The effects of Section 174 seem to be understated, it aligns with the layoffs and the size of the layoffs.
root_axis 11 minutes ago [-]
IMO the effects of Section 174 are way overstated. Time will tell, but my bet is that the market for software engineers continues to decline indefinitely. Maybe super low interest rates could mitigate the trend but other than that we're probably not going back to the days of high demand software engineer roles.
enjo 2 hours ago [-]
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.
bsuvc 3 hours ago [-]
Interesting.
Is there someplace I can find information about how section 174 aligns with the frequency and size of layoffs?
adamors 2 hours ago [-]
The OP links to a deepdive on section 174
ch33zer 2 hours ago [-]
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.
breakyerself 4 hours ago [-]
Someone must have made a mistake. This government just broke its perfect record of only fucking things up.
randerson 2 hours ago [-]
Considering this is reversing their own mistake, after damage has been done, it is still a net fuckup in aggregate.
tpetry 2 hours ago [-]
But the damage has been done while the opponentparty was leading the country. Thats the important part. That was always the plan. And is again with the big beautiful bill when the big tax hikes will take effect with the next president…
1auralynn 2 hours ago [-]
Agreed, it cost me at least $10,000 because I had to pay fancier accountants to do all the R&D calcs. Not to mention the interest lost, my time spent figuring it all out, etc.
schneems 3 hours ago [-]
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).
em-bee 2 hours ago [-]
one step forward, two steps back.
leptons 19 minutes ago [-]
>My understanding is that this provision was originally enacted by Republicans during Trump's first term, so it follows Trump's practice of fixing things he was the one to break in the first place and attempting to claim credit.
The [dead] comment is absolutely right.
3 hours ago [-]
catlover76 2 hours ago [-]
My understanding is that this provision was originally enacted by Republicans during Trump's first term, so it follows Trump's practice of fixing things he was the one to break in the first place and attempting to claim credit.
BryantD 18 minutes ago [-]
It is slightly worse than that. The provision was changed by Republicans… but set to kick in after Trump’s first term, so the negative effects landed on Biden. Now that Trump’s back in office, it’s safe to improve the economy again without the wrong party getting credit for it.
Watch them increase the H1b cap after this "win"...
vineyardmike 3 hours ago [-]
One thing that I haven’t seen widely reported on, but this article highlights is that the reversal is only for US based employees, so outsourcing jobs overseas will be more expensive compared to American talent (if salaries are equal). This seems good for the US tech industry, and I’m curious how this form protectionism compares to jobs in other sectors.
It’ll also be interesting to watch to see if this has any side-effects on the job market. In my experience in big-tech, a lot of the overseas jobs were historically supporting roles and “keep the lights on” for legacy services. I can imagine these tasks aren’t valuable enough to pay Silicon Valley salaries, and that’s why lower cost talent was used. 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.
ChrisMarshallNY 1 hours ago [-]
> In my experience in big-tech, a lot of the overseas jobs were historically supporting roles and “keep the lights on” for legacy services.
I know a couple of tech CEOs (very small services companies), and they use offshore for all development. They don't have a single US engineer; only project managers.
commandlinefan 1 hours ago [-]
> They don't have a single US engineer; only project managers.
That's what I never understood... why not outsource the project managers too? What is it about _project management_ that only onshore Americans can do? Whatever you think of programming, project management is much easier than programming.
heyjamesknight 31 minutes ago [-]
PMs in service firms are usually client facing, or at least client oriented. Having them native puts a native face on the team and keeps the language/culture barrier inside the firm.
ChrisMarshallNY 1 hours ago [-]
...and usually, cheaper.
I think the main reason is because the CEO wants someone that they can grab in-person, at any time.
Ancalagon 37 minutes ago [-]
And - if I'm being honest - the CEO doesn't need to concern themselves with the time differential or language barrier. Those are the PMs' problems.
JeffMcCune 1 hours ago [-]
These are effectively MSPs and perform the kind of role GP describes.
> 15-year amort rule hurts your tax deduction, but 50 %+ lower offshore wages more than make up for it.
lbotos 3 hours ago [-]
> 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?
vineyardmike 3 hours ago [-]
> I think this very much depends on how companies are "outsourcing"/hiring.
