How does that actually work? Most large companies open foreign subsidiaries owned by the parent, for example “Microsoft” will own “Microsoft Canada” and employees working in Canada work for “Microsoft Canada” and NOT the main “Microsoft” company.
The R&D done by Canadians is booked against Microsoft Canada, so in my mind the Canadian laws around R&D would apply and not the USA laws of 15 years old amortization?
It also classifies software development as R&D which together with immediate expensing for R&D undoes the Section 174 changes as far as I understand.
“For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure“
The TCJA (passed in 2017) already did that (effective 2022). So it sounds like this new bill is keeping that, but changing the deduction rules back to what they were before 2022.
See this previous discussion of the TCJA:
> all "software development" is now an R&E expense.
If correct, this is a good thing on a generally bad, overstuffed bill. Immediate expensing never should have been changed in the first place, and it was always weird seeing people twist themselves in knots defending it.
Maybe for every other item in the bill there is a another group of people out there who also think that "that is a good thing on a generally bad, overstuffed bill".
> Companies with capitalized domestic R&D expenses from 2022–2024 can elect a catch-up deduction, which could significantly improve cash flow for firms engaged in innovation.
The 2nd most annoying thing about section 174 was all the time you had to spend classifying each engineer's time spent as R&D or 'internal software'. At my last company, every year, me and my engineering lead counterparts would spent almost a day reviewing each engineer's JIRA tickets to reconstruct how much of their time was spent on R&D vs internal software.
As a small software business owner, I have to agree with Michele Hansen (who spent 2 years advocating on behalf of small software businesses for this very change): "we’re finally going to get Section 174 relief, and I couldn’t be angrier" https://www.linkedin.com/posts/mjwhansen_it-looks-like-were-...
Is the girl in the picture going to lose coverage? If yes, what part of the OBBB is going to remove her coverage? If not, then why go into all this detail about her if she's going to keep her coverage?
Meanwhile in one of the world's higest taxed welfare states, where you absolutely can deduct 100% of SW developer salaries I feel I've been taking crazy pills every time reading these threads. It's almost as if some folks in """Hacker""" News wanted this law to stay to further cement gigantic incumbents and make it impossible for bootstrapped companies to compete.
It's 35% of eligible spend on up to $3 million, and 15% above that (15% and 15% if the corporation is not Canadian). Further, most software development simply doesn't qualify-
The elimination of green energy incentives is going to have a big negative effect on the economy. Those billions of dollars not only were going to new businesses and jobs, but they were joined with loans from banks and commitments from customers with the expectation that the government would be funding the remainder. This means private industry and banks will be shouldering the loss of hundreds of billions of dollars, which, as any astute person should know by now, later gets shouldered by the average citizen in rate hikes, stock market plunges, increased inflation, etc. There goes your job and 401k and here comes more expensive products.
Aside from the direct negative effects: we lose even more to foreign countries who now have even more runway to gain expertise in green energy and sell to everyone else investing in it. Nobody but the 3rd world is increasing investments in coal/oil and there's no money we could make there anyway. So there goes any money we could've made on energy internationally.
Either this country is intentionally being tanked, or we're in the stupidest timeline.
I doubt if this will make much difference. Offshoring as a tactic emerged in the pandemic when companies realised that being “remote” works just as well.
Sure, foreign R&D still gets amortized over 15 years (NPV ≈59 % of a full write-off, so you “lose” ~8.6 % of your R&D spend in present-value terms, and only 6.7 % of the cost is deductible in year 1, creating a 19.6 % cash-tax gap).
But offshore wages are often 50–70 % below U.S. rates:
• Even after the slower amortization drag, hiring at half the cost nets you ~30 % total savings on R&D headcount.
• On a pure cash basis you only need ~20 % lower wages to break even; most offshore markets easily exceed that.
• So the labor-cost arbitrage far outweighs the tax timing penalty unless your foreign salaries are less than ~20 % below U.S. levels.
In short: the 15-year amort rule hurts your tax deduction, but 50 %+ lower offshore wages more than make up for it.
Not convinced. Offshore has been possible since forever. Maybe IC cam be remote now. Your team can be global. US lead, 2 India based devs, 2 brazil devs. But not having this wasn't a blocker for saving money.
10, 100 or 500 people team in India who could work in the office together was possible forever.
It will change. I think once other countries become bigger investment centres. Not sure how yet though. US is a good potting soil for a startup because there is this huge addressable and free market. And the startup ecosystem. Then add in that most startups want WFO and minimum synced time zones... and for larger tech all that specialism is in house in the US.
> Offshoring as a tactic emerged in the pandemic when companies realised that being “remote” works just as well.
I am confused by this comment. Offshoring IT work to India has been going on since the early 2000s. The established model at many non tech companies is a few people onshore talking with biz stakeholders, then directing offshore staff.
Won’t make much of a difference? To what?You’re only talking about whether to offshore or not. Not whether to HIRE or not.
