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.
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.
Equal to what?
Trump himself admitted it's better for Republicans when fewer people vote.
https://www.brennancenter.org/our-work/analysis-opinion/how-...
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.
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).
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] https://da.lib.kobe-u.ac.jp/da/kernel/90008864/90008864.pdf
[2] https://electionlab.mit.edu/articles/gerrymandering-turnout-...
[3] https://stateline.org/2022/05/20/check-your-polling-place-re...
https://www.brennancenter.org/our-work/analysis-opinion/how-...
We all know which party is fighting tooth and nail against that on practically every issue that affects it.
My prior is based on experience. Most of the civilian govies are centrist, "I just want to grill" types.
Elections are run by Republicans as well as Democrats. In fact several of the key locations that Trump claimed were stealing the election from him were basically locations where the Republican party had a lock on the administration of the election. As I remind people often, when they talk about someone stealing the election, that's not a hypothetical "someone," that's Betty three houses down that has the nice flower garden and organizes the bake sale at church every month.
Second, your solution was in place in the 1800s and was referred to as the spoils system. It led to bad outcomes and was rightfully abandoned. Your beef is with the fact that educated people tend to choose policies that you don't like (assuming your 90/10 split, which is still wild). You/the GOP have three options. First is to recognize that the policies pursued do not attract people which education (which I consider a red flag). Second is to re-adopt the spoils system despite it being illegal, and frankly just sort of dumb since when the other side is in power you suffee, but at least then you never need to think deeply about making policy for the whole country instead of a subset of supporters. Third, you/the GOP self-own via tearing up all the intellectual capital and international good will built up over the decades without a replacement, massively reducing American influence on the world in all dimensions.
How? Evenly divided voters and representatives are the issue. Each side can barely afford to lose 10% or so during votes
The issue being discussed in the Senate is not a symmetric issue resulting from near balance in support between the parties.
If it doesn’t change, I suspect the party will split.
Since technology has empowered centralized power while providing the tools easily repurposed to poison democracy, I suspect that democracy as we understand it will fail to compete with data driven central planning.
So maybe the question we should be asking is what flavor of total surveillance and centralized control do we want to live under?
https://en.wikipedia.org/wiki/Filibuster_in_the_United_State...
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?
In other words, they have a popular agenda, but are political morons that are going to eventually wonder why they can’t break out of solidly blue districts.
There is nothing against the group you mention except that it might be the group that most fights against progress toward equality.
That just means that the marginalized become an anchor preventing progress. We can’t have nice things until we solve the problems of the bottom quantile—which we never will.
If progressives had been in charge, America and everything it created wouldn’t exist. They never would have allowed us to displace the Indian tribes so the land could be put to better use.
Was the end of slavery a progressive or regressive move?
And that’s the difference. Progressives view it as important that we progress all groups and that challenge is fundamental to society, whereas you view them as an anchor.
Therefore, even by your own admission, this isn't progressive policy.
It's a 10% tax cut for big corporate America, with some economic poison for blue states in the future.
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).
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.
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.
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.
Why?
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.
Are there any parties running in a track record of functional government?
So by your logic New York is a better governed state than Florida? Net internal migration would seem to disagree.
I'm surprised that things like the job market wouldn't come into play, for example.
> A focus on good schools, low crime, and low taxes, instead of a focus on economic redistribution.
That's also interesting. I wouldn't have rolled that up to quality of governance, but I could see why you would. To me that falls more into a sign of long standing culture, I could see a place with existing policies that match now having a terrible administration in charge.
I was just giving an example—people moving within the U.S. make the same choice. When I was growing up, Virginia was like Florida is today: a red state with a booming economy, low taxes, and a good business climate. Why did AOL start in the farmland of Loudon County instead of the farmland of eastern PG County (which is closer to DC)?
> That's also interesting. I wouldn't have rolled that up to quality of governance, but I could see why you would.