Yes and no. Obviously there are a million ways to do business and taxes are really complex, but the law doesn't revolve around actual salaries but "cost of software R&D" so this still applies to hiring contractors and other companies if the deliverable is software.
From the article:
> US companies making foreign software development-related expenditures like hiring staff, or paying for contracts abroad, are still mandated to be expensed over 15 years.
majormajor 2 hours ago [-]
The big impact here seems to be on new companies, then, yeah?
Old established ones can absorb long-term expensing and more likely to be in cost-savings mode anyway.
But if you're a startup you are more incentivized to keep your development local. And I have seen a lot of near-shore, in particular, shops adverting aimed startup/medium-sized companies recently, so that might be significant.
jszymborski 3 hours ago [-]
> (if salaries are equal)
That's rarely the case, right?
mediaman 3 hours ago [-]
He's not saying it's only true when salaries are equal. It makes a significant difference at the margin: if you're an employer debating whether to employ US talent or offshore talent, weighing time zones, skill and other factors against cost, then introducing a tax advantage for domestic hiring will cause those employers who were otherwise indifferent between the two options to now prefer US labor.
lowbloodsugar 58 minutes ago [-]
Only if the tax advantage more than offsets the difference in cost.
aprilthird2021 3 hours ago [-]
> 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.
kevmo314 3 hours ago [-]
> Companies have the choice to amortize salaries if they want.
I am curious, is there ever a time you would want this? Maybe if you’re operating at a loss?
alphazard 2 hours ago [-]
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.
kevmo314 2 hours ago [-]
Interesting, that's about what I suspected. Makes sense despite the absurdity, thanks!
tonfa 2 hours ago [-]
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."
analog31 2 hours ago [-]
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.
qkeast 3 hours ago [-]
Does the 15-year period for non-US developers only apply to developers? What about roles like designers, product managers, and so on?
semitones 2 hours ago [-]
The technical qualification is "everything that qualifies as research and development"
jay_kyburz 2 hours ago [-]
I have this image in my head that R&D is some boffins in the back room inventing a something new, and then expanding on that idea is execution.
But "and development" covers everything we do in software development. Whether you fix a bug or write some documentation you are developing the product in some small way.
I imagine some business will need to restructure so the US arm is paying a service contract to use the software, and the foreign arm will own and develop the software.
throwawaybbq1 3 hours ago [-]
Does this mean a huge hiring uptick in the US/layoff reversal? I do think this law caused some of the bad market. Will undoing it get us back to where we were?
jesol 3 hours ago [-]
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.
UncleOxidant 3 hours ago [-]
Agreed. Consider that we're in a big tech bubble right now (AI) and have been for at least a couple years. And yet tech layoffs have been way up, and hiring way down. Part of that that could be attributable to 174, but there are other issues that contribute more. One would be that there are vanishingly few people with actual experience in this narrow part of AI (LLMs) - I know people working in AI that have been laid off in the last couple of years because they were in the wrong area of AI (vision & CNNs). Secondly, it turns out that not that many people are needed to work on this stuff (mostly concentrated in large companies like Meta, Google, Microsoft & Amazon). And thirdly, folks in the C suite became convinced that AI is going to replace software engineers so they've quite hiring them.
cogman10 2 hours ago [-]
> And thirdly, folks in the C suite became convinced that AI is going to replace software engineers so they've quite hiring them.
I think this is the real reason for much of the layoffs.
The other reason is simply that the market isn't punishing layoffs. You get rewarded as a CEO for laying off employees and saying "It's because AI makes them obsolete"
aprilthird2021 3 hours ago [-]
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.)
y-curious 3 hours ago [-]
I pray this is true. How can an experienced dev in the Bay area compete with someone in India that would work for $10 an hour with chatgpt?
Now that I write this, it's still a hard decision for big companies.
bcrosby95 2 hours ago [-]
Same thing happened in the '90s...
I think what we're seeing is the fossilization of the newest batch of mega tech companies looking to rest on their laurels and prioritize profits over innovation.
