all, is a subset of
| "everyone".)
| cj wrote:
| It's possible for everyone to want something, while
| simultaneously being incapable of getting it done.
| _dark_matter_ wrote:
| That's still not true. As long as a group within
| "everyone" (or multiple groups) decide that their support
| is required to pass the bill, they can suddenly demand
| concessions and the bill now gets complicated with good
| and bad.
| dragonwriter wrote:
| > As long as a group within "everyone" (or multiple
| groups) decide that their support is required to pass the
| bill, they can suddenly demand concessions
|
| Well, yes, but then _everyone_ doesn 't really want it,
| do they? Someone wants something else, and wants that
| something else enough that it is worth jeopardizing the
| supposedly universal goal for it.
| Dylan16807 wrote:
| Yes they do want it.
|
| If you've ever negotiated, I bet you've done the same
| thing of jeopardizing something you want in order to get
| something else you want. If you _never_ do that, you 'll
| make a lot of deals where you're riding the edge of just
| _barely_ acceptable and the other person is taking
| advantage of you. But in this case, with a standalone
| law, doing it gets pretty rude and we 'd be better off if
| nobody did it.
| candiddevmike wrote:
| A highly disproportional subset of everyone, maybe.
| Though uncapping the house wouldn't fix the Senate (maybe
| adding some more states would)
| Supermancho wrote:
| If they could be required to craft single issue bills, this
| wouldn't be as big an issue. Instead we get the clusters of
| good and bad that inevitably die or sometimes worse, pass.
| formerly_proven wrote:
| > 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?
| Pet_Ant wrote:
| I think there is a limit on the number of bills that can
| make it through the procedures so it's too low profile to
| get scheduled.
| sigwinch wrote:
| I don't understand the downvotes. Fewer than, say, 2% of
| 15000 bills pass across two sessions. 274, to be precise.
| _Some_ bill is always #275.
| coliveira wrote:
| Theoretically no, but congress won't vote anything that has
| no collateral advantages to everybody involved.
| antonvs wrote:
| Which is one of the many ways in which the system is
| broken.
| rs186 wrote:
| It's almost funny that small code reviews are preferred
| in software engineering (https://google.github.io/eng-
| practices/review/developer/smal...), but in Congress we
| have these stupid "big beautiful bill(s)" that are
| sometimes thousand pages long, and sometimes only
| released hours before a formal vote. Almost like these
| bills are intended to fool constituents, cripple
| opponents' plans, and created just in the hope that they
| get passed and signed into law without anyone looking
| carefully.
| VladVladikoff wrote:
| The short timeline actually makes this an excellent
| opportunity for LLM analysis if you have a model which
| could digest the entire bill without reaching token
| limits.
| caseyohara wrote:
| Code reviews for 10 lines of code: _100 suggestions_
|
| Code reviews for 1000 lines of code: _LGTM_
|
| Omnibus bill packages get the same LGTM treatment where
| legislators don't even read the whole thing.
| Braxton1980 wrote:
| Why would a senator from Kentucky vote for a bill that
| doesn't benefit his state to a meaningful amount?
| ajmurmann wrote:
| Because they are a patriot. If not why are they in
| politics..?! Whom am I kidding...
| teitoklien wrote:
| 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 point that Boris Yeltsin after
| dissolution of USSR was dumbfounded by just looking at
| american grocery stores that are affordable for public in
| comparison to the Empty shelves back at home [0]
|
| However after the end of cold war they gave up on
| bipartisan, or helping society as "one nation" in almost
| every major western democracy. They filed every major new
| infrastructure build with red tape, red tape,
| bureaucratic nightmare. They made the economy as a
| pingpong ball to intentionally sabotage it for the
| incoming rival presidency/prime ministers, while
| benefiting themselves with unsustainable debt. They gave
| up all public infrastructure like highspeed rail, cheap
| transportation like Greyhound Buses across american
| cities, cheap housing, good housing.They gutted our
| manufacturing and industries, outsourced all our jobs
| with no better ones for those without jobs to replace
| them.
|
| Now everything's going to shit, and they wonder why
| people are starting to vote in populists and
| authoritarians, they were sold a great and good ideal of
| men and women, parliamentarians working together united
| to deliver the public with better outcomes for everyone
| in a democracy. Yet now they see them busy with personal
| enrichment, ideological wars, petty infighting, inaction
| on key issues.