Many companies simply won’t offshore core functions because doing product development on your core product with a team in a different time zone or from a very different culture often doesn’t work. But this will matter to companies that have laid off US engineers or avoided hiring and now won’t have that extra tax burden.
That (initially) $175 billion/year will pay for itself in forced labor. I think most countries with large-scale systems of concentration camps converged on that solution, when the costs of those systems ballooned into something unsustainable.
Modern China has that. Their system makes use of their (reportedly millions) of incarcerated Uyghurs as low-skill forced labor, mainly in textiles/clothes. Few talk about it, but a significant fraction of Western clothing comes out of these camps.
The 1940's Germans were efficient: in extremis, they realized you could optimize value from concentration camps by starving the workers to death, extracting value from the final months of their lives with minimal operating costs. That was "extermination through labor".
Hacker News, being what it is, will be most focused on the impact on their 401k's. Their grandchildren will read these comments.
Remember when we software engineers painfully learned to _not_ do massive releases with hundred of changes that are guaranteed to create bugs ?
Well, imagine if instead we were _incentivized_ to create lots of bugs in huge releases, because it helped us ship that one important feature that the PM wanted in the middle of the garbage - and also, that we were guaranteed never to have to debug the software ever, and god forbid, to use it ?
Could this transfer enough money to mint a person as the first trillionaire?
Econ 101: A government deficit increases the net financial worth of the private sector.
The US usually increases the net financial worth of the private sector by around $2tn per year, OBBB should move that to around $3tn per year (CBO estimate https://www.cbo.gov/publication/61486)
If you accumulate a dollar per second in net worth, then you become:
A millionaire in 11 days
A billionaire in 32 years
A trillionaire in 32,000 years
Obviously an indiscriminate increase in money without a corresponding increase in output will show up in inflation.
So it's a wealth transfer, from those whose financial affairs will remain comparatively static (your dollar will be worth less via inflation) to those who can capture the new money streams.
It was floated a few weeks ago they this tax break's disappearance was responsible for mass lay offs in tech.
Other theory were AI and interest rates.
I'm pretty sure next rounds of layoffs will have another "good reason".
Personally, I'm still partial to my pet and hard to document theory of "when headcounts go down, share prices go up - and past a certain size and age, the goal of a massive corporation is not to build things any more, but to pay for retirements through the resale / buybacks of shares"
But, hey, BBB is singed, so everything will be awesome soon, I suppose ?
There's something I didn't get about the discourse about this, maybe someone can explain. The tax change greatly affected small businesses/startups with unstable revenue, right? But companies like Amazon, Google, etc are much more established companies with diversivied, stable revenue and longer term planning I'd assume - so it doesn't seem like this should have affected them as much.
The popular story currently is that the massive layoffs were due to the tax/accounting change, but in that case why the big players like Amazon etc have so many layoffs? Or is that the popular story because, while Amazon etc are large, by total employee count most people are employed at smaller business that were more affected by this?
Or was the FAANG stuff actually AI after all? The tax change story sounds more plausible to me but I can't connect everything.
Is there a more bizarre legislative process anywhere in the world?
The US Congress is practically able to pass only a single giant bill every year. To work around its own deficit rules, these bills are packed with taxation time bombs where rules have expiration dates or delayed starts several years in the future.
Then, if Congress doesn’t get around to defusing its own time bombs, you get situations like this R&D expensing fiasco where American businesses and employees pay the price. Unless the bomb is hopefully retroactively cancelled, like happened now.
On top of this madness, there’s an executive branch operating like a runaway autocracy, producing a flood of executive orders that intentionally flaunt laws and even target specific private entities (e.g. Trump’s attacks on law firms that worked for his opponents, and universities he doesn’t like).
How long can a nation function like this? If the bond market loses faith in this process, there could be mayhem. Will be interesting to see if the passage of BBB impacts US debt when markets open again on Monday.
I'm not really that into US politics, but to me this bill seems like a gargantuan transfer of wealth to already wealthy people. How does this land with the people who voted for Trump outside of the traditional republicans? Can they finance it without raising the debt ceiling?
43 comments
[ 3.6 ms ] story [ 64.0 ms ] threadThe R&D done by Canadians is booked against Microsoft Canada, so in my mind the Canadian laws around R&D would apply and not the USA laws of 15 years old amortization?
Am I missing something?
“For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure“
Page 303 of bill here https://www.congress.gov/119/bills/hr1/BILLS-119hr1eas.pdf
Original article about Section 174 tax code causing layoffs
https://news.ycombinator.com/item?id=44180533
Post from @dang with more info about Section 174
https://news.ycombinator.com/item?id=44226145
The TCJA (passed in 2017) already did that (effective 2022). So it sounds like this new bill is keeping that, but changing the deduction rules back to what they were before 2022.
See this previous discussion of the TCJA:
> all "software development" is now an R&E expense.
https://news.ycombinator.com/item?id=34627712
(AIUI, "R&D" (research and development) and "R&E" (research and experimentation) are synonyms.)
This is indicative of ignorance. There is a reason why we have these rules.
