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URI Visit Hacker News on the Web
COMMENT PAGE FOR:
URI The time bomb in the tax code that's fueling mass tech layoffs
sumanthvepa wrote 1 hour 5 min ago:
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
mccolin wrote 3 hours 16 min ago:
> 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.
kunalgupta wrote 3 hours 45 min ago:
everyone in tech saw this coming?
dustbunny wrote 5 hours 45 min ago:
Didn't realize this was due to Trump's first term.
Why aren't the All In podcast bros ragging on Sacks about this!?
robomartin wrote 6 hours 3 min ago:
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.
URI [1]: https://www.law.cornell.edu/cfr/text/26/1.174-2
k3vinw wrote 6 hours 46 min ago:
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.
aporetics wrote 7 hours 9 min ago:
Thatâs not what âghost in the machineâ means.
aporetics wrote 7 hours 10 min ago:
Thatâs not what âghost in the machineâ means
achenatx wrote 7 hours 26 min ago:
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.
dustbunny wrote 5 hours 42 min ago:
Sure if you big enough to ride out 5 years but if your a hungry
struggling bootstrapped startup, this can be game over.
aoeusnth1 wrote 6 hours 6 min ago:
No, it's always strictly worse because you could have bought bonds or
deployed the capital in some other way with that money.
bequanna wrote 6 hours 48 min ago:
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.
inadequatespace wrote 8 hours 8 min ago:
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 5 hours 34 min ago:
agreed, the interest rates and the overestimation on the stickiness
of the pandemicâs increase in internet usage post-pandemic are the
primary other contributing factors that, imo, represent the lionâs
share; even allowing that the tax changes are tertiary is a stretch
much less as the primary/secondary reason
shadowgovt wrote 8 hours 9 min ago:
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.
bawana wrote 9 hours 7 min ago:
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'.
nickledave wrote 9 hours 39 min ago:
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 $.
kvakerok wrote 9 hours 52 min ago:
And there I was wondering why R&D was getting moved to Canada.
testrun wrote 10 hours 36 min ago:
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.
brutalhonesty wrote 9 hours 16 min ago:
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 developerâs
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?
testrun wrote 40 min ago:
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.
maxerickson wrote 9 hours 13 min ago:
That's a horrible revenue to expense ratio for ditch digging,
nevermind software development.
jere wrote 10 hours 10 min ago:
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 9 hours 21 min ago:
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 8 hours 49 min ago:
There's a difference of $24 but I have $1200 in cash reserves.
And I make up the difference later. Oh no! Guess I have to lay
off 10% of my employees now.
Temporary_31337 wrote 11 hours 13 min ago:
Question, if you have to amortise it over 5 years, and you can survive
the initial 4, does it break even in year 5 (assuming stable
employment)? Ie you amortise the previous 5 years (20% each) which
works out to 100% anyway?
randomNumber7 wrote 11 hours 5 min ago:
If you give me 1000$ today and I give you back 1000$ in 5 years do
you break even?
owebmaster wrote 9 hours 15 min ago:
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.
pzo wrote 11 hours 50 min ago:
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.
aussieguy1234 wrote 14 hours 14 min ago:
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.
BlueTemplar wrote 15 hours 4 min ago:
Where is the comparison with the "control group" : non-US software
companies ?
jen729w wrote 15 hours 35 min ago:
> âI work on these tax write-offs and still hadnât heard about
this,â a chief operating officer at a private-equity-backed tech
company told Quartz. âItâs just been so weirdly silent.â
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.
jbverschoor wrote 16 hours 31 min ago:
Earlier discussion:
URI [1]: https://news.ycombinator.com/item?id=44028106
supernetworks_ wrote 16 hours 35 min ago:
Manufacturing is affected also itâs not just software. Best way
around it is deficit spending for growth
gsky wrote 17 hours 13 min ago:
Maybe Shareholders are demanding companies to cut overhired and improve
profits
anymouse123456 wrote 18 hours 0 min ago:
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.
superfrank wrote 16 hours 54 min ago:
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.
joshdavham wrote 17 hours 32 min ago:
> 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 doesnât exist? Why not vocally lobby for a
change in the tax code?
anymouse123456 wrote 14 hours 6 min ago:
Because then the people we watching might notice you and dig in.
samus wrote 14 hours 30 min ago:
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 14 hours 4 min ago:
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 18 hours 2 min ago:
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.
spullara wrote 18 hours 47 min ago:
at least all the future expenses will be AI instead of people /s
dclowd9901 wrote 18 hours 55 min ago:
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.
Huxley1 wrote 19 hours 21 min ago:
I only recently learned about the Section 174 change, and honestly
didnât expect it to have such a big impact.
I used to work at a small startup, and most of our spending went toward
engineersâ salaries. If we had to amortize that over several years
back then, I donât think we wouldâve made it.
Itâs 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.
Fritatta wrote 19 hours 29 min ago:
This article was so clearly written with AI it hurts.
hollerith wrote 19 hours 40 min ago:
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 16 hours 51 min ago:
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.
almosthere wrote 19 hours 54 min ago:
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.
rayiner wrote 20 hours 19 min ago:
> 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. Thatâs not how the tax code treats
other types of investments that generate recurring income.
kevindamm wrote 20 hours 29 min ago:
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.
downrightmike wrote 20 hours 56 min ago:
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.
tmaly wrote 21 hours 4 min ago:
I thought this was changed in this new spending bill they are trying to
pass now?
UltraSane wrote 21 hours 38 min ago:
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 14 hours 25 min ago:
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.
jwlake wrote 21 hours 49 min ago:
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.
rights_reminder wrote 21 hours 50 min ago:
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 11 hours 2 min ago:
> 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.
ghiculescu wrote 22 hours 28 min ago:
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?
jjmarr wrote 5 hours 57 min ago:
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 1 hour 51 min ago:
Did you know that other countries have software companies too?
ec109685 wrote 16 hours 20 min ago:
Because people make stupid correlations for clicks.
GuinansEyebrows wrote 23 hours 59 min ago:
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?
TrevorFSmith wrote 1 day ago:
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 23 hours 22 min ago:
Fix the patent problem. Leave the r&d right off alone.
bravesoul2 wrote 1 day ago:
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.
GypsyKing716 wrote 1 day ago:
Love articles that are 39 pages long with one paragraph and 3 ads per
page. mmmm.. good journalism.
avsteele wrote 1 day ago:
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:
URI [1]: https://news.ycombinator.com/item?id=38145630
e40 wrote 1 day ago:
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.
URI [1]: https://news.ycombinator.com/item?id=44141650
tempeler wrote 18 hours 31 min ago:
In knowledge-based white-collar work, there has been a significant
increase in productivity in recent times. Tasks that once took days
or even weeksâsuch as research, content creation, and visual
generationâcan 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.
closeparen wrote 22 hours 18 min ago:
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.
mountainriver wrote 1 day ago:
We are at a bad inflection point of Zirp, tax changes, and AI.
All of which make hiring engineers unattractive
silverlight wrote 1 day ago:
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 havenât heard about this or
are willfully ignoring it and likely filing their taxes incorrectly.
wenbin wrote 1 day ago:
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
didnât 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.
wk_end wrote 1 day ago:
Why is this the first weâre hearing about this, three years in? The
article says these companies blamed other factors for the layoffs -
why?
candiddevmike wrote 1 day ago:
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.
madaxe_again wrote 1 day ago:
âWe are heavily subsidised by taxpayersâ is not great optics.
anp wrote 1 day ago:
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 23 hours 52 min ago:
What have I grossly misrepresented? Or are you arguing that a tax
rebate is not a subsidy? I havenât even mentioned the changes
made.
anp wrote 23 hours 48 min ago:
To start, rules for deductions arenât tax rebates. Rebates
also arenât necessarily subsidies unless theyâre 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 15 hours 34 min ago:
Would you like a razor with which to better split hairs?
Also, I donât appreciate your blatant racism.
tomrod wrote 1 day ago:
It's not the first time many have heard about it.
Reason077 wrote 1 day ago:
The OBBBA (âBig Beautiful Billâ) 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:
URI [1]: https://www.crowell.com/en/insights/client-alerts/house-commit...
pzo wrote 11 hours 42 min ago:
> domestic software development
So now it seems its like a pseudo tariff against any other
freelancers and producers for software outside of US.
CardenB wrote 23 hours 40 min ago:
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:
URI [1]: https://www.cebn.org/media_resources/section-174-sign-on-let...
slipnslider wrote 1 day ago:
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.
URI [1]: https://abgi-usa.com/section174/latest-and-greatest
formerly_proven wrote 23 hours 55 min ago:
> 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?
weberer wrote 8 hours 4 min ago:
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.
Braxton1980 wrote 18 hours 30 min ago:
Why would a senator from Kentucky vote for a bill that doesn't
benefit his state to a meaningful amount?
dwaltrip wrote 6 hours 34 min ago:
It does benefit his state, they will get higher quality
software.
jayd16 wrote 6 hours 3 min ago:
But they can play games, drag their feet, get more
concessions, and then pass it anyway with no repercussions.
estomagordo wrote 15 hours 3 min ago:
Seriously?
antonvs wrote 12 hours 10 min ago:
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 5 hours 20 min ago:
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.
ajmurmann wrote 17 hours 25 min ago:
Because they are a patriot. If not why are they in politics..?!