|
| And then they wonder why people are voting in and then
| tolerating objectively authoritarian dictators sometimes
| evil sometimes good who promise to steamroll changes as a
| monarch/dictator, just in hopes that they just ignore the
| democratic chaos and finally deliver the public something
| (even though often they also just personally enrich
| themselves or make the problems worse) we lost our
| prosperity, authoritarians promised us prosperity if we
| give away our freedoms now most of us are going to lose
| both at current trajectory. All because of petty
| infighting and laziness and lack of patriotism among
| politicians.
|
| European and American society will need another cold war
| of ideologies with them on one side to actually defend
| and work for common citizens again, they wont do it until
| then, they'll only do the bareminimum while continuing
| their petty fights and lectures as "leaders".
|
| [0](https://thefederalist.com/2019/11/13/how-a-russians-
| grocery-...)
| selimthegrim wrote:
| It was right before dissolution.
| ajmurmann wrote:
| > 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
| teitoklien wrote:
| 10% of the population drives more than the bottom 90% of
| the population in consumer demand and purchase now, you
| think that's normal ? This was never a thing until very
| recently, america's wealth has skyrocketed one can argue
| the middle class is shrinking and certainly didnt gain
| their share of this wealth growth.
|
| Go look at the debt levels of an average american, and
| realise that greater than a majority of americans dont
| even have $500 saved for emergencies in their account.
|
| The unemployment rate is a sham that doesnt even count
| underemployment and it cleverly masks and removes people
| who were looking for a job, gave up hope and now are no
| longer looking for a job.
|
| Adjust that medium household income statistics for
| purchasing power in usa across last 40 yrs, you'll
| realise wages are same or have declined in real value
| term's when the total wealth in country has skyrocketed.
|
| Look there is nothing wrong with others enjoying their
| life but if the majority doesnt feel like they have safe
| equal and sustainable life sooner or later they give up
| on the existing system, at that point a country risks a
| lot of instability.
|
| Unemployment rate has been cleverly gamed and distorted
| as a statistics in every major country from china to
| europe to usa, you name it.
|
| Look at the median household income in terms of debt
| servicing, mortgage servicing, final disposable income,
| net wealth/assets of average income
|
| If you make the same or lets even say a bit more
| money/income than mom and pop's gen but you pay 50% of
| your income in housing rent or mortgage in major cities
| compared to only 10% back in previous gen's times how is
| that better ?
|
| And college fees have skyrocketed by 6-7x in real money
| terms while wages have not, thats an expensive thing too
| for a lot of kids.
|
| Pensions are not a thing.
|
| Im not saying america is completely broken, america is
| awesome and is equipped to do much better than most
| developed economies and especially compared to europe in
| future.
|
| But we must admit there are problems that are fomenting
| troubles that can end up blowing over if we as a society
| dont start rapidly fixing it.
| ajmurmann wrote:
| > Adjust that medium household income statistics for
| purchasing power in usa across last 40 yrs, you'll
| realise wages are same or have declined in real value
| term's when the total wealth in country has skyrocketed.
|
| That's why I said "real median household income". Real
| income in economics means PPP corrected and is up a lot.
| See: https://fred.stlouisfed.org/series/MEHOINUSA672N
|
| I wholeheartedly agree on the housing issue though. The
| cause there isn't with top politicians or some evil cabal
| limiting housing but it's a local problem caused by
| elections of NIMBY candidates and local community having
| too much input on permitting while only a small group of
| mostly of older and wealthier NIMBYs show up to those
| meetings.
| xmprt wrote:
| 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.
| estomagordo wrote:
| Seriously?
| antonvs wrote:
| Sadly, that is entirely serious.
|
| 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.
| kjkjadksj wrote:
| No, the system selects for people who are brilliant for
| using it to maximize their own individual benefit. Never
| take the bait that these people are in anyway stupid.
| Braxton1980 wrote:
| Yes, check the reply for the comment above yours for an
| example where you'd think everyone would unite but still
| needed pork.
|
| It's even worse if you're a Republican. If a bill comes
| up for one specific item that would increase government
| spending but not in your state what are you going to tell
| local Republican voters?
| dwaltrip wrote:
| It does benefit his state, they will get higher quality
| software.
| jayd16 wrote:
| But they can play games, drag their feet, get more
| concessions, and then pass it anyway with no
| repercussions.
| Braxton1980 wrote:
| Maybe? This isn't a direct connection and I'm not sure a
| voter from that state would care unless it was
| legislation that DIRECTLY benefitted them, maybe their
| state, or at best the country overall.