> Companies with capitalized domestic R&D expenses from 2022–2024 can elect a catch-up deduction, which could significantly improve cash flow for firms engaged in innovation.
And just to clarify, that has been the MO any time I've been told to do this. If it's actually important they wouldn't want your numbers
https://www.canada.ca/en/revenue-agency/services/scientific-...
If you're making websites or doing Shopify integrations, etc, that doesn't actually qualify.
Something truly novel in AI or self driving or whatever -- sure.
Aside from the direct negative effects: we lose even more to foreign countries who now have even more runway to gain expertise in green energy and sell to everyone else investing in it. Nobody but the 3rd world is increasing investments in coal/oil and there's no money we could make there anyway. So there goes any money we could've made on energy internationally.
Either this country is intentionally being tanked, or we're in the stupidest timeline.
Sure, foreign R&D still gets amortized over 15 years (NPV ≈59 % of a full write-off, so you “lose” ~8.6 % of your R&D spend in present-value terms, and only 6.7 % of the cost is deductible in year 1, creating a 19.6 % cash-tax gap). But offshore wages are often 50–70 % below U.S. rates:
• Even after the slower amortization drag, hiring at half the cost nets you ~30 % total savings on R&D headcount.
• On a pure cash basis you only need ~20 % lower wages to break even; most offshore markets easily exceed that.
• So the labor-cost arbitrage far outweighs the tax timing penalty unless your foreign salaries are less than ~20 % below U.S. levels.
In short: the 15-year amort rule hurts your tax deduction, but 50 %+ lower offshore wages more than make up for it.
Offshoring is far older than the pandemic.
10, 100 or 500 people team in India who could work in the office together was possible forever.
It will change. I think once other countries become bigger investment centres. Not sure how yet though. US is a good potting soil for a startup because there is this huge addressable and free market. And the startup ecosystem. Then add in that most startups want WFO and minimum synced time zones... and for larger tech all that specialism is in house in the US.
Many companies simply won’t offshore core functions because doing product development on your core product with a team in a different time zone or from a very different culture often doesn’t work. But this will matter to companies that have laid off US engineers or avoided hiring and now won’t have that extra tax burden.
Also, ICE has a bigger budget now than most of the world's militaries[1]. But let's not talk about that.
[1]: https://www.newsweek.com/immigration-ice-bill-trump-2093456
Modern China has that. Their system makes use of their (reportedly millions) of incarcerated Uyghurs as low-skill forced labor, mainly in textiles/clothes. Few talk about it, but a significant fraction of Western clothing comes out of these camps.
The 1940's Germans were efficient: in extremis, they realized you could optimize value from concentration camps by starving the workers to death, extracting value from the final months of their lives with minimal operating costs. That was "extermination through labor".
Hacker News, being what it is, will be most focused on the impact on their 401k's. Their grandchildren will read these comments.
Well, imagine if instead we were _incentivized_ to create lots of bugs in huge releases, because it helped us ship that one important feature that the PM wanted in the middle of the garbage - and also, that we were guaranteed never to have to debug the software ever, and god forbid, to use it ?
Econ 101: A government deficit increases the net financial worth of the private sector.
The US usually increases the net financial worth of the private sector by around $2tn per year, OBBB should move that to around $3tn per year (CBO estimate https://www.cbo.gov/publication/61486)
If you accumulate a dollar per second in net worth, then you become:
Obviously an indiscriminate increase in money without a corresponding increase in output will show up in inflation.So it's a wealth transfer, from those whose financial affairs will remain comparatively static (your dollar will be worth less via inflation) to those who can capture the new money streams.
Other theory were AI and interest rates.
I'm pretty sure next rounds of layoffs will have another "good reason".
Personally, I'm still partial to my pet and hard to document theory of "when headcounts go down, share prices go up - and past a certain size and age, the goal of a massive corporation is not to build things any more, but to pay for retirements through the resale / buybacks of shares"
But, hey, BBB is singed, so everything will be awesome soon, I suppose ?
The popular story currently is that the massive layoffs were due to the tax/accounting change, but in that case why the big players like Amazon etc have so many layoffs? Or is that the popular story because, while Amazon etc are large, by total employee count most people are employed at smaller business that were more affected by this?
Or was the FAANG stuff actually AI after all? The tax change story sounds more plausible to me but I can't connect everything.
The US Congress is practically able to pass only a single giant bill every year. To work around its own deficit rules, these bills are packed with taxation time bombs where rules have expiration dates or delayed starts several years in the future.
Then, if Congress doesn’t get around to defusing its own time bombs, you get situations like this R&D expensing fiasco where American businesses and employees pay the price. Unless the bomb is hopefully retroactively cancelled, like happened now.
On top of this madness, there’s an executive branch operating like a runaway autocracy, producing a flood of executive orders that intentionally flaunt laws and even target specific private entities (e.g. Trump’s attacks on law firms that worked for his opponents, and universities he doesn’t like).
How long can a nation function like this? If the bond market loses faith in this process, there could be mayhem. Will be interesting to see if the passage of BBB impacts US debt when markets open again on Monday.