Whom am I kidding...
coliveira wrote 19 hours 59 min ago:
Theoretically no, but congress won't vote anything that has no
collateral advantages to everybody involved.
antonvs wrote 12 hours 15 min ago:
Which is one of the many ways in which the system is broken.
rs186 wrote 11 hours 53 min ago:
It's almost funny that small code reviews are preferred in
software engineering ( [1] ), 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.
URI [1]: https://google.github.io/eng-practices/review/develo...
caseyohara wrote 4 hours 50 min ago:
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 donât even read the whole thing.
VladVladikoff wrote 9 hours 37 min ago:
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.
Pet_Ant wrote 23 hours 14 min ago:
I think there is a limit on the number of bills that can make it
through the procedures so itâs too low profile to get
scheduled.
cibyr wrote 23 hours 58 min ago:
It's so depressing to hear that congress can't even do small things
that everyone agrees upon.
Supermancho wrote 23 hours 51 min ago:
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.
dragonwriter wrote 23 hours 56 min ago:
If everyone agreed on it, Congress would have no problem doing it
(Congress itself, after all, is a subset of "everyone".)
candiddevmike wrote 22 hours 49 min ago:
A highly disproportional subset of everyone, maybe. Though
uncapping the house wouldn't fix the Senate (maybe adding some
more states would)
_dark_matter_ wrote 23 hours 45 min ago:
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 23 hours 22 min ago:
> 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 22 hours 19 min ago:
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.
cj wrote 23 hours 47 min ago:
Itâs possible for everyone to want something, while
simultaneously being incapable of getting it done.
gigatexal wrote 1 day ago:
This is a highlight in an otherwise shitty bill.
I saw let Trumpâs ugly bill die and then a small fix up to the tax
code could be this. Should be able to pass.
yieldcrv wrote 1 day ago:
This bill is goated for upper middle class and tech and defense
sector
And Iâm tired of pretending like we arenât 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 wonât 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 weâre trying to avoid
guillotines. not gonna happen and many people here are going to try
to take advantage of new programs
Braxton1980 wrote 18 hours 26 min ago:
>Every Congress increases the debt,
And yet only one party campaigns on fiscal responsibility, debt
concerns, and reduced spending
yxhuvud wrote 16 hours 52 min ago:
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.
dclowd9901 wrote 18 hours 43 min ago:
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.
shepherdjerred wrote 21 hours 23 min ago:
I donât have to be in support of something just because it
benefits me
Spivak wrote 21 hours 8 min ago:
In fact condemning something despite the fact that it would
benefit you personally ought to be considered noble.
yieldcrv wrote 21 hours 14 min ago:
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 shouldnât have passed.
virgildotcodes wrote 11 hours 13 min ago:
> no matter who does it, what riders goes alongside it, or
what it was a rider to
Really? You canât think of anything you wouldnât support
in order to get this thing that benefits you?
beardbandit wrote 23 hours 23 min ago:
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.
testrun wrote 6 min ago:
So true and so important. Hollowing out the middle class is a
surefire way to destruction.
throwaway173738 wrote 7 hours 58 min ago:
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.
Hammershaft wrote 1 day ago:
I agree but I think the huge cuts across public research &
development basically hurt everybody in the long term.
TechDebtDevin wrote 19 hours 28 min ago:
And China will pick up the slack.
Terr_ wrote 1 day ago:
That "suspends" should be understood as "continues to hold-hostage" /
"renews as a time-bomb to screw over some other party".
avsteele wrote 1 day ago:
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 11 hours 53 min ago:
The CBO score is a perfect example of the metric becoming the
measure and teaching to the test.
sherburt3 wrote 1 day ago:
Removing it would make Congress less powerful, and we can't have
that now can we.
panzagl wrote 23 hours 47 min ago:
How could Congress get less powerful than now?
coliveira wrote 19 hours 57 min ago:
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 14 hours 51 min ago:
> 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!
Reason077 wrote 9 hours 15 min ago:
Egypt? No. But how about Greenland, Canada, and Panama?
AStonesThrow wrote 4 hours 16 min ago:
Kayfabe
mr_toad wrote 11 hours 5 min ago:
That was the first imperial conquest. The republic had
been gobbling up states long before that.
rurp wrote 1 day ago:
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.
Dylan16807 wrote 22 hours 13 min ago:
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.
sherburt3 wrote 22 hours 35 min ago:
Presidencies last 4-8 years, congressional careers last
decades.
Braxton1980 wrote 18 hours 28 min ago:
Avg for house is 12.5 and 8.5 in senate
sherburt3 wrote 10 hours 26 min ago:
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.
tomrod wrote 1 day ago:
That would be the one positive I have heard regarding OBBB. This
should be put into its own bill.
madaxe_again wrote 1 day ago:
That isnât 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 itâs looking like a bill.
runako wrote 23 hours 35 min ago:
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.
fortenforge wrote 9 hours 12 min ago:
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.
autobodie wrote 7 hours 18 min ago:
It was a perfectly fine example. Nothing in your comment has
any relevance to what it's an example of.
runako wrote 8 hours 5 min ago:
The President is ignoring a lot of laws of various vintages.
That's not generally under the purview of Congress.
Braxton1980 wrote 18 hours 27 min ago:
Because almost no voters would be against the bill and it harms
almost none of the supporters of representatives
runako wrote 8 hours 4 min ago:
If you think no voters would be against the bill, I would
suggest your model of our media landscape could use a
refresher.
jmpetroske wrote 22 hours 38 min ago:
Is the TikTok debacle not a way higher profile case?
runako wrote 21 hours 11 min ago:
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.
tomrod wrote 21 hours 27 min ago:
I'm pretty sure that is precisely what GP referenced.
jmpetroske wrote 21 hours 23 min ago:
Yeah thatâs my point
lostlogin wrote 23 hours 27 min ago:
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.
AnonymousPlanet wrote 1 day ago:
And it gets so bizzare that even legislators have to laugh when
they read it out loud, like in this case here in Switzerland:
URI [1]: https://www.youtube.com/watch?v=S9hztUCq15o
aetherson wrote 1 day ago:
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.
teeray wrote 1 day ago:
You forgot renewing the Patriot Act :)
layer8 wrote 1 day ago:
As a non-American, it seems strange to me that the cost of regular
software development, i.e. that is neither âresearchâ nor
âexperimentalâ in a conventional sense, would be deductible in the
first place (amortized or not). Isnât that subsidizing a whole
business sector? Maybe Iâm misunderstanding something.
Hilift wrote 11 hours 5 min ago:
> Isnât 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.
gamblor956 wrote 18 hours 11 min ago:
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).
mountainriver wrote 1 day ago:
Yes and part of the reason America is so rich
demosthanos wrote 1 day ago:
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.
tommy_axle wrote 23 hours 22 min ago:
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 23 hours 19 min ago:
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 20 hours 38 min ago:
That part is not so weird, you didn't pay all salaries on
January 1st. But amortizing salaries in general is ridiculous.
lesuorac wrote 1 day ago:
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.
tomrod wrote 20 hours 37 min ago:
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.
demosthanos wrote 23 hours 47 min ago:
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.
anp wrote 1 day ago:
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 5 hours 58 min ago:
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 3 hours 32 min ago:
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?
cjbgkagh wrote 1 day ago:
It stems from the difference in treatment of capital gains and
income. Either way itâs 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.
Itâs 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 1 day ago:
> 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.
Youâre alluding to wealth taxes, right?
Because taxing unrealised gains are wealth taxes.
Or maybe Iâve misunderstood?
cjbgkagh wrote 1 day ago:
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.
dragonwriter wrote 1 day ago:
> 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 1 day ago:
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".
dragonwriter wrote 1 day ago:
> 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 23 hours 43 min ago:
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 peopleâs
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 âsmallâ and therefore
reasonable to the unsophisticated.
dragonwriter wrote 23 hours 10 min ago:
> 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 âsmallâ
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 23 hours 17 min ago:
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 theyâll
make you pay an accountant for and punish you if you get
it wrong, itâs not going to stop them.
jandrewrogers wrote 22 hours 23 min ago:
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. Iâve
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.
Fritatta wrote 18 hours 57 min ago:
If your asset valuations were swinging by an order of
magnitude (10x), that wasnât real estate, it was
gambling in the fog.
jandrewrogers wrote 17 hours 54 min ago:
That isnât 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.
cjbgkagh wrote 19 hours 6 min ago:
Theyâll make up a number and make you spend money
proving otherwise. The government wonât care about
your inconvenience when they need the money.
Of course this is a prediction of something that
hasnât happened before but looking at the chess
prices move this does appear to be an intended
destination.
lesuorac wrote 1 day ago:
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 23 hours 27 min ago:
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 23 hours 7 min ago:
> 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?
jandrewrogers wrote 22 hours 5 min ago:
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.
sarchertech wrote 22 hours 42 min ago:
It would be much better to tax the benefits of the
unrealized gain that a person realizes.
Itâs 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 21 hours 44 min ago:
"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 19 hours 27 min ago:
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 itâs easy.
Dylan16807 wrote 16 hours 22 min ago:
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 9 hours 49 min ago:
>treat the asset securing the loan as having
the pre-gains price
Thatâs no different than if the asset had no
unrealized gain at all.
>theyâll be more subtle
It only takes a small rise in interest rates
before itâs cheaper to pay the taxâassuming
the tax isnât 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 taxpayerâs 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 4 hours 12 min ago:
> Thatâs 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 itâs cheaper to pay the
taxâassuming the tax isnât 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 taxpayerâs assets based on
acquisition price by some large margin.