|
| Even when a massive security funding bill was put forth
| the years after 9/11 to provide additional funding to NY,
| US ports, and other national security areas they had to
| pad the bill with funding to protect areas that wouldn't
| likely be targeted just to get support.
|
| https://www.heritage.org/homeland-security/report/the-
| specte... (Yes it's insane that I'm linking to these
| horrible people)
|
| That means even with a bill that is vital to US security,
| could be wrapped in patriotism, and at a time when NYers
| had sympathy from the rest of the country representatives
| were still selfish as fuck.
| weberer wrote:
| Anything that's not a budget reconciliation bill can just
| get filibustered in the senate by the minority party.
| That's why they're attaching everything to the OBBBA.
| CardenB wrote:
| It's perhaps noteworthy that OBBBA is not the first bill to
| attempt to revert this tax law. It's simply the latest. There
| have been other attempts to revert section 174.
|
| Other attempts that come to mind: 1. Tax Relief for American
| Families and Workers Act of 2024 (H.R. 7024) 2. American
| Innovation and R&D Competitiveness Act of 2025 (H.R. 1990)
|
| This article is informative:
| https://www.cebn.org/media_resources/section-174-sign-on-let...
| pzo wrote:
| > domestic software development
|
| So now it seems its like a pseudo tariff against any other
| freelancers and producers for software outside of US.
| wk_end wrote:
| Why is this the first we're hearing about this, three years in?
| The article says these companies blamed other factors for the
| layoffs - why?
| tomrod wrote:
| It's not the first time many have heard about it.
| madaxe_again wrote:
| "We are heavily subsidised by taxpayers" is not great optics.
| anp wrote:
| To head off the likely questions, I downvoted this comment
| because it is a gross misrepresentation of section 174 and
| the changes made to it.
| madaxe_again wrote:
| What have I grossly misrepresented? Or are you arguing that
| a tax rebate is not a subsidy? I haven't even mentioned the
| changes made.
| anp wrote:
| To start, rules for deductions aren't tax rebates.
| Rebates also aren't necessarily subsidies unless they're
| targeted.
|
| Deciding whether labor is a capital or operating expense
| and deciding how to depreciate it if capital is also not
| a subsidy.
| madaxe_again wrote:
| Would you like a razor with which to better split hairs?
| Also, I don't appreciate your blatant racism.
| candiddevmike wrote:
| There were a ton of stories around this in 2022 as a bunch of
| startups scrambled to make ends meet due to this bill taking
| effect.
| wenbin wrote:
| Let me guess - the keyword here is "Section 174", just from the
| title alone :)
|
| Dealing with Section 174 amortization in those first one to three
| years is a real headache (and your tax bill ends up higher than
| if it didn't apply). Once your startup survives that the first
| few years of doing Section 174, things do get easier... but,
| sadly, most don't make it that far.
| silverlight wrote:
| I made one of the original posts on HN about this years ago after
| hearing about it from my CPA. Both then and now these changes
| make zero sense to me as a matter of good policy. I am also still
| surprised at the number of people in tech who either haven't
| heard about this or are willfully ignoring it and likely filing
| their taxes incorrectly.
| e40 wrote:
| It's not only that, ZIRP[1] contributed.
|
| Also, the 10+ years before the layoffs started tech companies
| were on a hiring binge. Much of big tech was hiring to keep
| people off the market and off their competitors payrolls (this is
| from friends of friends in FANG HR departments). These were high
| paying jobs, too.
|
| [1] https://news.ycombinator.com/item?id=44141650
| mountainriver wrote:
| We are at a bad inflection point of Zirp, tax changes, and AI.
|
| All of which make hiring engineers unattractive
| closeparen wrote:
| It should be illegal to post graphs that start in 2020 when
| talking about tech hiring trends. The relevant comparison is
| probably the 2014-2019 era, not the peak pandemic craziness.
| tempeler wrote:
| In knowledge-based white-collar work, there has been a
| significant increase in productivity in recent times. Tasks
| that once took days or even weeks--such as research, content
| creation, and visual generation--can now be completed within
| minutes. At the same time, both the speed of production and the
| quality of output are continuously improving. The outcomes are
| unavoidable.
| avsteele wrote:
| This is about way more than software. It's all R&D
|
| It's effectively 6 years too. You only get to depreciate 10% in
| 1st year. This might have killed my company if it was around
| during first years.
