Section 174 is reversed! Mostly, that is.

I feel like we'll get a good feel for this if hiring domestic engineers picks back up without an influx of foreign folks who are not receiving the positive tax treatment.

If you think layoffs were bad the last few years then just wait until the costs for all the ai hardware, massively overpriced talent, and acquisitions hit the books for these companies. It's going to be a bloodbath.

Interesting.

Is there someplace I can find information about how section 174 aligns with the frequency and size of layoffs?

Considering this is reversing their own mistake, after damage has been done, it is still a net fuckup in aggregate.

Happy to report that the laws of the universe are still in effect. NPR and PBS were defunded today so I’ll call it a wash.

(This is a joke, I’m happy for this change, but also raising that it’s in the middle of a lot of other crappy stuff and I’m holding space for all of it).

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https://news.ycombinator.com/item?id=44470230

> the 15-year amort rule hurts your tax deduction, but 50 %+ lower offshore wages more than make up for it.

> so outsourcing jobs overseas will be more expensive compared to American talent (if salaries are equal).

I think this very much depends on how companies are "outsourcing"/hiring.

Like, if the devs you are outsourcing to are delivering you a "project-based app with ongoing support". Did you hire "developers" or are you doing business with a development company?

For many large tech cos, they also have local entities or PEOs, where people working for Facebook work for Facebook Ireland, or Facebook India.

So I'm not sure how much impact it has -- probably mostly for smaller shops that might hire 1 guy directly in a different country?

> (if salaries are equal)

That's rarely the case, right?

> It’ll be interesting to see if these roles move to low-COL or remote American workers. I can totally imagine that a European or even Indian salary for a senior engineer in big tech would be livable in some parts of the US.

I think they will, Indian salaries for the top top eng are already comparable to decent eng from MCOL or LCOL US, so I could see this happening.

iirc some companies (google?) had been doing that before section 174 anyway. (which is why it imo isn't super convincing to tie layoffs with section 174 rather than e.g. end of zirp)

ok I read it in https://blog.pragmaticengineer.com/section-174/ "Google: the tax change was minimal, because Google was voluntarily amortizing software development expenses for most staff, already."

Unless you are speculating about tax policy, there is basically no case where you would want to do this. Losses now are worth more than losses later in terms of corporate tax. And if you are a startup burning runway, you might not live long enough to actualize the loss if you amortize it. From the perspective of day-to-day operations: the software engineers need to get paid, and that money has to come from somewhere, revenue, a loan, or the bank account. It's very much not spread out over 5 years in terms of your actual cash flow needs.

Typically businesses amortize large capital expenditures, and this allows the business to appear profitable even when they had a significant outbound cash flow. This is just something they're allowed to do with accounting in the US. There's an argument that you should take out a loan for situations like this, because then the cash flow events will more closely match the changing value of the business.

I would not try to make sense of it in terms of business accounting, there's no deeper understanding of business to be had. It's just politics; and it made it objectively harder for startups with revenue to survive and grow.

If your salaries exceed your sales by more than 5x, then it makes sense to deduct only 1/5 of those salaries this year, and save the rest of the deduction for later. That's in case your business lasts another year.

It's not just that the company is operating at a loss, but it has to be operating at a really big loss, such as a startup with a high burn rate.

The technical qualification is "everything that qualifies as research and development"

Definitely not. Repealing section 174 (or not extending it, as it were) helped pushed us into a new normal for the market. Adding it back doesn't in and of itself push the market into another new normal, we'd need a lot more. It might take the edge off though, hopefully.

A huge uptick / reversal, I'm not sure, that's ultimately far more driven by actual profit / market than taxes.

But as pointed out in the article, US devs now have a tax advantage vs foreign devs. That may lead to some "nearshoring" especially from foreign markets where dev salaries have been jumping up (India, Europe, etc.)

This law was written in 2017 not 2022.

The 2017 tax cuts were big cuts, but the way the government budget process works, they want to minimize the “appearance” of deficit spending across a decade window. To do this, added a cliff in 2023 that would raise the taxes on tech companies to help offset the cost of their cuts. Side effect is that the next administration gets shitty economic news. Dec 2022 and January 2023 had lots of crazy layoffs, right on schedule.

The reason it was tech companies specifically is that they’re super wealthy and could (ostensibly) afford it. If you’ll notice, the law exempted software development in oil and gas companies. It doesn’t hurt that tech companies and employees leaned strongly democrat in 2017. The conspiracy theorist in me thinks the tech companies accepted the 2022 hiring mania knowing layoffs were eminent.