I don't like this one at all.
offnominal wrote 1 day ago:
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 22 hours 50 min ago:
I dunno, I pay taxes on revenue.
whichfawkes wrote 21 hours 29 min ago:
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.
offnominal wrote 22 hours 16 min ago:
Are you a company? If not, then you probably don't have revenue
-- you have income.
crvdgc wrote 15 hours 35 min ago:
If only I can pay tax just for income - expenses (rent, food,
etc.)
tomrod wrote 20 hours 35 min ago:
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.
simantel wrote 1 day ago:
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 1 day ago:
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 21 hours 5 min ago:
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 20 hours 21 min ago:
Source?
Consider a contractor in a software maintainer role; accounting
for this as capex makes zero sense.
Spivak wrote 19 hours 50 min ago:
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 11 hours 1 min ago:
That's probably something they are doing wrong then.
pjc50 wrote 1 day ago:
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 1 day ago:
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 1 day ago:
The revenue minus expenses is taxable, yes. And if the business
itself makes no money, that means all of it was taxed through
payroll.
entangledqubit wrote 1 day ago:
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.
sampton wrote 1 day ago:
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.
luckylion wrote 10 hours 24 min ago:
Does a machine guarantee steady income during the period of its
depreciation?
Hilift wrote 11 hours 15 min ago:
> 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.
kccqzy wrote 12 hours 24 min ago:
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 9 hours 40 min ago:
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 9 hours 39 min ago:
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 50 min ago:
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 doesnât tell you the
full picture of the company, while assets/profits do
jopsen wrote 23 hours 58 min ago:
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 :)
bearjaws wrote 20 hours 56 min ago:
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 20 hours 43 min ago:
The value is far less than the amount being amortized for its
development.
malshe wrote 22 hours 27 min ago:
> 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.
Supermancho wrote 23 hours 47 min ago:
> 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.
bonoboTP wrote 8 hours 11 min ago:
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.
tomrod wrote 20 hours 42 min ago:
Continuing your observation, this presumes they read and think
deeply about the bills they vote on. They do not.
Supermancho wrote 19 hours 53 min ago:
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.
URI [1]: https://www.ed.gov/sites/ed/files/programs/nclbbrs/lis...
timewizard wrote 1 day ago:
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?
CactusRocket wrote 15 hours 18 min ago:
Hi, I'm just really curious about something. Why write AAPL, GOOG,
and FB, and not Apple, Google/Alphabet, and Facebook/Meta?
tomrod wrote 7 hours 10 min ago:
Stock tickers are common and more readable than FAANG
hackernoops wrote 21 hours 7 min ago:
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.
shrubble wrote 23 hours 8 min ago:
Iâm 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?
9rx wrote 1 day ago:
> 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.
madaxe_again wrote 1 day ago:
I donât 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.
tomrod wrote 1 day ago:
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.
anonym29 wrote 1 day ago:
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.
[1] [2] 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.
URI [1]: https://en.m.wikipedia.org/wiki/DARPA_LifeLog
URI [2]: https://en.m.wikipedia.org/wiki/Facebook
trinsic2 wrote 1 day ago:
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]:
URI [1]: https://medium.com/insurge-intelligence/how-the-cia-made...
hackandthink wrote 18 hours 25 min ago:
Google Is Not What It Seems
URI [1]: https://wikileaks.org/google-is-not-what-it-seems/
cjbgkagh wrote 1 day ago:
Ever wonder why Microsoft bought Skype?
kopecs wrote 1 day ago:
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 1 day ago:
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 1 day ago:
It's not marginal. It significantly impacts sub-$10MM
companies.
typeofhuman wrote 1 day ago:
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.
holtkam2 wrote 1 day ago:
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?
ims wrote 19 hours 14 min ago:
'mjwhansen founded the Small Software Business Alliance specifically
to work on this issue:
URI [1]: https://ssballiance.org/
linkjuice4all wrote 1 day ago:
- 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.
DyslexicAtheist wrote 1 day ago:
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. " --
URI [1]: https://www.pwc.com/us/en/services/tax/library/tax-committee-a...
renewiltord wrote 1 day ago:
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.
beezle wrote 1 day ago:
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. [1]
URI [1]: https://pro.bloombergtax.com/insights/federal-tax/rd-tax-credi...
URI [2]: https://tax.thomsonreuters.com/news/the-future-of-rd-expensing...
latency-guy2 wrote 23 hours 3 min ago:
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 17 hours 6 min ago:
Bloomberg
klipt wrote 1 day ago:
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 1 day ago:
I think that is the simplest and best analogy I have read so far in
the comments.
luckylion wrote 1 day ago:
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.
klipt wrote 20 hours 18 min ago:
> 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 14 hours 43 min ago:
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?
cake_robot wrote 1 day ago:
When someone pays for labor to build an apartment building they
profit off for decades, do they amortize that labor?
beezle wrote 21 hours 4 min ago:
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.
triceratops wrote 22 hours 37 min ago:
A comment I read in the thread here says the answer is "Yes".
To which I have to say, that sucks.
ksec wrote 23 hours 55 min ago:
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.
demosthanos wrote 1 day ago:
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]
URI [1]: https://www.law.cornell.edu/uscode/text/26/174
mvdtnz wrote 3 hours 2 min ago:
> It really is quite unambiguous and is unambiguously bad for anyone
who builds software
Not "anyone". Anyone in America.
MPSimmons wrote 6 hours 10 min ago:
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.
demosthanos wrote 5 hours 55 min ago:
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 [1] Ask HN: How are you
handling Section 174 changes for bootstrapped companies? (298
points, 187 comments) Feb 2, 2023 [2] 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.
URI [1]: https://news.ycombinator.com/item?id=35614313
URI [2]: https://news.ycombinator.com/item?id=34627712
iancmceachern wrote 6 hours 9 min ago:
By what logic?
eipipuz wrote 5 hours 45 min ago:
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 5 hours 24 min ago:
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.
MPSimmons wrote 5 hours 55 min ago:
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 5 hours 41 min ago:
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.
datavirtue wrote 7 hours 3 min ago:
This was also a gift to big tech, boxing out competitors.
hshdhdhj4444 wrote 8 hours 12 min ago:
Exactly!
The change is very simple. And the predictable impact of the change
is very clear.
It shouldnât impact large companies that are already profitable.
But itâs devastating for software companies that are not profitable
yet.
And thatâs without even getting into the philosophical issues with
it.
dwedge wrote 9 hours 45 min ago:
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 7 hours 9 min ago:
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.
netcan wrote 12 hours 24 min ago:
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.
gortok wrote 7 hours 15 min ago:
> 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, thatâs $40,000 in taxes, for a business that
made literally no money.
Thatâs why this is so devastating to small software businesses;
unless youâre highly profitable and have cash reserves, this
change hits hard.
mcv wrote 2 hours 59 min ago:
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 29 min ago:
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
Youâre allowed to say âah, but over the year the value of
that $200,000 asset actually fell by 1/5â:
Asset depreciation: -$40,000
So your net income is now $160,000
You owe taxes on that income.
crystal_revenge wrote 5 hours 11 min ago:
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 3 hours 0 min ago:
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)
roflmao123 wrote 5 hours 54 min ago:
> 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 5 hours 33 min ago:
They do pay taxes. They each pay personal income tax on their
$100k.
roflmao123 wrote 5 hours 29 min ago:
Still plenty left to pay their business taxes.
jameshart wrote 16 min ago:
The company doesnât 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 companyâs taxable
income.
roflmao123 wrote 10 min ago:
Pay less salary so you can pay your taxes? This isn't as
complicated as y'all seem to want to make it.
dyauspitr wrote 2 hours 41 min ago:
So on the $200,000 itâs reasonable to you that they have
to pay $120,000 ($80k income+$40k business) in taxes?
roflmao123 wrote 2 hours 13 min ago:
Two people earning $100k each would pay $28k income taxes
each, totaling $56k. Where did this $80k come from?
maaaaattttt wrote 4 hours 43 min ago:
And if itâs employees? Do you ask them to contribute to
the companyâs taxes as well? After theyâve paid their
own?
roflmao123 wrote 3 hours 49 min ago:
You pay them less money so you can afford your taxes,
like literally everyone else.
spwa4 wrote 2 hours 59 min ago:
... 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 2 hours 15 min ago:
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 1 hour 53 min ago:
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.
datavirtue wrote 6 hours 59 min ago:
Yeah, this provision is a complete fuck up.
Klonoar wrote 9 hours 23 min ago:
Google was reportedly amortizing (by choice) long before this was
in effect, so while it might âaffect themâ, in practice itâs
likely business as usual.
nostrademons wrote 6 hours 29 min ago:
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.
freeone3000 wrote 10 hours 34 min ago:
Your analysis is correct, but most software companies were mostly
profitable or fast-growing. For every Google, thereâs 1000
wordpress vendors youâve 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 doesnât want
to pay that if it doesnât have to.
fauigerzigerk wrote 10 hours 38 min ago:
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 7 hours 57 min ago:
> 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.
fauigerzigerk wrote 5 hours 1 min ago:
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.
t0mas88 wrote 7 hours 17 min ago:
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.
juliennakache wrote 10 hours 52 min ago:
The R&D credits are deducted from Payroll taxes, so they impact
pre-revenue startups as well.
calderwoodra wrote 11 hours 2 min ago:
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).
akoboldfrying wrote 6 hours 53 min ago:
> 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 6 hours 34 min ago:
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 6 hours 18 min ago:
Sales tax (which most US states collect) specifically is a
tax on revenue, but it is the exception.
mrweasel wrote 10 hours 0 min ago:
If companies paid tax on revenue the US budget would be perfectly
fine.
rbultje wrote 7 hours 18 min ago:
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 6 hours 56 min ago:
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.
testrun wrote 10 hours 40 min ago:
No, you pay taxes on profits. What this does is reduce your
upfront deduction.
epr wrote 8 hours 47 min ago:
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 32 min ago:
The profit is 80k, not 90k, but the principle is correct.