|
| See my comments on the previous discussion (Nov 2023) here:
| https://news.ycombinator.com/item?id=38145630
| GypsyKing716 wrote:
| Love articles that are 39 pages long with one paragraph and 3 ads
| per page. mmmm.. good journalism.
| bravesoul2 wrote:
| Could this lead to a new financial product that lends money to
| companies to pay this tax secured on the future deductions?
|
| This would be a no go for startups though.
| TrevorFSmith wrote:
| So, we want incredibly profitable companies like Google,
| Microsoft, and Apple to take their software development costs and
| subtract that from their tax bill? These are the same companies
| that file patents so nobody else can use the ideas that they
| developed at the expense of public services. How about making it
| a tax break only for small and medium sized companies?
| imacomputertoo wrote:
| Fix the patent problem. Leave the r&d right off alone.
| GuinansEyebrows wrote:
| so will this incentivize a return to revenue/profit-driven
| business models? will we start to see a reduction in venture
| capital burning money on revenue-negative startups?
| mixmastamyk wrote:
| Higher interest rates were enough to help in that regard.
|
| As it stands, this is an end to innovative startups in the US.
| Unless bankrolled by very deep pockets. The type of pockets who
| typically prefer the status quo and are not particularly
| interested in cost-efficient innovation.
| ghiculescu wrote:
| The most fascinating question is not "How did a single line in
| the tax code help trigger a tsunami of mass layoffs?" but how did
| a single line in the US tax code help trigger a tsunami of mass
| layoffs in other countries?
| ec109685 wrote:
| Because people make stupid correlations for clicks.
| jjmarr wrote:
| 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.
| ghiculescu wrote:
| Did you know that other countries have software companies
| too?
| mixmastamyk wrote:
| 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.
| rights_reminder wrote:
| If anyone cares about combatting government propaganda in the US,
| do this:
|
| Query any search engine for "are US income taxes direct or
| indirect taxes"
|
| Every one will tell you that they are direct taxes. This is
| false. The supreme court has exclusively held that income taxes
| have always been indirect taxes (excises specifically, read about
| what an excise is in any authoritative source on tax law) in a
| constitutional sense. (See Brushaber v Union Pacific RR Co. 1916,
| Moore v U.S. 2024)
|
| The sixteenth amendment did not give congress the power to
| directly tax citizens (or domestic corporations) and the
| complexity of the tax code is an attempt to obfuscate this fact,
| but the code is not inscrutable, it has rules.
|
| Unsure of why this matters? Look up the difference between direct
| and indirect taxes in US law. None of these deductions matter
| unless you are a foreign corporation. I have tried commenting
| about this in other income tax related threads (this is my alt
| account), but people here don't like the idea that there is
| government propaganda in the US, or that most people are wrong
| and blindly accept the socialization about taxation without
| verifying what the law says.
|
| I realize this is a disturbing truth to accept, not least because
| it involves accepting that most people who have been prosecuted
| for income tax crimes are only guilty of ignorance of the true
| legal purpose of the forms they signed. You can easily verify
| that most accountants and tax attorneys do not know what they are
| talking about by asking them this simple question about direct vs
| indirect taxation.
|
| This is not legal advice, it is a wakeup call.
| dennis_jeeves2 wrote:
| > This is not legal advice, it is a wakeup call.
|
| The masses are in a persistent state of slumber, so they will
| never wake up. Depressing but true.
| jwlake wrote:
| Its so funny to me that people freak out about amortization when
| I spent several years at a public company having to document my
| work as being R&D to amortize it to make our EBITDA look better.
| UltraSane wrote:
| I worked as a network engineer for a software company and had to
| report how many work hours was R&D. It was very silly.
| Nemo_bis wrote:
| Indeed. This is only a problem because software companies try
| to classify most of their expenses as "R&D" only to look more
| profitable than they really are, but at the same time they
| don't want to pay taxes on those supposed profits. For honest
| companies which don't capitalise their wage expenses, nothing
| substantial changes.
| tmaly wrote:
| I thought this was changed in this new spending bill they are
| trying to pass now?
| downrightmike wrote:
| Investors and stock holders should be extremely outraged that all
| of these businesses are knee capping their future profitability.
| Can't make all those future pension payments if all your
| investments can't stay relevant in the market.
|
| Some people will point out that AI will fix this, no it won't:
|
| 1) The real cost is higher than anything you'd pay for a person
| an there is not likely any real change there.