It’s a cultural trait that strongly affects governance. The government can focus its energies on making things better for middle class people and businesses, as Virginia long did, or it can focus on poor people and minorities, as Maryland long did. And the resulting differences in governance are quite apparent. Virginia has better schools, ore employment, and has grown faster than Maryland over the last 50 years.
Maryland is a deep-blue state. Virginia is about as red as Pennsylvania.
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.
Yes, and it's not even close. Choose just about any metric and NY is running laps around Florida.
And, not just Florida, but red states in general. If you look at the metrics, they typically are some of the poorest states with the worst outcomes. Bad infrastructure, bad education, not a lot of job opportunities, horribly impoverished, under-developed.
It's just that nobody cares. Nobody expects Louisiana or Florida to be decent places to live. But since California is the economic powerhouse of the US, people do expect it to be decent. That's the issue, the blue states are essentially carrying the economy of everything else on their back, so they now get a new, unfair set of standards.
There's some exceptions here, mainly Texas.
What about Detroit?
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.
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?
Heck, they ignored the water crisis for twenty years, and what they’re doing now for aquifer replenishment is still less than what makes sense.
I say they are easily addressed because simply reverting to California’s policies from ~ 1975 would greatly improve the current situation.
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.
In 2024 two bills (merged later) went through the Republican controlled House with a bipartisan vote (350+ for) [1] then the Democrat controlled Senate [2] with another bipartisan vote (79-18, attached to an Israeli funding bill) basically following whatTrump wanted.
Late 2024 - Trump then offered to save the service when the Public turned against the ban and used it as a campaign item.
2025 - His supporters were all over Tiktok praising him, including the CEO of Tiktok when he put a pause on the required sale. He's also extended the deadline multiple times now.
----------------------------
Republicans might start using this tactic more now that it's been shown to work. It's similar to the "Fuck the next admin" tax bill that he put in his first term.
[1] https://www.reuters.com/technology/us-house-vote-force-byted... [2] https://apnews.com/article/tiktok-ban-congress-bill-1c48466d...
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%
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.
I couldn't get inside their head to say why. My read on them is largely that the complaints are legitimate frustrations though. This isn't exactly a part of the country where voters are somewhat evenly split and Trump supports would need to save face or smooth over interpersonal friction by giving a nod to the idea that he may not deliver.
I based my argument on the poll averages as shown below, most are high 40s similar to the past few months. I would think if people were upset about missed promises it would be reflected in these. It's been ~5 months.
You might say people are giving him a chance to implement a plan or that some action would take time therefore they are willing to give a thumbs up for now, hence the polls. The reason I discounted this is because I'm not aware of any plan or current actions by Trump that would reduce prices. The trade wars will either increase prices due to tariffs or increase prices if products are made in the US.*1
I believe you but maybe float a question to your neighbors - "If prices don't come down would you vote Democrat in 2027?"
https://www.realclearpolling.com/polls/approval/donald-trump...
> I believe you but maybe float a question to your neighbors - "If prices don't come down would you vote Democrat in 2027?"
The fact that you're assuming people should align with one party or the other is the problem.
Who gives a shit what letter is next to a candidates name? What matters is what the candidate stands for, what matters to them, and whether you believe they'll stuck to their guns when the political machine that is DC fights back.
Trump is blaming Biden for the obvious outcome of Trump's tarrif nonsense. What do you think Trump would have done?
How often do you hear any one politician claim the glory of a situation that they had nothing to do with? And when was the last time you actually heard a politician own their failing or apologize?
I don't think this is a reasonable or informed take. It's quite obvious that the tarrif lunacy is single handedly causing an economic downturn. Trump himself has downplayed the relevance of this downturn with inane comments over how tarrifs would also be painful to the US economy. If you see a politician like Trump claiming both that tarrifs will be painful to the US and that the economic pain caused by Trump's tarrifs is blamed on whoever was there before him, you need to be massively disingenuous or naive to claim that "politicians always blame both sides". There is nothing normal about Trump's actions.
