IMO the effects of Section 174 are way overstated. Time will tell, but my bet is that the market for software engineers continues to decline indefinitely. Maybe super low interest rates could mitigate the trend but other than that we're probably not going back to the days of high demand software engineering roles.

Why? A dozen different reasons. Of course LLMs are one facet, there's also the commodification of software and infrastructure which means buying something off the shelf is far cheaper than running an engineering org in-house, there's also the fact that the market is extremely oversaturated with software engineers with hundreds of thousands laid off over the last few years, then there's the aggregate effect of advancements in PL and software system design which makes it a lot easier to do more with less, the broader homogenization of runtime systems with modern browsers and mature cross-platform toolkits... and many many other factors. All these trends are converging on downward pressure for demand, and I personally don't see any reason why the trend will reverse.

Layoffs were a reaction from capital against labor gains.

I feel like we'll get a good feel for this if hiring domestic engineers picks back up without an influx of foreign folks who are not receiving the positive tax treatment.

It seems like this reversion is being paired with changes to 41(d)(1)(A) and 280C(c)(1)

> The domestic research or experimental expenditures . . . otherwise taken into account as a deduction or charged to capital account under this chapter shall be reduced by the amount of the credit allowed under section 41(a). Read in conjunction with Section 41(d)(1)(A), discussed above, it seems that all taxpayers claiming a research tax credit will necessarily have costs which are treated under Section 174A and thus subject to the reduction specified under amended Section 280C(c)(1).

> To our knowledge, many taxpayers have interpreted this language to mean that there is a reduction under 280C(c)(1) only to the extent the research credit exceeds the amortization allowed under Section 174, generally 10% in the year the expense is incurred under the applicable half-year convention. In that case, there would typically be little or no reduction to deductions and capitalized amounts, and correspondingly no reason to elect a reduced credit in lieu of a nonexistent or minimal reduction.

https://www.morganlewis.com/pubs/2025/07/new-section-174a-re...

TL;DR: I don't think we're out of the woods yet

If you think layoffs were bad the last few years then just wait until the costs for all the ai hardware, massively overpriced talent, and acquisitions hit the books for these companies. It's going to be a bloodbath.

Interesting.

Is there someplace I can find information about how section 174 aligns with the frequency and size of layoffs?