> Maybe this is a dumb question, but if you only deduct part of their salary in the first year, what happens if you have a software developer for several years?

Not dumb at all! In the second year, you get to deduct ⅕th of the previous year’s salary and ⅕th of the current year’s salary; likewise, in the third year you get to deduct ⅕th of the first year’s salary, ⅕th of the second year’s salary and ⅕th of the third year’s salary.

The key thing is that in the fifth and following years, a business would deduct a fifth of each of the previous five year’s engineering payrolls. This is not great for a growing business, but it’s murder on a startup trying to grow from zero.

Thus firmly placing this in the regulatory capture category.

After five years you are back to the status quo. It is a short term problem, long term there is no difference between the two. It primarily hurts young companies that don't take VC money, and shortens the runway of those who do.

It is much worse for young companies for sure, but it’s not great for any company.

You’re forgoing returns on .1 * salary * tax rate for 5 years, .2 * salary * tax rate for 4 years… for every software dev in the company.

It also affects hiring growth because every net new dev starts a new 5-year runway.