|
| 2) AI will be lies like Actual Indians that won't scale
|
| 3) Here's the kicker: If AI does succeed, now these multi-billion
| dollar firms will have to compete with multi-billion dollar
| single person businesses, that eat their lunch
|
| Its a race to the bottom right? That means you need to invest in
| the business and all these layoffs are exactly not that, and will
| leave companies unprepared for the next 10 years.
|
| Remind me in 2035.
| kevindamm wrote:
| This seems a clear disadvantage to corps with employees but it
| also works to the advantage of LLC solopreneur types who aren't
| paying themselves.
| rayiner wrote:
| > For almost 70 years, American companies could deduct 100% of
| qualified research and development spending in the year they
| incurred the costs
|
| This is an artificial subsidy. That's not how the tax code treats
| other types of investments that generate recurring income.
| almosthere wrote:
| The top of the article blames Trump for some reason, when every
| time this is brought up, everyone sites Biden Admin for messing
| this up.
| mempko wrote:
| Because it was Trump's tax bill. It was a bad tax bill, and not
| only because of this. It further accelerated inequality.
| hollerith wrote:
| My reaction to learning about this is that it is good news: this
| explains the weakening of demand for programmers, but unlike the
| AI explanation, this explanation does not come with a large risk
| of the demand becoming much weaker than it is now.
|
| Also, finally programmers with the right to live and work in the
| US catch a break: salaries for US-based programmers can be
| amortized over only 5 years as opposed to the 15 years of non-US
| programmers.
| safety1st wrote:
| I mean, the link not many people have made is that executives
| want to replace programmers with AI _because_ of Section 174.
|
| It has effectively become a lot more expensive and difficult to
| employ a programmer. Once this change went into effect we
| started to see hundreds of thousands of layoffs.
|
| Then tech executives started aggressively talking up how you
| could use AI to write code instead of having humans write it.
|
| Now of course reducing headcount and the associated expenses
| and replacing them with a bot sounds tempting to executives no
| matter what. But it sounds REALLY tempting when you've been on
| a hiring freeze since 2022 due to the fact that you can no
| longer deduct employee salaries in the year you pay them out.
|
| Bear in mind that both Republicans and Democrats say they want
| to fix this and haven't done so due simply to gridlock and
| government incompetence.
|
| I think most software businesses are taking a wait and see
| approach. Don't hire until this thing gets fixed. In the
| meantime, double down as hard as you can on automating those
| programmer jobs out of existence, in case the law never gets
| fixed.
|
| Section 174 is the root cause.
| Fritatta wrote:
| This article was so clearly written with AI it hurts.
| Huxley1 wrote:
| I only recently learned about the Section 174 change, and
| honestly didn't expect it to have such a big impact.
|
| I used to work at a small startup, and most of our spending went
| toward engineers' salaries. If we had to amortize that over
| several years back then, I don't think we would've made it.
|
| It's surprising how a single line in the tax code can quietly
| make it harder for small teams to hire. Makes me wonder how many
| other policies are silently shaping things behind the scenes.
| dclowd9901 wrote:
| Meta: god articles like this drive me crazy. What ever happened
| to the inverted pyramid hierarchy of information? I have to read
| 3 paragraphs of unmitigated filler before they actually tell me
| what's changed. It's not just this article, it seems like every
| article on newer media sites is like this. I understand why, but
| fuck them very much and the incentives that drive this behavior.
| spullara wrote:
| at least all the future expenses will be AI instead of people /s
| anymouse123456 wrote:
| If you didn't know about Section 174 until 2025 you have no
| business being in a leadership position anywhere, period.
|
| This has been a slow moving disaster for years now and people
| have repeatedly tried to raise the alarm.
|
| Just crickets and layoffs.
| anymouse123456 wrote:
| There is definitely a lot of misunderstanding here.
|
| This provision can and does lead companies to owe significantly
| more in taxes than they make.
|
| The only reason it hasn't been bigger news, is because most
| companies are pretending it doesn't exist and just sweeping it
| under the rug, hoping it will get fixed before enforcement gets
| serious.
| joshdavham wrote:
| > The only reason it hasn't been bigger news, is because most
| companies are pretending it doesn't exist and just sweeping it
| under the rug, hoping it will get fixed before enforcement gets
| serious.
|
| Why pretend that it doesn't exist? Why not vocally lobby for a
| change in the tax code?
| samus wrote:
| There _is_ bipartisan support to repeal the change.
| Meanwhile, further changes to the tax code are being prepared
| by the administration, very probably containing further such
| time-delayed footguns that will be the problem of the next
| administration to clean up, making them look like they raise
| taxes.