This will affect cash flow.
ant6n wrote 12 hours 28 min ago:
I donât get the big hoopla. Here in Germany Iâm opting to turn
development costs into assets (I simplify a bit). I need assets on
the balance sheet, otherwise weâre over-indebted. As long as the
development costs are much higher than income (I.e. as long as
youâre not profitable), then it shouldnât matter. And once you
are profitable, you pay some more corporate taxes, but arenât they
kind of not too high in the us anyway?
PaulDavisThe1st wrote 7 hours 6 min ago:
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 4 hours 26 min ago:
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 itâs 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.
bunnie wrote 15 hours 32 min ago:
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 [1] . 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).
URI [1]: https://www.irs.gov/pub/irs-drop/n-23-63.pdf
Retric wrote 5 hours 9 min ago:
Youâre likely overreacting.
It makes software temporarily 16.7% more expensive in year one if
youâre 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 4 hours 12 min ago:
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 youâre 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.
deadbabe wrote 2 hours 13 min ago:
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.
majormajor wrote 2 hours 19 min ago:
> 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 4 min ago:
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.
Retric wrote 3 hours 31 min ago:
> 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 isnât a pure loss
thatâs why youâre 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 donât fall under that category.
demosthanos wrote 4 min ago:
> Because generating an asset IE software isnât a pure loss
thatâs why youâre 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 3 min ago:
If you donât think code is an asset donât write it.
O wait obviously thatâs not what code is a liability
means.
dataflow wrote 5 hours 53 min ago:
> 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?
kmacdough wrote 5 hours 21 min ago:
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 5 hours 15 min ago:
> 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.
CBLT wrote 5 hours 21 min ago:
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 1 hour 28 min ago:
> 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?
bunnie wrote 5 hours 23 min ago:
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.
djfivyvusn wrote 14 hours 34 min ago:
Just pledge copyright of contributions to eff or something.
Retric wrote 5 hours 0 min ago:
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.
bunnie wrote 13 hours 19 min ago:
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 10 hours 20 min ago:
> 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.
mystified5016 wrote 8 hours 42 min ago:
The point is that it's a ridiculous and impractical
workaround that makes no sense
bunnie wrote 5 hours 23 min ago:
^^ this
hiatus wrote 9 hours 41 min ago:
> 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 8 hours 7 min ago:
The USA hasnât managed to completely impose their idea of
intellectual property on everyone yet. Some countries you
canât sign away authorship even if you can commercial
rights.
hiatus wrote 7 hours 28 min ago:
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?
arkis22 wrote 17 hours 6 min ago:
salary is already counted as an expense right?
does that mean we were double billed as two expenses? salary and R&D?
ridomune wrote 16 hours 30 min ago:
more like triple. do not forget the sales tax when you're spending
it.
cma wrote 17 hours 25 min ago:
> 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 16 hours 46 min ago:
I would guess that because in these cases software development
costs would be classified as âcost of goods soldâ instead of
âresearch and developmentâ
ChuckMcM wrote 17 hours 34 min ago:
Excellent summary.
gscott wrote 18 hours 37 min ago:
I thought wages were deductible anyway. Say you pay a developer
$250,000 a year. The employee pays the tax on their own wages.
notimetorelax wrote 17 hours 36 min ago:
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 16 hours 44 min ago:
> (15 for software engineers outside of the US)
Yikes. Does that apply to outsourcing?
walterbell wrote 17 hours 39 min ago:
W2 salary is different from fully loaded labor cost.
sandworm101 wrote 21 hours 14 min ago:
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
Uvix wrote 19 hours 31 min ago:
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 19 hours 11 min ago:
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 12 hours 4 min ago:
The net effect of this change can only be more tax income which
benefits the society. Tax the rich
StackRanker3000 wrote 10 hours 39 min ago:
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 (youâd
have fewer billionaires), but there would also have been a
lot less wealth to go around, even for the working class
madmask wrote 1 hour 13 min ago:
Yes. See Europe
mr_toad wrote 11 hours 24 min ago:
Increasing taxes does not always increase tax revenue.
Itâs 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.
rileymat2 wrote 19 hours 54 min ago:
Only bootstrapped startups, funded startups will get the
amortization by the time they need to deduct from earnings.
subarctic wrote 18 hours 0 min ago:
This is what I was thinking too
droopyEyelids wrote 22 hours 13 min ago:
Who sponsored this text in the bill?
getcrunk wrote 18 hours 22 min ago:
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 17 hours 13 min ago:
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.
curtis3389 wrote 21 hours 19 min ago:
Here's the cosponsors of the bill: [1] 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.
URI [1]: https://www.congress.gov/bill/115th-congress/house-bill/1/...
URI [2]: https://www.congress.gov/congressional-report/115th-congre...
jdminhbg wrote 19 hours 56 min ago:
> 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 18 hours 19 min ago:
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.
rcpt wrote 20 hours 48 min ago:
Also, that administration was pissed off at tech.
mjevans wrote 20 hours 55 min ago:
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 20 hours 27 min ago:
That typically donât vote for that party and are
unsympathetic.
Braxton1980 wrote 20 hours 15 min ago:
Unsympathetic because?
largbae wrote 19 hours 47 min ago:
Generally R&D software developers aren't considered to be
poor or disadvantaged.
Braxton1980 wrote 19 hours 20 min ago:
What if they lose their job?
randomNumber7 wrote 11 hours 9 min ago:
Then they are still arrogant brats.
mountainriver wrote 1 day ago:
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 canât believe this still exists, and no one has changed it. We
truly are governed by morons
chemmail wrote 14 hours 45 min ago:
But we are great now. What else do we need?
rbultje wrote 7 hours 16 min ago:
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.
jbverschoor wrote 16 hours 30 min ago:
It is being roled back partly
URI [1]: https://news.ycombinator.com/item?id=44028106
PaulDavisThe1st wrote 8 hours 0 min ago:
Until is is rolled back, it isn't rolled back.
FrustratedMonky wrote 10 hours 5 min ago:
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 3 hours 18 min ago:
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.
cma wrote 17 hours 22 min ago:
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 16 hours 36 min ago:
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.
throwaway173738 wrote 9 hours 17 min ago:
This is 100% the intended effect of leaving a bomb like this
unaddressed then stalling all legislation halfway through your
opponentâs term. You make them look incompetent and then you
complain about how they never fix anything, even though they
never get anything done because youâve stopped cooperating.
And even though youâve stopped you can keep complaining about
how they always include things you donât like in legislation
so thatâs why you never cooperate. The solution is simple in
your eyes: just do exactly what you want and only what you want
and then youâll cooperate. This is how a lot of a certain
party was talking on the news from 2021 to 2025 when they were
interviewed.
vineyardmike wrote 15 hours 10 min ago:
> 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 11 hours 20 min ago:
I think itâs partly that and partly the fact that tax bills
tend to be scored on a ten year time window. Note that this
law doesnât actually change the amount of tax that software
companies can deduct, it just requires them to spread the
deduction over several years. So if youâre 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 thatâs just an illusion
because all the deductions are still there, theyâre just
being pushed out beyond the end of the window where they
donât âcountâ. At least this is my understanding.
toofy wrote 17 hours 27 min ago:
for anyone curious, this wasnât 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:
URI [1]: https://www.congress.gov/bill/115th-congress/house-bill/1/...
dyauspitr wrote 2 hours 46 min ago:
That sounds exactly like what the parent comment said- a MAGA
bill.
NooneAtAll3 wrote 3 hours 31 min ago:
what do you mean by "sponsor"?
bradleyjg wrote 46 min ago:
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 billâthey are known as the billâs
sponsors.
leereeves wrote 5 hours 12 min ago:
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?
drgo wrote 4 hours 9 min ago:
Thanks Obama! singing terrible bills even after he left office.
jyounker wrote 3 hours 0 min ago:
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 2 hours 12 min ago:
Democracy is broken⦠its so hard to tell who did this.
albertsondev wrote 4 hours 58 min ago:
I encourage you to look closer at the "in office" section here.
URI [1]: https://en.wikipedia.org/wiki/Barack_Obama
e40 wrote 1 day ago:
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.
rbultje wrote 7 hours 10 min ago:
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.
deeth_starr_v wrote 16 hours 14 min ago:
Iâm 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.
e40 wrote 6 hours 27 min ago:
This is simply not true. Says my lawyer and CPA. And every
other CEO/CFO I've talked with.
fhd2 wrote 14 hours 40 min ago:
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.
e40 wrote 6 hours 24 min ago:
> 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 6 hours 4 min ago:
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.