If you'd like to say my claim is uninformed that's fine, but I ask again for examples when a politician directly owned their failure or apologized for it.
That's the problem with your false dichotomy: Trump already admitted tarrifs create economic problems.
https://fortune.com/2025/02/02/trump-tariffs-americans-some-...
Trump blaming predecessors for the problems created by his tarrifs policy goes way beyond your run-of-the-mill predecessor blaming. Trump is simultaneously warning his tarrifs policy will cause economic damage and that the economic damage created by his policies were caused by someone else.
> “WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!),” Trump said in a social media post. “BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID.”
That doesn't read to me as Trump claiming responsibility for any pain that we might see, and it isn't an apology. Even better, he ultimately doubles down on the tariffs and claims the end result will be worth any of the pain that he doesn't directly acknowledge he will have caused.
I'm not saying it's the actual story, but the timeline does track.
[0] Page 60, Sec 1306(e) sets the date: https://www.congress.gov/115/bills/hr1/BILLS-115hr1enr.pdf
My argument is simple: Occam’s Razor
The Republicans in congress put the provision in solely as a gimmick to get past the CBO.
Frankly I don’t think legislators in either party are competent enough to have foreseen the consequences and even if they had been they wouldn’t 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 it’s fashionable to hate people who differ with one’s political opinions.
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.
Get a better accountant.
Brainwashing.
You know it's completely possible that people have a different outlook or opinion or perspective on things and that is why they disagree with you, not necessarily a lack of education?
Some people think these are good ideas and they vote or welcome them. Some people think they are bad ideas and they vote or oppose them.
I am saying if you can convince enough other people that this makes sense you can effect change. And im wishing you good luck with that.
I’m directly responding to your point. Ideological education is brainwashing. In fact “brainwashing” is usually just another way of saying “an ideological education I disagree with”, also known as “indoctrination”.
I'm saying flowers smell good.
You are saying flowers smell bad because of that one flower that smells bad.
The distinction is small but important, since the latter conclusion doesn’t make any judgements about people with a legitimate minority opinion.
However, whether it is right or wrong, valid or invalid, is an ideological argument. Schools should simply teach that it occurs in humans, and leave the question of whether to accept or reject it to parents (there are plenty of other natural behaviours many of us reject on ideological grounds, polygamy for instance). There are countless other examples where ideology is taught as curriculum.
Homosexuality being normal and valid is not an ideology, it's accepted scientific truth. Being against it is an ideology.
You are saying "countless ideological worldviews" are being taught, but I'm struggling to come up with even one, and my wife is a teacher
So, what is a view you personally do hold, to defend your viewpoint so firmly?
And then it suddenly was an actual tax change.
Like so many Trump actions: "oops".
It's completely unimportant. Nobody is getting fooled "on paper" by amortized salaries.
I’ve seen it used in UK listed companies to massage the profit numbers and make divisions of the company seem more profitable than they are
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 doing the financial reporting 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).
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.
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 doesn’t mean you actually know about the scale. And there’s every reason to believe it’s quite extensive given how easily money flows from corrupt countries through USD and US persons and companies (eg the major bank that’s constantly getting fined for laundering terrorist and drug cartel money - either they’re the only ones and they’re making a killing providing this service anyway or they’re the only ones anyone is bothering to investigate, but that business is clearly lucrative to continue to engage in).
As you state, the size of the iceberg cannot be understood by what we can easially observe. While there is corruption in the US, it isn't really much worse than other places that are not known for corruption - though understand that the US has a lot higher population and so it might seem that way. (though often those other places are just hiding truth)
And I don’t know how small you think the list is, but I suspect it’s quite small because whether you get prosecuted from some corrupt act is pretty random since someone has to notice the corruption and try to investigate. Additionally the recent moves by SCOTUS is to significantly raise the bar for prosecuting corruption. So however you think America is fairing compared to other countries, I’d say America today is allowing once more, more institutionalized corruption than it had in the second half of the 20th century (and America’s history is filled with top-to-bottom corruption).