| anymouse123456 wrote:
| This change was added in 2017, triggered in 2021/2022. It's
| been the policy for years now.
|
| There is very little pressure on elected officials because
| big cos can afford it and it bankrupts their tiny future
| disruptors.
|
| Why would you let it be fixed?
| anymouse123456 wrote:
| Because then the people we watching might notice you and dig
| in.
| superfrank wrote:
| I think the real reason it isn't bigger news is because the
| second you talk about tax code people start to tune out. It's
| easier to wind people up over AI taking jobs than it is to try
| and explain what amortization means.
| gsky wrote:
| Maybe Shareholders are demanding companies to cut overhired and
| improve profits
| supernetworks_ wrote:
| Manufacturing is affected also it's not just software. Best way
| around it is deficit spending for growth
| jbverschoor wrote:
| Earlier discussion: https://news.ycombinator.com/item?id=44028106
| jen729w wrote:
| > "I work on these tax write-offs and still hadn't heard about
| this," a chief operating officer at a private-equity-backed tech
| company told Quartz. "It's just been so weirdly silent."
|
| Hasn't Ben Thompson of Stratechery spoken about this a number of
| times? I'm aware of this 'feature' and I'm not even in the USA,
| let alone a COO at a private-equity-backed yada yada.
| BlueTemplar wrote:
| Where is the comparison with the "control group" : non-US
| software companies ?
| aussieguy1234 wrote:
| I have to say I do have some sympathy for what's happening in the
| US at the moment.
|
| Trump is just getting started. By the time he is finished, your
| economy will be shot to pieces. The US dollar will no longer be
| the reserve currency for global trade.
| pzo wrote:
| For me the worst things is that they treat all software as R&D. I
| understand in maybe some situation it could be abused but imagine
| established company having non innovative software that keeps
| engineers only for bug fixing and security patching and basic
| maintenance. In true spirit this is not research for sure. It's
| equivalent of someone having a hotel and suddenly telling that
| their cleaners, security, gardeners, receptionist qualify as R&D
| which would be nuts.
|
| AFAIK it was also affecting more freelancers outside of US since
| amortisation is 15 years. For EU citizen IMHO this is equivalent
| of US putting tariffs on outside world. I wish EU at least try to
| fight back and revenge on US Tech by increasing taxes or also
| making all US tech bought by EU companies to be 15 years
| amortised so they have taste of their medicine.
| Temporary_31337 wrote:
| Question, if you have to amortise it over 5 years, and you can
| survive the initial 4, does it break even in year 5 (assuming
| stable employment)? Ie you amortise the previous 5 years (20%
| each) which works out to 100% anyway?
| randomNumber7 wrote:
| If you give me 1000$ today and I give you back 1000$ in 5 years
| do you break even?
| owebmaster wrote:
| This US American idea of paying taxes = giving money away is
| weird. Especially coming from tech people, as what is
| preventing other nations from taxing the hell of big/US tech
| is the US government and its threats.
| randomNumber7 wrote:
| No one said what you are implying.
|
| The company has to pay money upfront (as salary) and then
| gets it back later.
| testrun wrote:
| It seems that there is quite a bit of confusion about this. What
| this does is that it reduce your deductible cost in the tax year.
|
| First you have to make a profit (tax is on profits). Secondly,
| what this does is to limit your software development expenses for
| tax purposes in the current year because the development cost is
| seen as a capital cost that will be amortized over five years
| opposed to operating expenditure in the same year.
|
| If you are a startup and not make profits, then the loss will be
| less in the current year, but either way, your tax liability is
| the same: $ 0.
|
| So software development is moved from opex to capex.
| jere wrote:
| I can see why it would affect startups not making a profit but
| why would it dramatically affect FAANG (e.g. some of the most
| profitable companies in the world that have been running for
| decades)? The article contributes all these large layoffs in
| FAANG, in part, to this tax rule.
| testrun wrote:
| Because they are profitable. So the cost is deductible over 5
| years, instead of one year.