K0balt wrote 11 hours 51 min ago:
Tax law is full of major loopholes. Itâs highly political
law, so doing one thing while saying you are doing another is a
feature, not a bug.
e40 wrote 6 hours 20 min ago:
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.
trhway wrote 1 day ago:
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.
coliveira wrote 20 hours 4 min ago:
> almost no lying and cheating here
Are you living in an alternate world?
bombcar wrote 11 hours 55 min ago:
If youâve 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
thatâs just the beginning.
throwaway173738 wrote 8 hours 8 min ago:
Like tipping the licensing agent every time you had to renew
your driverâs license or get plates. Or tipping the judge for
a favorable judgement.
hattmall wrote 16 hours 45 min ago:
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.
bjt wrote 19 hours 3 min ago:
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.
edflsafoiewq wrote 17 hours 49 min ago:
If you pursue excellence, you compare yourself against the
best, not the worst.
rat9988 wrote 17 hours 27 min ago:
Then the russian fellow shouldn't have dared to compare USA
to his country?
lucianbr wrote 18 hours 7 min ago:
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.
jmknoll wrote 18 hours 44 min ago:
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 hasnât yet sold beans or cars via press conference.
9x39 wrote 17 hours 51 min ago:
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 11 hours 51 min ago:
"Could be much worse" is a platitude not an argument. "It
is improving" might be, if it were true.
9x39 wrote 7 hours 53 min ago:
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.
RankingMember wrote 21 hours 38 min ago:
> 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.
mlrtime wrote 20 hours 18 min ago:
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.
coliveira wrote 20 hours 1 min ago:
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.
Braxton1980 wrote 20 hours 14 min ago:
>say that there IS corruption, but at least it happens in the
open
How is that corruption?
saghm wrote 18 hours 24 min ago:
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 18 hours 20 min ago:
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"
StackRanker3000 wrote 10 hours 31 min ago:
Where in that definition does it say that it canât be
done in the open?
See for example Trumpâs 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 heâs in
office; having the Secret Service stay at his resorts
when he goes golfing; scamming the public with his
familyâs meme coins; etc)
fc417fc802 wrote 15 hours 8 min ago:
Right, which is illegal. Thus breaking the law. And
remains both corruption and breaking the law even when it
happens in the open.
MoonGhost wrote 21 hours 17 min ago:
> 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.
selimthegrim wrote 21 hours 24 min ago:
You forgot putting a dead guy on trial.
vlovich123 wrote 22 hours 15 min ago:
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 20 hours 18 min ago:
If the list doesn't go on and on that is a clear sign that
corruption is being hid.
lucianbr wrote 18 hours 15 min ago:
Could be a sign that the commenter was not willing to spend all
his day writing, especially once his point was made.
vlovich123 wrote 7 hours 15 min ago:
I canât tell if theyâre trying to refute the point (ie
the list being long means that itâs 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 doesnât mean you actually know about the scale. And
thereâs every reason to believe itâs quite extensive
given how easily money flows from corrupt countries through
USD and US persons and companies (eg the major bank thatâs
constantly getting fined for laundering terrorist and drug
cartel money - either theyâre the only ones and theyâre
making a killing providing this service anyway or theyâre
the only ones anyone is bothering to investigate, but that
business is clearly lucrative to continue to engage in).
youngtaff wrote 1 day ago:
I worked for a UK company that amortised itâs development costsâ¦
it led to the false belief that the company was profitable when it
really wasnât
hollerith wrote 19 hours 24 min ago:
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).
pclmulqdq wrote 22 hours 17 min ago:
"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 20 hours 40 min ago:
i think people in tech are usually focused on free cash flow, aka
playing around money.
disgruntledphd2 wrote 16 hours 0 min ago:
Tech likes free cash flow because share based compensation
isn't included in it.
trhway wrote 1 day ago:
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 1 day ago:
>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.
youngtaff wrote 13 hours 10 min ago:
Want a bet?
Iâve seen it used in UK listed companies to massage the
profit numbers and make divisions of the company seem more
profitable than they are
kgwgk wrote 1 day ago:
People is getting fooled by "adjusted" earnings that reduce
salaries "on paper" by hiding the "non cash" component.
trhway wrote 1 day ago:
Except for example the millions of stock market casual
participants.
Reason077 wrote 1 day ago:
Exactly. And if youâre more profitable on paper, you have to pay
more tax, making you even less profitable in reality.
jweir wrote 1 day ago:
We are small and so have been on a hiring freeze since 2022. Iâd
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 3 hours 11 min ago:
... 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".
radley wrote 1 day ago:
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.
efitz wrote 19 hours 42 min ago:
This is just wrong. It was passed in 2017 (during Trumpâs
presidency). It was to go into effect in 2020 (a presidential
election year during Trumpâs presidency). He hoped to be
re-elected.
demosthanos wrote 18 hours 55 min ago:
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:
URI [1]: https://www.congress.gov/115/bills/hr1/BILLS-115hr1enr.p...
efitz wrote 17 hours 47 min ago:
I donât 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: Occamâs Razor
The Republicans in congress put the provision in solely as a
gimmick to get past the CBO.
Frankly I donât think legislators in either party are
competent enough to have foreseen the consequences and even if
they had been they wouldnât 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
itâs fashionable to hate people who differ with oneâs
political opinions.
throwaway173738 wrote 9 hours 0 min ago:
I think youâre wrong that legislators are incompetent.
Theyâre human, and theyâve spent much of their lives
learning how to get votes, but theyâre not incompetent. A
lot of them arenât 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.
_heimdall wrote 22 hours 45 min ago:
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.
adgjlsfhk1 wrote 21 hours 27 min ago:
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.
antif wrote 19 hours 58 min ago:
So.. criminal racketeering?
rayiner wrote 20 hours 13 min ago:
Thatâs 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?
Braxton1980 wrote 18 hours 33 min ago:
What makes California's government dysfunctional?
What about Detroit?
riehwvfbk wrote 16 hours 40 min ago:
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.
hedora wrote 8 hours 34 min ago:
California also has easily solvable housing, education,
transportation and mental health crises that are entirely
driven by mismanagement by the state government. They
havenât 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 theyâre doing now for aquifer replenishment is
still less than what makes sense.
I say they are easily addressed because simply reverting
to Californiaâs policies from ~ 1975 would greatly
improve the current situation.
jacobolus wrote 4 hours 46 min ago:
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.
shigawire wrote 12 hours 30 min ago:
You are all over this thread treating HN like reddit or
twitter. Please go.
riehwvfbk wrote 7 hours 34 min ago:
Yes sir! Mam? Xer?
But more seiously: you are saying that there's this
poor little party that can't manage to vote for any
laws because big bad Republicans keep coming in and aww
shucks. Do we really want such incompetence in
government?
glompers wrote 19 hours 32 min ago:
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 8 hours 43 min ago:
> 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.
jacobolus wrote 4 hours 49 min ago:
> 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.
PaulDavisThe1st wrote 7 hours 13 min ago:
... 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.
_heimdall wrote 8 hours 1 min ago:
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.
rayiner wrote 6 hours 24 min ago:
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.
hollerith wrote 7 hours 55 min ago:
The two are related: bad governmental policy can make
employers leave a state and make employers that choose
to stay less prosperous.
_heimdall wrote 21 hours 5 min ago:
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.
motorest wrote 16 hours 32 min ago:
> 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?
Braxton1980 wrote 18 hours 32 min ago:
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 9 hours 48 min ago:
> 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 4 hours 24 min ago:
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.
devmor wrote 20 hours 15 min ago:
I would suppose that the Democrats would remove the policy
regardless of who was in charge.
happyopossum wrote 9 hours 9 min ago:
But they didnât, so that supposition is bunk
devmor wrote 7 hours 0 min ago:
When did they have control of the senate without a BD
being the lynchpin?
Braxton1980 wrote 18 hours 32 min ago:
How?
ajmurmann wrote 17 hours 31 min ago:
Vote with Republicans in removing it
jyounker wrote 2 hours 45 min ago:
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.
kenjackson wrote 22 hours 7 min ago:
No. Itâs after re-election. Bad news late in your second term
isnât that big of a deal, unless you care about legacy.
_heimdall wrote 21 hours 2 min ago:
Most presidents care about legacy, at least to me it seems like
trump holds that as a higher priority than most.
Braxton1980 wrote 18 hours 31 min ago:
>me it seems like trump holds that as a higher priority than
most
Why?
_heimdall wrote 7 hours 59 min ago:
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.
paulryanrogers wrote 19 hours 22 min ago:
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 15 hours 16 min ago:
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 10 hours 28 min ago:
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.
victoro wrote 1 day ago:
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?
vineyardmike wrote 15 hours 4 min ago:
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).
naijaboiler wrote 1 day ago:
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
tomrod wrote 1 day ago:
They tried. They had Senate spoilers.
candiddevmike wrote 1 day ago:
As a progressive, it seems like the Democrats always have
Senate spoilers...
cma wrote 17 hours 20 min ago:
Both parties tend to when there is a narrow majority, e.g.
McCain thumbs downing at the repeal of the ACA.
Braxton1980 wrote 20 hours 10 min ago:
And get blamed for it. If every single Republican and two
Democrats vote against something guess who people blame?
kenjackson wrote 22 hours 9 min ago:
But this is the type of thing that progressives would like
support (tax big corporate America).
stahtops wrote 12 hours 17 min ago:
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.
wvenable wrote 16 hours 32 min ago:
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.
Braxton1980 wrote 18 hours 34 min ago:
What makes you think this?
rezonant wrote 21 hours 5 min ago:
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 20 hours 15 min ago:
I donât think most progressives think about it in that
detail. Raise taxes on the rich tech companies that are
gentrifying san francisco.
stahtops wrote 12 hours 22 min ago:
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 8 hours 42 min ago:
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 canât break out of solidly blue districts.