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.
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.
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.
How is that corruption?
A good definition from AI "Is when government officials misuse their power for personal gain or to benefit their friends or associates"
See for example Trump’s 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 he’s in office; having the Secret Service stay at his resorts when he goes golfing; scamming the public with his family’s meme coins; etc)
Are you living in an alternate world?
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.
This is not slightly behind Western Europe. This is miles behind any developed country. China may be corrupt, but Xi Jinping hasn’t yet sold beans or cars via press conference.
It's not perfect, but you could do so, so much worse.
Being better than others really isn't the only thing that matters.
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 that’s just the beginning.
https://en.wikipedia.org/wiki/Corruption_Perceptions_Index#2...
This hurts small companies (like mine) that were priced out of the US developer market.
I'm curious if contract work is really exempt, would look like a major loophole to me.
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.
I can’t believe this still exists, and no one has changed it. We truly are governed by morons
this was done to fuel their tax cuts to a small group of a certain people.
you can see all of the sponsors here: https://www.congress.gov/bill/115th-congress/house-bill/1/co...
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".
You’re operating cashflow decides the health of your business, not your accounting profits, not anything else.
Only the operating cashflow and whether that grows as your startup/business grows decides whether your business lives or dies, everything else is for investors, mommy and daddy for final report card.
A business operator’s #1 focus is Operating Cashflow and this tax insanity law hurts cashflow tremendously for american service businesses who need to compete with all other major economies who dont have such an insane law.
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.
When I got to bed, my heart was beating so hard that it kept my wife awake.
https://www.congress.gov/bill/115th-congress/house-bill/1/co...
https://www.congress.gov/bill/115th-congress/house-bill/1/co...
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.
https://www.congress.gov/congressional-report/115th-congress...
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.
It's a specific tax, on a particular class of better educated workers in specific jobs.
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.
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 (you’d have fewer billionaires), but there would also have been a lot less wealth to go around, even for the working class
Yikes. Does that apply to outsourcing?
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.
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 https://www.irs.gov/pub/irs-drop/n-23-63.pdf. 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).
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.
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.
How so? You can't sign away your interest in a copywrighted 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.
Does authorship confer usage rights?
For many open source projects, there is a CLA (contributor license agreement) that must be signed before contributions can be accepted. The Free Software Foundation (which holds the copyright for most/all? GNU tools) is pretty in/famous for requiring it. Their reasoning: If there are copyright violations, they have the time and financial resources to pursue the violators.
Are you saying that these CLAs and their intended purpose are invalid in some jurisdictions? If yes, please share some examples. To be clear: I'm only interested in "normal/regular" jurisdictions that have at least accepted the Berne Convention.
Should every other member of that set, i.e. everyone minus contributor, also amortize their software development expenses because they have a hypothetical, non-exercised right to use some (i.e. all) open-source "R&D" software... somewhere? Or should the tax liability be invoked starting on the date of first use of any open-source code?
If some code is upstreamed to Linux kernel or userspace, should this obligate every Linux distro consumer to amortize their Linux software development expenses?
There must be _some_ legal boundary for dispersal of the tax obligation with respect to open-source code, since it self-evidently cannot be intended to apply to the entire universe of businesses and union of all OSS development. If necessary, a court case can establish this distinction.
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.
Or have your shell company operating out of any other country.
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?
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?
https://www.igalia.com/ https://github.com/fossjobs/fossjobs/wiki/resources
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.
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.
I'm surprised if so, because usually these sorts of licenses only apply if you're redistributing the code, not if you're just using it privately.
The problem goes with the license, not with the OS.
It makes software temporarily 16.7% more expensive in year one if you’re 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%.
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 you’re 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.
Because generating an asset IE software isn’t a pure loss that’s why you’re 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 there 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 don’t fall under that category.
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.
So you have no idea what that phrase means. If you don’t think code is an asset don’t write it.