|
| A very simple example:
|
| Revenue: $ 1 000 All other cost except software: $ 500
| Software cost: $ 100
|
| Net profit (if software is allowed as opex): $400
|
| Tax on $400 (@30%): $120
|
| Net profit after tax: $280
|
| However, if it is capex(amortized over 5 years):
|
| Revenue: $ 1 000 Other cost (except software): $500 Software
| cost: $ 100
|
| Net profit before tax: $ 400
|
| Important: But now for tax purposes you can only deduct $20
| this year as a cost ($100 amortized over 5 years)
|
| So now you have to add back $80 to net profit for tax
| purposes: $480
|
| Tax (@30%): $ 144
|
| Net profit after tax: $400 - $144 = $256
|
| So the difference is $280 - $256 = $24
|
| Just a few notes:
|
| 1. I assume tax rate at 30%, it can be something else,
| principle stay the same
|
| 2. That all other expenses are tax deductible
| jere wrote:
| There's a difference of $24 but I have $1200 in cash
| reserves. And I make up the difference later. Oh no! Guess
| I have to lay off 10% of my employees now.
| brutalhonesty wrote:
| Profit is determined by expenses though.
|
| A simple example to illustrate:
|
| Say you had 100k revenue and 1 software developer you pay 100k
| per year.
|
| Under the new law, you can only deduct 20k of the developer's
| salary, so your profit is 80k, which you have to pay taxes on.
|
| However, you have $0 in the bank because you earned 100k and
| paid out 100k in salary.
|
| See how that is problematic?
| maxerickson wrote:
| That's a horrible revenue to expense ratio for ditch digging,
| nevermind software development.
| testrun wrote:
| I totally agree, this change affects cash flow negatively. I
| don't support it at all. But it seems quite a few people are
| confused how it works.
| kvakerok wrote:
| And there I was wondering why R&D was getting moved to Canada.
| nickledave wrote:
| I was part of a small R&D company that had a promising product
| (can't say more, NDA) and we had to shut down because of this.
| Thankfully the founders were able to get us acqui-hired or I'd be
| in a much worse position. But that IP is just lost to history
| AFAIK, in spite of significant investment of US research $.
| bawana wrote:
| Deferring depreciation and deductions decreases their value as
| inflation happens. So it is a double whammy-not only is your
| profit reduced this year (and the impact that has on your stock
| price or return to your private equity investors) butthe value of
| that deduction decreases over time. So it is not a 'wash'.
| shadowgovt wrote:
| Oh interesting. In 2022, the company I worked for folded because
| a primary investor spontaneously pulled out. We were nearly 100%
| R&D and the sudden change in relationship was surprising.
| inadequatespace wrote:
| 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.
| shawndumas wrote:
| agreed, the interest rates and the overestimation on the
| stickiness of the pandemic's increase in internet usage post-
| pandemic are the primary other contributing factors that, imo,
| represent the lion's share; even allowing that the tax changes
| are tertiary is a stretch much less as the primary/secondary
| reason
| mixmastamyk wrote:
| 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.
| achenatx wrote:
| If your payroll ends up being about the same, after 5 years it
| all evens out in the sense that you will be expensing 100% of
| your payroll each year (but the expensing will be 20% from each
| of the prior 5 years).
|
| If your payroll is quickly growing You experience the problem on
| all payroll growth.
|
| If your payroll is decreasing, you get a tax benefit. Your
| outgoing cash is less, but you are getting deductions from prior
| year expenses.
| bequanna wrote:
| Your not taking into account the time value of money. You
| always want to expense sooner.
|
| Additionally, having to wait 4 additional years to deduct that
| 80% is a huge drain on capital.
|
| Combine this with higher interest rates and the effect is
| essentially pouring sand into the gears of the tech industry.
| aoeusnth1 wrote:
| No, it's always strictly worse because you could have bought
| bonds or deployed the capital in some other way with that
| money.
| dustbunny wrote:
| Sure if you big enough to ride out 5 years but if your a hungry
| struggling bootstrapped startup, this can be game over.
| aporetics wrote:
| That's not what "ghost in the machine" means
| aporetics wrote:
| That's not what "ghost in the machine" means.
| k3vinw wrote:
| Ironically the debate/discourse here is healthier than anything
| we see from US Congress. Presidents have a limited number of
| terms they can serve, but there is no limit on the House and
| Senate and change is hard if not next to impossible because of
| this. Term limits would be a good start to introducing positive
| changes, but good luck finding the necessary majority to vote
| against their power and very cushy and comfortable lifestyles.
| robomartin wrote:
| I think people are misinformed about how to deal with 174. That
| said, yes, a repeal would be a good idea. Hopefully that happens
| through BBB in the next month or two.
|
| You do not have to amortize 100% of your engineering costs. Not
| even close.
|
| Here's the key: Development costs incurred to
| remove uncertainty are amortized. All other costs are
| deductible during the tax year where they are incurred.