They won't die, they are just the next IBM.
dingnuts 2 hours ago [-]
just be patient and wait for the off shore contractor's vibe coded shit pile to burst into flames and come in and fix shit for a big premium while being able to communicate with the customer during their preferred time zone and in the local dialect.
simple.
coliveira 2 hours ago [-]
Most people cannot just wait around until this happens, there are bills to pay.
mlsu 2 hours ago [-]
I'm really confused as to how Section 174 made it in in the first place. It seems like a carveout specifically to target software engineers, who, despite being a wealthy bloc, still work for their money.
Why was this done? Simple vengeance in 2022 for how high salaries got and how many silicon valley people were bragging about buying a second house by the slopes? Or was there a deeper policy reason?
vineyardmike 2 hours ago [-]
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.
wunused 39 minutes ago [-]
> Side effect is that the next administration gets shitty economic news.
Doesn't this analysis assume that the 2017 administration expected to lose the 2020 election?
I'm genuinely curious. What would have happened if Donald Trump had won the 2020 election? Do you think that the 2022 changes would still have come into effect, or do you think there would have been an effort to change them?
froggertoaster 2 hours ago [-]
> The remaining thing that stings for companies is how foreign devs still need to be amortized for 15 years.
I'm having a hard time seeing the issue with this.
Rendered at 22:08:36 GMT+0000 (Coordinated Universal Time) with Vercel.
Is there someplace I can find information about how section 174 aligns with the frequency and size of layoffs?
(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).
The [dead] comment is absolutely right.
"OBBB signed: Reinstates immediate expensing for U.S.-based R&D", 300+ comments, https://news.ycombinator.com/item?id=44469124
It’ll also be interesting to watch to see if this has any side-effects on the job market. In my experience in big-tech, a lot of the overseas jobs were historically supporting roles and “keep the lights on” for legacy services. I can imagine these tasks aren’t valuable enough to pay Silicon Valley salaries, and that’s why lower cost talent was used. 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 know a couple of tech CEOs (very small services companies), and they use offshore for all development. They don't have a single US engineer; only project managers.
That's what I never understood... why not outsource the project managers too? What is it about _project management_ that only onshore Americans can do? Whatever you think of programming, project management is much easier than programming.
I think the main reason is because the CEO wants someone that they can grab in-person, at any time.
> 15-year amort rule hurts your tax deduction, but 50 %+ lower offshore wages more than make up for it.
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?
Yes and no. Obviously there are a million ways to do business and taxes are really complex, but the law doesn't revolve around actual salaries but "cost of software R&D" so this still applies to hiring contractors and other companies if the deliverable is software.
From the article:
> US companies making foreign software development-related expenditures like hiring staff, or paying for contracts abroad, are still mandated to be expensed over 15 years.
Old established ones can absorb long-term expensing and more likely to be in cost-savings mode anyway.
But if you're a startup you are more incentivized to keep your development local. And I have seen a lot of near-shore, in particular, shops adverting aimed startup/medium-sized companies recently, so that might be significant.
That's rarely the case, right?
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.
I am curious, is there ever a time you would want this? Maybe if you’re operating at a loss?
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.
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."
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.
But "and development" covers everything we do in software development. Whether you fix a bug or write some documentation you are developing the product in some small way.
I imagine some business will need to restructure so the US arm is paying a service contract to use the software, and the foreign arm will own and develop the software.
I think this is the real reason for much of the layoffs.
The other reason is simply that the market isn't punishing layoffs. You get rewarded as a CEO for laying off employees and saying "It's because AI makes them obsolete"
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.)
Now that I write this, it's still a hard decision for big companies.
I think what we're seeing is the fossilization of the newest batch of mega tech companies looking to rest on their laurels and prioritize profits over innovation.
They won't die, they are just the next IBM.
simple.
Why was this done? Simple vengeance in 2022 for how high salaries got and how many silicon valley people were bragging about buying a second house by the slopes? Or was there a deeper policy reason?
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.
Doesn't this analysis assume that the 2017 administration expected to lose the 2020 election?
I'm genuinely curious. What would have happened if Donald Trump had won the 2020 election? Do you think that the 2022 changes would still have come into effect, or do you think there would have been an effort to change them?
I'm having a hard time seeing the issue with this.