URI [1]: https://runforsomething.net/run/candidate-su...
kenjackson wrote 6 hours 11 min ago:
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 donât
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 3 hours 12 min ago:
> 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 canât have nice
things until we solve the problems of the bottom
quantileâwhich we never will.
If progressives had been in charge, America and
everything it created wouldnât exist. They
never would have allowed us to displace the
Indian tribes so the land could be put to better
use.
dgb23 wrote 15 hours 25 min ago:
Iâm not American but the above description of a tax
policy is what I hear a lot from progressives in media.
bloppe wrote 21 hours 54 min ago:
This tax is far more consequential for small companies than
for large ones. It probably actually benefits larger
companies because it hobbles competition.
dragonwriter wrote 1 day ago:
> 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.
Braxton1980 wrote 20 hours 9 min ago:
>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 16 hours 10 min ago:
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 11 hours 48 min ago:
Itâs also because republicans politically punish
dissent, while it is more tolerated in the Democratic
Party. The consequences of âdisloyaltyâ are higher
in the Republican Party.
hedora wrote 8 hours 53 min ago:
This might change. After party leadership got 20% of
democratic senators to vote for trumpâs procedural
blank check, the partyâs approval rating dropped to
27%.
If it doesnât change, I suspect the party will
split.
rayiner wrote 20 hours 16 min ago:
> If the US were approximately an equal democracy, this
might be less of an issue
Equal to what?
paulryanrogers wrote 19 hours 30 min ago:
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.
Kamq wrote 18 hours 30 min ago:
> 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.
vineyardmike wrote 14 hours 48 min ago:
> 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).
Brybry wrote 15 hours 17 min ago:
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] [2]
URI [1]: https://da.lib.kobe-u.ac.jp/da/kernel/900088...
URI [2]: https://electionlab.mit.edu/articles/gerryma...
URI [3]: https://stateline.org/2022/05/20/check-your-...
paulryanrogers wrote 10 hours 21 min ago:
> 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.
URI [1]: https://www.brennancenter.org/our-work/ana...
xyzzyz wrote 10 hours 2 min ago:
Thatâs 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 donât think so.
throwaway173738 wrote 9 hours 13 min ago:
This totally ignores values and motivations,
and I would argue that only one group in your
comment values winning at any cost.
xyzzyz wrote 8 hours 52 min ago:
I donât even know which group you mean, but
âmy group has good values and motivations,
but the enemy group just values winning at
any costâ is exactly what a total partisan
who values winning at any cost would say.
paulryanrogers wrote 7 hours 16 min ago:
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 44 min ago:
I wonder why one party would be seeking
to change a civil service thatâs 90%
staffed by members of the other party? I
guess âdemocracyâ means Democrats
running the country no matter who wins
the election, right?
Braxton1980 wrote 18 hours 35 min ago:
Governors are elected by popular vote.
jimbob45 wrote 18 hours 49 min ago:
?? Both sides happily gerrymander. Itâs been around
since 1812 and both sides are equally guilty at this
point.
paulryanrogers wrote 10 hours 20 min ago:
I didn't say democrats were innocent. I said
Republicans perfected the (ab)use of districting.
URI [1]: https://www.brennancenter.org/our-work/analy...
tomrod wrote 23 hours 29 min ago:
Hell, just first past the post would eviscerate the current
parties.
tomrod wrote 20 hours 30 min ago:
Argh. Too late to edit. Something else outside first past
the post* like ranked choice voting.
Filligree wrote 9 hours 26 min ago:
Which is why theyâll never vote for it. Such changes
are remarkable rare. :(
SpicyLemonZest wrote 1 day ago:
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 23 hours 28 min ago:
Explicitly?
dboreham wrote 22 hours 47 min ago:
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 16 hours 31 min ago:
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 15 hours 25 min ago:
A compromise can also be a feature to resolve a bug,
from the point of view of the one demanding it.
glompers wrote 22 hours 49 min ago:
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 22 hours 32 min ago:
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.
URI [1]: https://en.wikipedia.org/wiki/Filibuster_in_th...
padjo wrote 1 day ago:
âSome spoke on condition of anonymity to discuss sensitive political
matters.â - yep this is fine.
lifeisstillgood wrote 1 day ago:
Iâm not sure I fully understand the problem here
1. I start âFacebook for dogsâ Itâs 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 Iâm 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
wonât)
Or am I missing something?
xivzgrev wrote 1 day ago:
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.
lowkey_ wrote 1 day ago:
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.
wdaher wrote 1 day ago:
See my example here for where it ends up biting you:
URI [1]: https://news.ycombinator.com/item?id=44180533#44204246
wdaher wrote 1 day ago:
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.
walterbell wrote 1 day ago:
> ends this particular change
Temporarily, for 5 years.
badloginagain wrote 1 day ago:
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 1 day ago:
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.
URI [1]: https://news.ycombinator.com/threads?id=heymijo&next=433...
xbar wrote 1 day ago:
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.
_dark_matter_ wrote 23 hours 43 min ago:
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 6 hours 47 min ago:
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?
naijaboiler wrote 1 day ago:
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 20 hours 32 min ago:
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...
NewJazz wrote 1 day ago:
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.
encoderer wrote 1 day ago:
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.
sitkack wrote 1 day ago:
Is there a flaw in saying, "salaries should always be considered a
business expense and cannot be amortized over many years." ?
patmcc wrote 17 hours 51 min ago:
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 10 hours 25 min ago:
Thank you.
creer wrote 1 day ago:
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 23 hours 44 min ago:
> 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 4 hours 4 min ago:
They may want to encourage certain kinds of business over others.
holtkam2 wrote 1 day ago:
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 20 hours 14 min ago:
I think you inverted your understanding. My phrasing is inline with
incentivizing R&D, or not dis-incentivizing it.
eximius wrote 1 day ago:
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 1 day ago:
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 1 day ago:
Tax subsidies are when the government taxes you less, thereby
reducing your tax burden. You don't receive funds, you just owe
less.
warkdarrior wrote 1 day ago:
That's not what the law says. You'll have to take it up with
Congress.
fluidcruft wrote 1 day ago:
I think they're asking whether there would be a flaw with making
that change.
svara wrote 1 day ago:
> 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?
gamblor956 wrote 18 hours 8 min ago:
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.
wdaher wrote 1 day ago:
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.
MattPalmer1086 wrote 1 day ago:
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.
patmcc wrote 21 hours 28 min ago:
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 19 hours 45 min ago:
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 donât retain the right to their labor for five
years.
patmcc wrote 18 hours 3 min ago:
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.
demosito666 wrote 12 hours 7 min ago:
> 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?
jandrewrogers wrote 17 hours 49 min ago:
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 15 hours 44 min ago:
> ...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 6 hours 56 min ago:
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.
svara wrote 1 day ago:
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.
antognini wrote 1 day ago:
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.
tomrod wrote 1 day ago:
This was my first reaction when I heard about it before it
passed. I was horrified.
mixdup wrote 1 day ago:
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 12 hours 1 min ago:
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.
gruez wrote 1 day ago:
>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 22 hours 43 min ago:
Would it also be true if you hired a bunch of construction
workers and got them to build a stadium?
gruez wrote 10 hours 36 min ago:
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?
throwawaymaths wrote 1 day ago:
so you are okay, if you start getting revenue when you're five
years in?
singron wrote 1 day ago:
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.
jorvi wrote 1 day ago:
> 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.)
URI [1]: https://youtu.be/BzAdXyPYKQo
lostlogin wrote 23 hours 25 min ago:
There is so much gold in that show. Just rewatching it now.
Fucking billionaires...
paulcole wrote 1 day ago:
But nobodyâs forcing you to classify software developers as R&D.
croes wrote 1 day ago:
How would that help?
R&D developers helped saving taxes, now they donât.
Classifying them as non R&D doesnât help saving taxes again.
demosthanos wrote 1 day ago:
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.
URI [1]: https://www.law.cornell.edu/uscode/text/26/174
inChargeOfIT wrote 1 day ago:
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 1 day ago:
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.
xhkkffbf wrote 1 day ago:
What if some executive tweaks a "no code" tool? Technically,
the name says that there's no coding involved.
zdragnar wrote 1 day ago:
Presumably that still counts as "developing software"- the
regulation doesn't mention "coding" at all.
xhkkffbf wrote 4 hours 10 min ago:
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.
mring33621 wrote 1 day ago:
what if you don't call it "software development"?
how about "business process mechanization"?
acedTrex wrote 1 day ago:
I mean sometimes fraud works, sometimes it doesnt.
brookst wrote 1 day ago:
At that point youâre so into tax fraud that you light as
well call them âpostage and shippingâ
nsxwolf wrote 1 day ago:
Then you risk going to jail.
svara wrote 1 day ago:
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.
mppm wrote 1 day ago:
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 1 day ago:
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 ;)
anticensor wrote 7 hours 28 min ago:
Some countries have uniform accounting where the tax
accounting rules closely follow IFRS.
bravesoul2 wrote 1 day ago:
I was confused and has to double check. In Australia you can
deduct them
URI [1]: https://www.ato.gov.au/businesses-and-organisations/...