|
| How does this work?
|
| You are going to design a new robot arm.
|
| In January, you spend $100K to "remove uncertainty". In rough
| strokes, this means discovering all the things you don't know and
| need to know for this robot arm to become a product. This amount
| will be amortized over five years under 174.
|
| Now, with uncertainty removed, you spend an additional $1.1MM
| from January until December for engineering implementation. No
| uncertainty being removed. Just building a product. This is 100%
| deductible that tax year.
|
| Analogy: You want to build a new brick wall with specific
| properties. You spend $100K to develop a new type of brick and
| $1.1MM to build the wall using that brick. The $100K is
| amortized, the $1.1MM is deductible in one shot.
|
| BTW, at year 6 the amortization schedule reaches steady-state and
| you are amortizing the full $100K every year. In other words, the
| impact of 174, if treated intelligently, is the time value of
| money until steady state is reached for the engineering costs
| incurred to remove uncertainty.
|
| That said, I hope the BBB repeals this.
|
| https://www.law.cornell.edu/cfr/text/26/1.174-2
| dustbunny wrote:
| Didn't realize this was due to Trump's first term.
|
| Why aren't the All In podcast bros ragging on Sacks about this!?
| kunalgupta wrote:
| everyone in tech saw this coming?
| mccolin wrote:
| > Fixing 174 would mean handing a tax break to the same companies
| many voters in both parties see as symbols of corporate excess.
|
| This is frustratingly accurate. Through a zero sum political lens
| it'd be a handout to "big tech," so many politicians argue for
| keeping this on the books, but in reality S174 deeply affects
| small companies, new companies, boutique agencies, and
| individuals who want to consult or start smaller operations. I
| worked for a ~20 person shop that was gutted by this tax code
| change. It completely changed the affordability of talent.
| sumanthvepa wrote:
| Here's a neat trick: Section 174 US tax code changes make
| purchasing a SaaS license a better deal than building in house.
| So do the R&D in a jurisdiction like India where the you can
| still deduct 100% of R&D under section 35. And purchase the SaaS
| in the US. (You have to be a non-US company for this to work and
| there are more details. Talk to your accountant.) Edit: fixed
| typos
| jppope wrote:
| Can someone qualified answer a couple of quick questions here:
|
| * Hiring a company to do software development is completely
| deductible or is still considered R&D? And there isn't any
| difference in regard to where the company is located?
|
| * That company who performs the software development however,
| they have to pay the taxes since they are doing the
| development... so they are just going to raise their rates then
| correct? Or since they are providing a service to the company and
| it is work for hire does it not count?
|
| * All other R&D expenses are still deductions including hardware
| development? Where is the line drawn? If you are doing the
| software side for a hardware product, that would be hardware
| correct?
|
| * For founders, you would just take a dispersement instead of
| taking a salary if you are developing software? Or is that
| irrelevant?
| g42gregory wrote:
| Big Tech companies have a direct line to the US Governments.
| Whether it's former Twitter and Biden or Palantir and Trump, they
| can pick up the phone and change this.
|
| Are you telling me that this law affects these tech companies so
| much and they just let it stand?
|
| I find this improbable.
| mixmastamyk wrote:
| It primarily destroys new startups and hurts small business,
| which do not have the clout you suggest. BigTech can barely
| hear the bump in the road while sitting on billions of cash
| reserves. Still, they had layoffs for this and other reasons.
| Dig1t wrote:
| > A quiet change under Trump helped dismantle it
|
| So it's a tax break for tech companies and the problem is that
| Trump got rid of the tax break?
|
| What happened to making companies "pay their fair share"?
|
| I have such cognitive dissonance, I am constantly hearing about
| how Trump is evil because he wants to give tax breaks to
| companies. Now the problem is that he's NOT giving tax breaks.
|
| It's almost like no matter what Trump does the news will cover it
| negatively.
| burnt-resistor wrote:
| The America government now has the best socioeconomic footgunning
| snipers that don't even do the covert job of making the 0.003%
| richer over the long term properly anymore.
|
| America's balance sheet distribution (not income) breakdown:
|
| 8.5% $1M+
|
| 1.6% $10M+
|
| 0.003% $100M+
|
| 0.00026% $1B+
| polski-g wrote:
| So why don't they just reclassify the employees as network
| engineers to get around this?
| mixmastamyk wrote:
| If the difference is nontrivial you'll get a correction letter
| from the IRS listing the bill and penalties.
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