O wait obviously that’s not what code is a liability means. Code is a liability in the same way roads or buildings are a liability, they incur an ongoing cost, but removing the US highway system would be just as idiotic as a startup deleting their source repository from a misunderstood idea.
More importantly valueless code stops being a liability because you can abandon it. Calling it a liability implies it has value.
I love this example! It perfectly illustrates a case where the government intentionally subsidizes a liability that no sane company would take on without government funding. Well said.
So we're agreed that the government should incentivize R&D with a favorable tax code that makes it not completely insane to take on the risk of doing something new.
LOL, try again liabilities like buildings don’t need incentives. Software that is only barely worth maintaining isn’t worth subsidizing, highly valuable software needs no incentives.
If anything you’re making a solid argument government should discourage the creation of software so only the most valuable software is created and maintained. Except the optimum economic efficiency as so often happens occurs without government incentives.
This is kind of missing the issue though.
Suppose you pay a million dollars this year to develop something that will also cost a million dollars a year to maintain, but is worth over a million dollars a year, so you do it anyway.
So this year you spend a million dollars, make $1.1M, have a profit of $100k. Next year you'll spend a million dollars, make $1.1M, have a profit of $100k. But if you don't do the maintenance, it ceases to comply with changing regulatory requirements and not only has to be shut down but causes you to incur criminal penalties, or develops public security vulnerabilities and then criminals break in and destroy your business and cause you to be sued into bankruptcy by your customers.
In other words, the code creates an obligation that offsets the value of the asset. These two things can easily cancel out so that the total value is ~0 -- or even negative in ways that don't allow you to walk away, e.g. because you entered into a contract to supply this thing for a defined price but underestimated the maintenance cost.
But now the government is telling you that you have something worth most of a million dollars even though it's not worth a dime without putting another million dollars into it -- and even then it still wouldn't be worth two million dollars.
The reason you continue to do it is that the continued development made you $100k this year, not because what you had left at the end of the year that would be worth something without further investment.
The problem here is that the losses are often in time or future liabilities but the government expects to be paid in cash. Your developers were mostly working for stock options or some other deferred compensation, which may cost you tomorrow but tomorrow you'll have more revenue. Where are you getting the cash to pay the government right now?
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.
It's possible for two things to be true at once. The new rules can be moderately bad for big companies and cause them to do layoffs and also cause them to be catastrophically bad for startups, giving incumbent big tech companies another relative advantage over them.
This is also ignoring the short-term vs. long-term effects. In the first year the incumbent companies are in the same boat as the new ones because they already deducted all their R&D expenses from the previous year when they were still allowed to, so they get a minimal deduction this year and have no advantage. But five years from now, they'll have five years worth of R&D they're still amortizing -- notably, this means the government is no longer getting more revenue from them in the current year than they would otherwise, since their average R&D expense and their average amortized deduction are now equal -- whereas the startup has no historical R&D to deduct and is put at a disadvantage.
That’s how it works for every business! If Jim Bean builds a distillation facility it has to amortize the investment in that over time. If the distillation facility doesn’t pan out, then it doesn’t get a refund for the taxes paid.
The people this tax code change hurts are those doing basic research. In the context of semiconductors, that would be a company like ASML (except they are Dutch, so they can happily continue their research practices) who took a decades-long bet to build their EUV steppers.
In the case of basic research, one could be spending millions of dollars on hardware prototypes when you know it can't produce any salable product. There's no upside profit to amortize expenses against: it's like building a distillery that you know can't produce a single drop of salable bourbon because you're working out a radical new distillation technique.
In summary: in basic hardware research, one could be spending millions of dollars to put a whole system together just so you can learn how it fails. It's a true "expense", with no path to amortization.
Now, in addition to making the right technical decisions, the tax law changes force the R&D teams to also consider how to amortize their experiments over many years. You now have have pressure from management to do things like stage prototypes and expenses in the right tax year so the company can continue to show a profit for the shareholders. You could argue that the lessons learned are perhaps IP that have "goodwill" value, but now you're opening a can of worms trying to price a fair market value on a negative result, and you're now having senior research staff spend more time arguing with accountants than directing research. You also have to get to that negative result within a tax year - which effectively penalizes any research project that takes more than 12 months to complete.