0xWTF wrote 1 day ago:
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?
mppm wrote 1 day ago:
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 :(
wdaher wrote 1 day ago:
This is what the Sec 174 change said: it says that you do have to
capitalize it.
deanputney wrote 1 day ago:
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 1 day ago:
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.
mppm wrote 1 day ago:
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.
dadoprso wrote 1 day ago:
I thought you could carry forward losses or something. i.e. Once
profitable you can use your previous losses as 'tax credits'.
mNovak wrote 1 day ago:
So you're essentially giving the government a 0% interest 5 year
loan, in the amount of the pre-paid taxes
edoceo wrote 1 day ago:
If you make it that far.
satya71 wrote 1 day ago:
Yes, but businesses operate on cash, not tax credits.
jmyeet wrote 1 day ago:
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]
URI [1]: https://en.wikipedia.org/wiki/Zero_interest-rate_policy
jen20 wrote 1 day ago:
> 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.
khuey wrote 1 day ago:
Things can have more than one cause. Even the article only claims
this change "has contributed to the loss".
jmyeet wrote 1 day ago:
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 23 hours 3 min ago:
Things wouldnât be called layoffs then, people would just be
aggressively PIPed out
jmyeet wrote 22 hours 33 min ago:
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.
Seattle3503 wrote 1 day ago:
> 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.
timhigins wrote 1 day ago:
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.
kelnos wrote 1 day ago:
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.
EricDeb wrote 18 hours 27 min ago:
Still, I'll take it
almosthere wrote 19 hours 53 min ago:
It's always young companies that hire everyone, so it still helps.
margalabargala wrote 1 day ago:
"I'll give you a candy bar if you let me stab you multiple times"
dang wrote 1 day ago:
Related. Others?
Big Beautiful Bill R&D Tax: Will tech go on a hiring spree again? - [1]
- May 2025 (19 comments)
The Consequences of Limiting the Tax Deductibility of R&D - [2] - April
2025 (64 comments)
House restores immediate R&D deduction in new tax bill - [3] - Feb 2024
(8 comments)
Ask HN: Best country to run a boostrapped startup from? (After Section
174) - [4] - Jan 2024 (31 comments)
US tech innovation dreams soured by changed R&D tax laws - [5] - Jan
2024 (3 comments)
Ask HN: IRS section 174 â cause of layoffs? - [6] - Jan 2024 (21
comments)
Will US companies hire fewer engineers due to Section 174? - [7] - Jan
2024 (37 comments)
Will US companies hire fewer engineers due to Section 174? - [8] - Jan
2024 (20 comments)
IRS tax code change in Section 174: R&D is an expense - [9] - Dec 2023
(23 comments)
New tax rules on R&D expenses may lead to layoffs for devs - [10] - Dec
2023 (7 comments)
Tell HN: People laid off in my company due to IRS Section 174 changes -
[11] - Dec 2023 (6 comments)
Tell HN: Submit comments to IRS re tax treatment of software dev
expenses - [12] - Nov 2023 (225 comments)
Software firms across US facing tax bills that threaten survival - [13]
- April 2023 (981 comments)
Ask HN: How are you handling Section 174 changes for bootstrapped
companies? - [14] - Feb 2023 (187 comments) [15]
URI [1]: https://news.ycombinator.com/item?id=44028106
URI [2]: https://news.ycombinator.com/item?id=43639202
URI [3]: https://news.ycombinator.com/item?id=39212650
URI [4]: https://news.ycombinator.com/item?id=39098371
URI [5]: https://news.ycombinator.com/item?id=38988129
URI [6]: https://news.ycombinator.com/item?id=38957651
URI [7]: https://news.ycombinator.com/item?id=38931860
URI [8]: https://news.ycombinator.com/item?id=38870429
URI [9]: https://news.ycombinator.com/item?id=38642461
URI [10]: https://news.ycombinator.com/item?id=38636866
URI [11]: https://news.ycombinator.com/item?id=38633668
URI [12]: https://news.ycombinator.com/item?id=38120388
URI [13]: https://news.ycombinator.com/item?id=35614313
URI [14]: https://news.ycombinator.com/item?id=34627712
URI [15]: https://hn.algolia.com/?dateRange=all&page=0&prefix=true&query...
dmoy wrote 1 day ago:
Not a big thread, but a layoff one from a year ago:
URI [1]: https://news.ycombinator.com/item?id=38633668
dang wrote 23 hours 4 min ago:
Added. Thanks!
potamic wrote 2 days ago:
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?
gnopgnip wrote 17 hours 55 min ago:
Itâs the same for movies, other intangible assets that are valuable
and produce income over several years. And itâs done for many
tangible goods, like servers in a datacenter, the kitchen equipment
in a restaurant.
Schiendelman wrote 12 hours 36 min ago:
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 2 hours 55 min ago:
Generally itâs not a choice. Valuable assets are required to be
amortized over their useful life with limited exceptions
patmcc wrote 21 hours 32 min ago:
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 5 hours 31 min ago:
> 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.
patmcc wrote 21 hours 40 min ago:
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 15 hours 18 min ago:
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.
mountainriver wrote 1 day ago:
It was literally just a shot at California and New York, thatâs all
it was. âOwn the libsâ ya know
âif we arenât rich then no one else will beâ
altairprime wrote 1 day ago:
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, itâs 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.)
vpribish wrote 19 hours 56 min ago:
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 18 hours 21 min ago:
Which is fine for steady companies, but perpetually drags down
any rapidly growing company
jwlake wrote 21 hours 52 min ago:
In this theory you should tax revenue and not profit. Welcome to
VAT.
cyberax wrote 1 day ago:
> 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.
orwin wrote 1 day ago:
Mostly, Amazon will do stock buybacks, so that its investor can
invest into other top stocks.
cyberax wrote 1 day ago:
Funds for the stock buybacks are not R&D, they'll be taxed.
californical wrote 1 day ago:
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?
Iâm not sure what the answer is. The former is likely to drive
some innovation, which Iâm sure varies by company. Where the
latter could also unlock innovation by giving the bottom-quartile
of earners a chance to improve their situation.
xiphias2 wrote 1 day ago:
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.
zdragnar wrote 1 day ago:
Those salaries are also taxed, and at the highest tax brackets.
The government may end up getting more revenue that way.
duped wrote 1 day ago:
It can do both, by eliminating corporate taxes.
philjohn wrote 14 hours 5 min ago:
At that point, do we need to fundamentally rethink political
donations by companies (outright ban them) and SuperPACs? No
representation without taxation.
cyberax wrote 1 day ago:
> 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.
> Iâm 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 1 day ago:
Jesus man, how can you look at the economic history of the
past 30 years and still think neoliberalism is the way to go?
tomrod wrote 6 hours 57 min ago:
Same as the communists, in that it hasn't been truly
implemented anywhere?
shigawire wrote 12 hours 0 min ago:
The brand of neoliberalism where the fox sets up shop in
the henhouse does not work.
State spending is not a panacea.
GuinansEyebrows wrote 1 day ago:
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.
klipt wrote 1 day ago:
Real neoliberalism (with land value tax and pigouvian tax)
has never been tried.
kfkdjajgjic wrote 16 hours 39 min ago:
URI [1]: https://en.wikipedia.org/wiki/No_true_Scotsman
tomrod wrote 6 hours 56 min ago:
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.
cyberax wrote 1 day ago:
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.
thayne wrote 1 day ago:
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.
Hilift wrote 11 hours 14 min ago:
The company does not pay payroll taxes. Individuals pay those
taxes.
thayne wrote 6 hours 18 min ago:
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.
bix6 wrote 10 hours 31 min ago:
Itâs split but the company pays more. Both pay SS and
Medicare. Company also pays unemployment.
californical wrote 1 day ago:
Donât forget the other stakeholder - the general public.
Yes it sucks for developers, but does it make any difference for
any other employee? Why does Joeâs plumbing have to pay those
taxes, but Janeâs AdTech company doesnât?
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?
thayne wrote 20 hours 34 min ago:
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.
klipt wrote 1 day ago:
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 1 day ago:
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 1 day ago:
Yeah, VAT would help tremendously in alternative here, but
for gestures at United States sociopolitics reasons the
existing U.S. taxation methods canât keep up and wonât
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 âsection 174 with a sub-100% capâ as
what at minimum would have balanced research and taxation.
thayne wrote 20 hours 57 min ago:
In many parts of the US there are sales taxes, but they
are state or local taxes, not federal taxes.
warkdarrior wrote 1 day ago:
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).
systemf_omega wrote 10 hours 34 min ago:
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 9 hours 10 min ago:
Weird, I live in the USA make $180k yet still canât 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.
bboygravity wrote 1 day ago:
Yeah, make everybody equally poor. That'll solve things.
altairprime wrote 1 day ago:
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 19 hours 20 min ago:
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.
sokoloff wrote 1 day ago:
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?
tomrod wrote 6 hours 54 min ago:
They should have the choice.
If software lasted longer than 18 months or was otherwise tangible,
this could also make sense.
gamblor956 wrote 18 hours 13 min ago:
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.
bravesoul2 wrote 1 day ago:
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.
polotics wrote 1 day ago:
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.
demosthanos wrote 1 day ago:
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.
mixdup wrote 1 day ago:
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 1 day ago:
And the value of that software will be taxed if and when it
starts to draw cash.
sitkack wrote 1 day ago:
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.
jay_kyburz wrote 1 day ago:
The software itself has no value, it's the licence to use the
software.
thaumasiotes wrote 1 day ago:
> 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?
twoodfin wrote 1 day ago:
What about construction worker and other labor time to build a
factory? Thatâs the analogy being made here by the tax code:
Software whose development is a capital expense with value
returned over time.
demosthanos wrote 1 day ago:
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?
sokoloff wrote 1 day ago:
My reading of § 1.263A-1 is that construction labor must be
capitalized.
