alt Hacker NewsOBBB signed: Reinstates immediate expensing for U.S.-based R&D
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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.
Looks like prior years can be caught up with:
> 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.
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.
So this is going to get all those jobs back that people have been layed off for right? Right?
So US will continue subsidizing its R&D while complaining the rest of the world is doing so? What changed then?
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.
I think we will see this lead to a boost in software developer employment.
Looking through the latest 'Who's Hiring' thread last week, I noticed that a higher percentage of the remote jobs seemed to specify Remote (US). Could one of the causes of that, have been employers reading ahead and making decisions on the basis that this bill might be passed? Or is there some other reason? Or is it just a case where it fluctuates randomly from month to month, and I am trying to read pattern into random noise?
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-...
Meanwhile, in Canada, not only can you expense R&D, but there is a cashable tax refund that will give you back about 60% of your developers’ salaries…
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 ?
This bill is so random. The poker world is going doom and gloom when BBB limits the amount of gambling loss deductibles to 90% of gambling wins.
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.
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
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.
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.
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.
This was the expense that was removed in the first Trump tax bill. Amazing how it takes another super tax bill just to get it through
May be a Naive Question: Has there ever been a time, where Tech or Software companies have to pay tax even when they are un-profitable. And if not, given the historic low interest rate, why not borrow and continue to grow until the company can no longer manage to spend all your debt? Correct me if I am wrong I think that used to be the playbook for Amazon.
There are companies which I dont understand why they are keeping all the profits and not reinvesting for R&D or other purposes. I must be missing an angle on this. Apart from investors, what else would it be?
Thank jeebus.
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?
Oh, goody!
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
Actual title is "House Passes Tax Bill Sending to President for Signature – Details Inside".
Humans play games to learn, the more AI do the same the better they will get
I believe the impact of Section 174 has been vastly overstated, sadly we will soon observe this to be the case.
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“
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