The Tech Job Meltdown

I'm kinda weekly in agreement too but I can't really square the idea that it's all Section 174 with what I've been seeing as a tech worker.

1) At my company they already were capitalizing most of our time. We have to fill out time cards characterizing most of our time as R&D. As best as I can make out this is partially tax efficiency (and maybe we're getting credits) but it's also substantially about reporting and having a similar capital/operating structure to other companies in our industry.

2) From what I've seen at my company and others, most of the layoffs have been moving job functions overseas. Axlerod points out that the amortization schedule is even worse for overseas engineers, but brushes it aside by arguing that companies can get tax benefits from foreign governments. But then he points to Germany as a country that gives the old tax treatment, which is confusing because Germany's tech employment trends are similar to the USA. In fact, in my company, we used to have large German operations all of which have been moved to cheaper European countries and India.

3) He also mentions ZIRP but only to dismiss it. That seems kinda goofy as you talk to any financier and they will say the rising risk free rate of return will eviscerate speculative investment.

4) He also fails to really even address two other trends that I have seen in our industry: maturation of the industry as a whole (and a lack of new "platform" to take off since cellphones) and a post-covid post-WFH backlash by industry leadership against more assertive workers, and a desire for labor discipline.

No doubt Section 174 is also a cause for the tech slump. How much compared to all the others? I don't know. And I support its repeal since it was just an accounting trick in the trump tax cuts. My intuition is that its effect is pretty marginal and a repeal won't change much.

It's curious he doesn't mention that the appropriations bill currently under consideration by the Senate repeals section 174.

Maybe, but personally i found it much more insightful on the topic of why all companies suddenly went crazy than the Linkedin layoff porn pieces or "it's all AI's fault" hot takes.

Huh? Headline aint say nuttin about no job trends.

You'd think something as basic as judicial oversight would be protected by the constitution

I hope more people see this.

Reminds me of the military budget sequestration from 2011.

The funny thing is the full write off in section 174 was pretty much the key to a bigger middle class. By repealing it, the president created an ailment that he will only cure if he can get himself dictatorial powers. It is really valuable to the US tech sector and it made it pretty obvious why Silicon Valley had to get into politics this cycle. The old 174 allowed all software engineering work to be deducted on year on - you put in effort you get tax offsets for future profits. If that effort fails you can get acquired and the value of your salary work becomes someone else’s valuable tax offset. Bigger picture it make VC returns a LOT BETTER, which makes startups more viable with more funding, which makes good outcomes more likely - jobs, public companies that grow retirement of Americans, etc. For public companies it’s also really valuable - Meta can reduce its massive taxable profit by hiring all potential startup founders who would otherwise become competitors and keep them on the books with non-competes in exchange for slowly vesting equity. By the time your equity vests you are in your thirties and in child-making mindsets and startups are less tempting. When 174 expired Meta became very very different financially with all that expensive labour they couldn’t write off anymore and they laid off huge swaths of it. Because of the high interest rates, those potential competitors would struggle to raise money anyway.

Section 174 has definitely been talked about a lot over the last few years, (even here on HN from time to time) but it's tax code details like this that never seem to make it above hype-fueled misrepresentations like "AI Is Taking All Software Jobs!"

Yes, it's a huge problem for small startups. Many of them went from not making revenue in the eyes of the IRS to being profitable and having massive tax bills. FAANG has the ability to move things around to their EU offices, but they also have the ability to spin it and do a layoff to help with their tax burden but also cover up issues like over-spending on projects like a shift to VR that didn't go anywhere, for example.

I made a comment elsewhere but FAANGs can do aggressive layoffs because the startup ecosystem is so much harsher these days.

If (non-AI) startups no longer pose an existential threat to your organization, then why do you need to spend so much on talent? Your users won’t have anywhere else to go.

It’s pretty obvious if you do your own company’s taxes. The old 174 allowed all software engineering work to be deducted on year on - you put in effort you get tax offsets for future profits. If that effort fails you can get acquired and the value of your salary work becomes someone else’s valuable tax offset. Bigger picture it make VC returns a LOT BETTER, which makes startups more viable with more funding, which makes good outcomes more likely - jobs, public companies that grow retirement of Americans, etc. For public companies it’s also really valuable - Meta can reduce its massive taxable profit by hiring all potential startup founders who would otherwise become competitors and keep them on the books with non-competes in exchange for slowly vesting equity. By the time your equity vests you are in your thirties and in child-making mindsets and startups are less tempting. When 174 expired Meta became very very different financially with all that expensive labour they couldn’t write off anymore and they laid off huge swaths of it. Because of the high interest rates, those potential competitors would struggle to raise money anyway.

I also object to the near misuse of "shibboleth"

This isn’t really an issue in biotech since companies don’t have any revenue until late in their lives. Ie if I’m doing discovery work for a drug candidate today, it won’t generate revenue for 7+ years. So when if I have to amortize those costs over 5 years, that process will be complete by the time the project generates revenue.

I can’t speak to the pharma side as much, but since the 174 issue is most painful for companies with liquidity issues, I doubt it has a huge impact on them.

Yes, lots of layoffs in biotech recently (Recursion is a big recent one, although some of that is post-merger restructuring after the Ex Scientia acquisition.)