§ 1.263A-1.a.3.A indicates that it's in scope: Real
property and tangible personal property produced by the
taxpayer
§ 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?
kgwgk wrote 1 day ago:
> 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 1 day ago:
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.
kgwgk wrote 1 day ago:
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 §263A),
these costs must usually be capitalized and recovered
through depreciation over time. Exceptions may apply for
certain small taxpayers or repairs.
twoodfin wrote 1 day ago:
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.
Retric wrote 1 day ago:
> 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
isnât discouraging R&D.
Thatâs the thing, every year such exemptions exist the US
taxpayers are handing out money. Just because we subsidize say
EVâs or Corn doesnât mean thatâs the baseline forever more.
kelnos wrote 1 day ago:
> Removing a specific tax exemption to create a level playing
field isnât 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 1 day ago:
> 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 isnât you
discouraging their use nor is you canceling your plans to
clear said roads.
Having zero subsidies is the default situation.
anp wrote 1 day ago:
The default situation is whatever was yesterday. Iâd be
astonished to learn that even a single significant
civilization functioned without subsidies or patronage of
priorities held by a societyâs leaders.
Retric wrote 23 hours 57 min ago:
> The default situation is whatever was yesterday.
If Amazon delivered you a TV yesterday that doesnât
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 23 hours 55 min ago:
No but if a TV was in my house yesterday Iâd bet that
itâll be there today.
And my point about there being no natural state of
subsidies is more important.
Retric wrote 23 hours 54 min ago:
Those subsidies lasted a long time, but just as with
a TV they didnât 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 23 hours 46 min ago:
This doesnât seem connected at all to your
previous claim. You said that the default is an
absence of subsidies?
Retric wrote 23 hours 35 min ago:
Thereâs 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?
profile53 wrote 1 day ago:
It didnât 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 1 day ago:
Software is an asset. If you pay people to build a
building you donât get to deduct their salaries as an
operating expense.
demosthanos wrote 1 day ago:
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 1 day ago:
> 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 itâs 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.
kelnos wrote 1 day ago:
> 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 1 day ago:
Thereâs 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. Thereâs definitely a role for governments in
economies around information asymmetry, safety, etc, but
allocation of resources specifically doesnât work well.
jt2190 wrote 1 day ago:
It sounds like youâre talking about government funding of
research? This is about private companies funding the costs
of making product ideas into actual sellable products.
Retric wrote 1 day ago:
Money is fungible thereâs zero difference between a tax
break for 100$ and handing out 100$ directly.
jt2190 wrote 1 day ago:
Are you asserting that software and other labor-heavy
startups should raise additional private capital so
that they can pay taxes before theyâve established
themselves in the marketplace? Iâm not sure what you
mean to say exactly.
Retric wrote 1 day ago:
Iâm 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 isnât miss classifying operations as R&D it
shouldnât be a major issue.
jt2190 wrote 1 day ago:
Thanks for clarifying.
This will of course discourage âriskierâ
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 1 day ago:
Risky startups with multiple years of R&D before
revenue would be the least impacted.
Youâre only paying taxes if the business is
profitable ignoring investments like R&D
spending.
jt2190 wrote 23 hours 30 min ago:
You seem extremely confused.
Section 174 specifically made those R&D costs
âignorableâ from a tax standpoint. When it
ended R&D costs could no longer be used to
offset income.
Retric wrote 23 hours 21 min ago:
What specifically do you disagree with? That
R&D is an investment? I mean outside of the
tax code thatâs 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.
demosthanos wrote 1 day ago:
> 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.
URI [1]: https://news.ycombinator.com/item?id=44204353
Retric wrote 1 day ago:
> none of us would work for a company that isn't doing
R&D
So youâd just be unemployed for the rest of your lives?
Thatâs 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 youâd be
correct. But at that point you either arenât doing R&D,
or are doing such a poor job of it that the government
shouldnât be encouraging that activity.
HillRat wrote 1 day ago:
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 1 day ago:
> Early-tags startups into cash bond fires
As a practical measure itâs really not. The
transition is difficult for existing companies, but a
future startup is going to be minimally impacted.
Year 0 youâre unlikely to have any profits, future
years you have multiple years of R&D to offset with.
But letâs 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, youâd 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 youâd
have to pay 16.8% of 40% so an increase is only 6.72%
hardly likely to tank the business if itâs already
generating that kind of income year 0, and again
after that point youâll 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 23 hours 41 min ago:
> Year 0 youâre 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 23 hours 28 min ago:
> unlikely to have no profits if you have no
revenue.
Itâs 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.
Thereâs zero advantage to avoiding revenue or
profit here. Youâre 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.
londons_explore wrote 1 day ago:
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 1 day ago:
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.
UncleMeat wrote 2 days ago:
There are other expenses that are also amortized.
dashqueen wrote 3 days ago:
This doesn't quite fit into the article and is probably too inside
baseball for a general business audience, but as I see it, thereâs 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, thatâs 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 itâs me!
demosthanos wrote 1 day ago:
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 wasnât 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 â all of which had previously reduced taxable
income in year one â now had to be spread out over five- or 15-year
periods.
[0]
URI [1]: https://news.ycombinator.com/item?id=34627712
subarctic wrote 1 day ago:
Agreed that's literally what the article is about
reactordev wrote 1 day ago:
Contractors licking their lips at the prospect of being a clients
op-ex. I think youâre right and hence the slow down in hiring top
talent for top dollar.
walterbell wrote 1 day ago:
> 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 1 day ago:
Only external LLM use is âalways deductable as op-exâ. If you
build your own server farm and/or developer your own LLM, those are
capital expenses which must be depreciated.
walterbell wrote 17 hours 43 min ago:
What percentage of LLM use is based on internal purchase of $30K
H100 GPUs? OpenAI projected 2025 revenue is $12B.
mensetmanusman wrote 3 days ago:
I wonder if this was an unintended consequence, or if the politicians
backed by big business really wanted to disrupt the software
infrastructure.
creer wrote 1 day ago:
It was a very explicit change with its own very specific paragraph.
Some stuff can be unintentional. This could not.
glookler wrote 3 days ago:
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.
LiquidSky wrote 3 days ago:
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 2 days ago:
> 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.
kelnos wrote 1 day ago:
> 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.
snowwrestler wrote 1 day ago:
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 âcommon
tactic.â 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 1 day ago:
> Any change hurts some people, harms others.
Not quite the sentiment you intended.
snowwrestler wrote 1 day ago:
Ha! Call it a Freudian slipâ¦
jrs235 wrote 1 day ago:
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 1 day ago:
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.
potato3732842 wrote 3 days ago:
>The delayed change to Section 174 â 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).
ec109685 wrote 16 hours 23 min ago:
Yes, big tech companies are lesser affected and they were already
amortizing their expenses as âcap laborâ.
Itâs a pretty bad article general and to blame the law change on
this is all kinds of disingenuous:
âItâs no coincidence that Meta announced its âYear of
Efficiencyâ immediately after.â
kelnos wrote 1 day ago:
> 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 1 day ago:
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)
ak217 wrote 1 day ago:
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.
HWR_14 wrote 3 days ago:
> 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.
yesfitz wrote 3 days ago:
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:
URI [1]: https://www.investopedia.com/terms/t/timevalueofmoney.asp
potato3732842 wrote 3 days ago:
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.
TheTaytay wrote 1 day ago:
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 arenât 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 donât 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 16 hours 21 min ago:
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 7 hours 51 min ago:
From the horror stories I read from other founders, the bank
wouldnât loan on those numbers.
When we asked our accountants what they were seeing from
other companies, the answer was âmortgage their house.â
That assumes they had enough equity to mortgage.
JamesBarney wrote 1 day ago:
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.
dtagames wrote 3 days ago:
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.
jen20 wrote 1 day ago:
> They wrote regular software for sale, like games, for example.
Wrote software, like, you know, "developed" it?
kelnos wrote 1 day ago:
> They wrote regular software for sale, like games, for example.
Even though it sounds unintuitive, that activity is considered R&D
for tax purposes.
mywittyname wrote 1 day ago:
> 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 1 day ago:
> 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.
URI [1]: https://www.law.cornell.edu/uscode/text/26/174
jokethrowaway wrote 3 days ago:
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.
URI [1]: https://newsletter.pragmaticengineer.com/p/zirp
jewelry wrote 3 days ago:
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 3 days ago:
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.
orangecat wrote 1 day ago:
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 8 hours 20 min ago:
> 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.
RobGR wrote 3 days ago:
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 ?
tjchear wrote 3 days ago:
> 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 â if it
contributed to creating or improving a product, it came off the top
of a firmâs 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.
gregw2 wrote 3 days ago:
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.
nitwit005 wrote 1 day ago:
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.
ghc wrote 3 days ago:
Under the new rules, all software development, excluding bug
fixes, must be expensed in this manner. "Turn the crank"
development is included.
URI [1]: https://larsco.com/blog/section-174-updates-navigating-t...
ndriscoll wrote 3 days ago:
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 3 days ago:
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 2 days ago:
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.
kelnos wrote 1 day ago:
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.
jameshart wrote 1 day ago:
I get your thinking here but copyright isnât 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.
dtagames wrote 3 days ago:
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.
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