8 ms·

Will US companies hire fewer engineers due to Section 174?

67 points by obiefernandez 3y ago

happytiger 3y ago
Obviously. This is a regressive tax (meaning it targets a larger percentage of income from lower-income groups than from high-income groups, as in employees not owners of equity) that should be repealed as it directly makes American companies uncompetitive and is against the Interest of everyday people. You should have incentives to take the risk of starting a company and employing engineers / people not disincentives. Small businesses are the majority of jobs and this is directly impacting their ability to put money in people’s pockets and the number of jobs available.
- JamesBarney 3y ago
  I don't think it's regressive the average engineers makes far more than the average person. But it is a terrible idea because it strangles new technology companies which hurt growth in the long term.
  - happytiger 3y ago
    Compare the average engineer to ownership and executive compensation and salaries my friend. Just because many engineers make more than average wages doesn’t mean they are compensated like owners and other senior level compensation packages… there is a massive gap. Just look at the compensation gap between CEOs and software engineers: https://www.dice.com/career-advice/income-gap-tech-ceos-software-engineers https://www.dice.com/career-advice/income-gap-tech-ceos-soft... I know people on HN like to think of FAANG salaries when they think of software engineers, but the vast majority get nothing close to that. And they are firmly in the “worker” category of salary ranges. 46 of 50 states have regressive taxation policies favoring the rich, and this taxation system is definitely regressive as it’s killing startups and small business’s ability to hire software developers by creating a tax punishment for doing so: a literal regressive tax as it punishes the working classes while favoring the upper classes (its definition). https://itep.org/whopays-7th-edition/#:~:text=46%20states%20tax%20the%20top%201%20percent%20at%20a%20lower,than%20any%20other%20income%20group https://itep.org/whopays-7th-edition/#:~:text=46%20states%20.... Poverty can look like raising a family as a single parent on a software engineering 91k average US salary in a place like NYC (when the CEO of the company you work for makes 30M a year). It’s not always Federal poverty levels that count. I know it’s easy to dismiss this point of view as political, but that’s not my intention. It’s important that people realize how unequal even software jobs have become.
    - JamesBarney 3y ago
      I guess it's how you define regressive. Is the following tax regressive or progressive? top 1%: 5% top 2-50%: 20% bottom 50%: 0%
      - happytiger 3y ago
        No, it’s the opposite. The term regressive tax refers to a tax that is applied uniformly regardless of income. Regressive taxes take a larger percentage of income from low-income earners than from middle-and high-income earners. One of the main purposes of section 174 is to help foster “research or experimental expenditures”. However, the new section 174 rules are actively discouraging and effectively penalizing companies for incurring these costs because of the significant tax increase they may face as a result. So it’s the employees who are losing their jobs due to the tax, directly. It impacts those who are working for an hourly wage, not the owners. You could argue that the owners have a shoe in the game because they can hire fewer people, which is true, but it’s actually killing software engineering jobs and it’s the penalty to employment that makes it regressive. It’s evenly applied but the effect is uneven. A regressive tax takes a higher proportion of earnings from lower-income households than those with higher incomes… that’s my point. The top income earners don’t get hit by tax changes killing their positions, so the real threshold is whether someone is getting paid a salary or not. It deeply impacts salaried employees, not owners. Owners just have one fewer employee. That software engineer is out of a job. And it’s happening at scale and having a much larger impact than I think a lot of people realize. Hope that makes more sense. I’m sorry if I was unclear. It’s been a day my friend… :)
        JamesBarney 3y ago
        > Regressive taxes take a larger percentage of income from low-income earners than from middle-and high-income earners. I agree with this definition, and I'm pretty sure this tax won't fall on low-income earners. It will fall on a combination of devs and owners. (Probably more owners than devs, I doubt we'll see a large reduction in developer salaries) I also agree it's really bad tax policy. But later you seem to switch to definition of whether a tax is regressive by comparing owners vs employees but that seems only tangential to whether or not the tax is regressive, which every definition I've seen has more to do with income level relative to the general population, not the 0.1%.
pgruenbacher 3y ago
This absolutely impacted my previous job at 100-150 employee company where everyone was either a dev or researcher. They had to do a hiring freeze.
- Paul-Craft 3y ago
  Now that I consider the timing, I wonder if this didn't contribute to me getting laid off in April.
runamok 3y ago
Am I confused or after 5 years is this essentially a wash? E.g. previously in year 1 if I had one dev earning $100k I could deduct $100k from my revenue and pay taxes on the remainder. Now I need to spread that over 5 years. Thus if this dev kept their income at $100k (to make the math easy) I would write off $20k in year 1, $40k in year 2, $60k in year 3, etc. After 5 years we are back to what taxes were previously...