Same-year 100% deduction of R&D expenses is simple and it reflects the actual nature of basic research risk. Yes, it allows companies to convert short-term windfalls into long-term research gains by converting taxable profits into research projects, but I'd argue that's not actually a bad social policy.
I think US is probably unique among developed nations in having a tax code that punishes basic research; other countries at least allow it to be deducted. Some even allow super-deductions (e.g. you can deduct $2 for every $1 of R&D expense) or the research is explicitly subsidized through grants.
The argument for special treatment of research is that pioneers put their careers on the line to discover new things, so the rest of us can live in risk-free comfort; so, as a collective we give them some reward for taking that risk.
I suppose the counter-argument is that research incentives and subsidies are socialist "market manipulation" and violate the "free market" principle, and thus America is justified in sanctioning and trade warring with the rest of the world that is socializing basic research costs. That's an opinion one is entitled to hold, but we'll have to agree to disagree on that opinion.
But if a company starts extracting oil from a field they have to pay heavy taxes on that oil.
[1]: https://www.offshorenorge.no/om-oss/nyheter/2019/01/leterefu...
> Both TSMC and Jim Beam already have to amortize their production equipment over several years. I'm not arguing that this should be changed. This is because the primary risk taken in a distillery build-out or a fab build-out is if there is market demand for a known product. It's primarily a *business* risk, not a *research* risk.
In general, costs for running a business (buying inventory) are immediately deductible, while establishing new business (building factories) has to be amortized, since the factory can be used for several years.
In software, the line is a bit more blurry - coding creates new IP (research), but is also required to keep many software companies running (maintenance) by e.g. fixing bugs and updating infrastructure. Here, the IRS has decided that all software development counts as research.
This would kinda make sense if you could hire programmers for a single year to develop software, fire them and then sell the software for 5 years, but I think that's rarely the case.
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.
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.
Sure, for heavily capitalized startups that are losing money, the rule change is not an issue. But for companies that manage to get to profitable status soon, even if it is only a small profit, the rule change can be devastating. A quick search for past HN articles about this will provide lots of example links to follow.
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.
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).
Simplified 2021 example before 174:
100k Revenue
100k Software Dev Costs
No profit or tax
100k Revenue
100k Software Dev Costs
90k "profit"
18.9k taxes
Accountants: If I am wrong about the above, please correct me
This is reductive and frankly stupid.
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!
lots of retaurants went out of business overnight.
However, there are many benefits overall. For one, it completely kills off the various convoluted schemes to avoid classifying something that is obviously a profit as such (by shuffling things around subsidiaries etc, for example). See also: Hollywood accounting.
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.
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.
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.
In another year the initial shock will stabilize, but any growth now has a 5-year tax hit attached. And even Facebook doesn’t want to pay that if it doesn’t have to.
- I read once, although I have no idea how accurate this is, that a company could classify maintenance expenses (i.e., paying SREs and some SWEs to keep the service running and fix bugs) as non-R&D and therefore be able to amortize. That's another advantage to mature services over new services.
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, that’s $40,000 in taxes, for a business that made literally no money.
That’s why this is so devastating to small software businesses; unless you’re highly profitable and have cash reserves, this change hits hard.
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.
Which is what's happening.
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.
It makes it substantially more cashflow intensive to build a new software business, which entrenches incumbents and reduces competition. It favors companies who have the cash to wait for the full 5-year depreciation cycle, i.e. the opposite of most bootstrapped startups.
Quick example:
$10,000 revenue
$8,000 paid to software developer
$1,000 paid to AWS
leaves $1000 in profit.
You received $10,000 into your business account, but spent 8000+1000 = $9000. Your business account has a balance of $1000 at the end of the year.
