(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).
https://www.morganlewis.com/pubs/2025/07/new-section-174a-re...
Maybe the Democrats do deserve the blame.
The premise of your question is not in good faith though; why is it always the Dems who should be blamed for failing to fix things Republicans fuck up deliberately in the first place?
The [dead] comment is absolutely right.
https://www.morganlewis.com/pubs/2025/07/new-section-174a-re...
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.
simple.
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.
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 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.
That's rarely the case, right?
Immediate vs 15 yr? - no where is that cheap.
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.
Or are they engaging in an arms-length B2B transaction to buy the finished product?
I suspect pretty strongly that the latter will be claimed and upheld on the facts.
> 15-year amort rule hurts your tax deduction, but 50 %+ lower offshore wages more than make up for it.
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.
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 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.
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.
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."
> After five years, there can even be tax benefits to this kind of accounting.
without actually explaining what those benefits are. I'm genuinely curious why one would choose to amortize.
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?
That said, if he hadn’t he could have just kicked the can down the road.
It was a suckers bet for Biden to win, because any attempt to change this (and there wasn’t much) was going to get blocked. Just like Afghanistan.
Simple as that. It's just raising random taxes to balance the bill.
"OBBB signed: Reinstates immediate expensing for U.S.-based R&D", 300+ comments, https://news.ycombinator.com/item?id=44469124
I'm having a hard time seeing the issue with this.
How does this affect FAANGs?
For a small business this is astronomically harder than for Google.
This still effectively means the price difference between US and non-US software engineers (and ancillary, like data engineers) is increased by 1.04^15 (the risk-free interest rate on expenses, over 15 years). This works out to about US-based SWEs being about 33.5% cheaper. TLDR: this is not enough to prevent jobs moving to India. Or should I say, it means the US charges US companies per-employee income tax of 33.5% for every NON-US software engineer on top of their pay.
I simply can not accept this as the full story. Here is why:
Google is full of software engineers. If the effect on the bottom line was this big, they have the capacity (together with Oracle, Palantir, Meta depending on the administration) to simply change the government.
They would not have waited for the legislation "to fix it". It would have been changed immediately. Since they haven't done that, I am questioning whether this is the full story. Happy to be proven wrong.
avbanks•6mo ago
bsuvc•6mo ago
Is there someplace I can find information about how section 174 aligns with the frequency and size of layoffs?
adamors•6mo ago
enjo•6mo ago
sour-taste•6mo ago
spwa4•6mo ago
So in "a few years" (let's say 2-3 years) you'd be able to make between 5 and 10 years' worth of European net pay. If you don't raise your spending, that will easily cover your living expenses during the next recession, even if you spend all of it unemployed.
And that's if you start now. If you've been doing this for 10 years already ... wow.
yladiz•6mo ago
Besides that, if we assume AI will take many jobs in the coming years, what are you to do if you suddenly become unemployable with your current skill set and need to, for example, go back to school, or find an entry level job in another field with a potentially significantly lower salary? Live off of your savings?
root_axis•6mo ago
Why? A dozen different reasons. Of course LLMs are one facet, there's also the commodification of software and infrastructure which means buying something off the shelf is far cheaper than running an engineering org in-house, there's also the fact that the market is extremely oversaturated with software engineers with hundreds of thousands laid off over the last few years, then there's the aggregate effect of advancements in PL and software system design which makes it a lot easier to do more with less, the broader homogenization of runtime systems with modern browsers and mature cross-platform toolkits... and many many other factors. All these trends are converging on downward pressure for demand, and I personally don't see any reason why the trend will reverse.
crackrook•6mo ago
Izikiel43•6mo ago
A coincidental combination of economical conditions happened before the layoffs, and I know correlation doesn't imply causation, but these conditions look like a big cause:
* Companies hired like crazy in Covid * Section 174 got disabled * Interest rates rose
This made money much more expensive, and employees became a much higher cost due to the fact you hired like crazy, so you have a ton more, and you can't amortize them, also combined with fears of recession in 2023.
In a very short term, this cocktail of conditions made operating a company much more expensive, thus the layoffs and reorgs as an attempt to cut costs.
What you are saying is also true, but I see that taking effect over a longer period of time.
mont_tag•6mo ago
zahlman•6mo ago
ilinx•6mo ago
Izikiel43•6mo ago
Company A hires like crazy due to Covid, then everyone else does the same because they must be on to something!
I agree, I don't know why they expected covid conditions to be the new normal.
I think the only company who didn't get on the crazy hiring bandwagon was Apple.
culi•6mo ago
> The domestic research or experimental expenditures . . . otherwise taken into account as a deduction or charged to capital account under this chapter shall be reduced by the amount of the credit allowed under section 41(a). Read in conjunction with Section 41(d)(1)(A), discussed above, it seems that all taxpayers claiming a research tax credit will necessarily have costs which are treated under Section 174A and thus subject to the reduction specified under amended Section 280C(c)(1).
> To our knowledge, many taxpayers have interpreted this language to mean that there is a reduction under 280C(c)(1) only to the extent the research credit exceeds the amortization allowed under Section 174, generally 10% in the year the expense is incurred under the applicable half-year convention. In that case, there would typically be little or no reduction to deductions and capitalized amounts, and correspondingly no reason to elect a reduced credit in lieu of a nonexistent or minimal reduction.
https://www.morganlewis.com/pubs/2025/07/new-section-174a-re...
TL;DR: I don't think we're out of the woods yet
UncleMeat•6mo ago