Section 174 means you can only deduct 1/10th of the $8000 in the first year, $800. Your total deductible business expenses for the year will be 800+1000 = $1800.
Your taxable profit for the year is 10000-1800 = $8,200. If your effective tax rate is 25% (generously low), you owe $2,050 in taxes.
You pay your $2,050 tax payment and your business account is overdrafted by $1,050. You need to add $1,050 from your personal funds to the business to cover the shortfall.
Your business was cash flow negative for the year. This makes it extremely difficult to bootstrap a software company.
If you give the company more money to use to cover its tax bill, then that further increases the company’s taxable income.
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.
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)
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.
Revenue: $200,000 Expenses: -$200,000 Assets: $200,000
Net income: $200,000
You’re allowed to say ‘ah, but over the year the value of that $200,000 asset actually fell by 1/5’:
Asset depreciation: -$40,000
So your net income is now $160,000
You owe taxes on that income.
How does it work when a company uses salaried employees to build a structure. Are the salaried employees not deductible at all?
https://www.irs.gov/pub/irs-drop/n-23-63.pdf
To answer your question, the following are software development activities that are capitalizable (and instead of quoting the notice itself, I’m quoting from a better written blog post by accountants:
https://www.cohnreznick.com/insights/additional-guidance-irs...
> Section 4.03(1) of the Notice clarifies that labor costs – including those for contract employees and independent contractors – related to those who perform, supervise, or directly support SRE activities are considered Section 174 expenditures. All elements of compensation are to be included with the exception of severance, which is excludable and deducted by taxpayers in the period paid or incurred. SRE-related labor costs expenses included in the Notice expenses related to pension costs and stock-based compensation.
Section 4.03(1)(e) provides guidance pertaining to certain costs related to operation and management (i.e., rent, utilities, etc.) activities. Specifically, in addition to items such as rent, utilities, and insurance, expenditures such as taxes (i.e., property), repairs and maintenance, and security are now considered SREs subject to Section 174.
So what software development activities don’t count as “Specified Research Expenditures” (SRE)”?
> Training of employees in the use of the software
>Maintenance activities after the software is placed into service that do not constitute upgrades or enhancements (i.e., corrective maintenance to debug, diagnose, and fix programming errors)
> Data conversion activities (except activities to develop computer software that facilitates access to existing data or data conversion)
> Installation and other activities related to placing the software into service
> Marketing and promotional activities
> Distribution activities
> Customer support
If you’re a startup and you have a software developer doing the above activities as well as SRE work, then in order to expense the SRE parts of their job you either have to estimate (and be able to defend) the estimations, or your employee needs to track their time for each type of activity they do.
Edit : sorry I just realised you meant the tax law is short. The article itself is very annoyingly written
The change is very simple. And the predictable impact of the change is very clear.
It shouldn’t impact large companies that are already profitable. But it’s devastating for software companies that are not profitable yet.
And that’s without even getting into the philosophical issues with it.
Software firms across US facing tax bills that threaten survival (924 points, 981 comments) April 18, 2023 https://news.ycombinator.com/item?id=35614313
Ask HN: How are you handling Section 174 changes for bootstrapped companies? (298 points, 187 comments) Feb 2, 2023 https://news.ycombinator.com/item?id=34627712
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.
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.
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.
If these companies don't know about this change, then why would we believe this change is causing it.
Not "anyone". Anyone in America.
E.g. If a whiskey maker pays to build a distillation system, it can’t deduct that cost immediately. Because that’s a capital asset that generates recurring revenue. Software is properly treated the same way.
Further, software is the only type of R&D explicitly called out as required to count as R&D. Which means it should be taken as a given that most other industries are finding ways to count their R&D as anything else, while we've been intentionally given the short straw for some reason by having our specific field be the only one identified by name so as to leave no wiggle room. I'd say that definitely counts as being a special case. The section is even labeled "Special Rules".
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).
[0] https://www.law.cornell.edu/uscode/text/26/174