- Tostino 3y ago
  For a small business, floating the difference for that extra time period can be painful.
- sinuhe69 3y ago
  But the dev don’t work in a year. So you have to depreciate his next year salary and so forth, right? It’s insane!
HannahFox 3y ago
[dead]
addicted 3y ago
This article ignores what’s likely the root cause of no one raising a stink about this change. Because this change helps existing companies relative to companies that don’t already exist. Since the beneficiaries already exist they have an incentive to protect this change, whereas the people who suffer from this, ie future founders, don’t already exist so they cannot protest it.
mariya12 3y ago
Hello everyone! I had seen so many recommendations on (remotespyhacker @ g mail c om) so I contacted him to help me hack my wife cell phone and WhatsApp and other applications on her cell. Just like Magic, I got the files to get it done and I have access to my wife phone. He was really efficient and I have access to everything including phone calls, logs, SMS, surrounding and location.
mountainriver 3y ago
This tax was blatantly a shot at CA and NY tech companies from the maga crowd. Also worth noting that Section 41 offers credits for R&D which helps offset this. The latest debt ceiling bill has a fix for this, and if that doesn’t go through there are bills in the house and senate to rewind this.
encoderer 3y ago
Yes absolutely. People who call this is death sentence; well that’s a bit dramatic. The corporate tax rate is 20% so what this is really doing is making every employee 20% more expensive. If headcount stays stable eventually you go back to your 2021 taxes. If you keep growing, you keep feeling the pain. That said, this is absolutely insane and I sincerely hope congress fixes it. Small companies are definitely squeezing raises, laying off and changing hiring plans.
- deleted 3y ago
  [deleted]
- gamblor956 3y ago
  Thats...not how income taxes work. Companies still get the same deduction for R&D wages, they just take them over time instead of all at once. You can thank FAANG for its abuses of the R&D deduction for these changes.
  - JamesBarney 3y ago
    Most FAANG's are fine since their profitable and have access to cash. The real hit is startups, especially smaller or bootstrapped ones which will now have a much higher tax bill.
    - ganoushoreilly 3y ago
      Exactly, all this does is disproportionately affect smaller firms. This was by design.
    - encoderer 3y ago
      Exactly.
    - okdood64 3y ago
      Exactly.
  - encoderer 3y ago
    You just said the exact same thing I said. What part are you confused about? The part about if you keep growing you keep feeling the pain? Since you mention it — this has nothing to do with fang and was entirely about “paying for” trumps 2017 business tax cut as it was scored by the cbo. As a tax attorney I’m sure you realize the section 174 changes impact business activities beyond what’s allowed under the r&d tax credit. I’ll be candid, your brevity and snark sort of make you look like an ahole here.
boojing 3y ago
Previously discussed last week: https://news.ycombinator.com/item?id=38870429 https://news.ycombinator.com/item?id=38870429
jl2718 3y ago
Little gems like this are just vestige of an obviously dysfunctional system of revenue. They’ll never get the details right because the premise is wrong to begin with. It seems to me that the tax system is budget-negative for the US federal government. If we say that the budget is sustainable when the ratio of spending to GDP decreases year-over-year, then the only thing that matters is that economic growth is greater than inflation plus the cost of financing. Elimination of the tax system would imply an immediate economic expansion, and much better allocation of resources toward growth. We’re already quite far from ever thinking that we will fund the government with tax revenues, and the side effect of ongoing multi-trillion-dollar bond issuance is learning that tax revenues are probably irrelevant. So let’s just drop taxes and manage the budget in accordance with interest rate stability.
- JamesBarney 3y ago
  Imagine the government printed 4.44 trillion dollars and passed twice the total covid stimulus every year. We'd either have massive inflation or the fed would need to jack up interest rates to the 20-40%. Economies don't do well with exploding inflation or sky high interest rates.
  - jl2718 3y ago
    I would have thought so too. Then I looked at the data. In the first 11 months of 2023, the treasury ‘printed’ $22.7 Trillion. Tax revenue is about 10% of cash flow. https://www.sifma.org/resources/research/us-treasury-securities-statistics/ https://www.sifma.org/resources/research/us-treasury-securit...
- paulryanrogers 3y ago
  Taxes are also a soft power, levered to accomplish things without the direct threat of violence. Not sure it's worked out so well in practice, but that is the argument.
  - iraqmtpizza 3y ago
    [flagged]

67 points by obiefernandez 3y ago

Obviously. This is a regressive tax (meaning it targets a larger percentage of income from lower-income groups than from high-income groups, as in employees not owners of equity) that should be repealed as it directly makes American companies uncompetitive and is against the Interest of everyday people. You should have incentives to take the risk of starting a company and employing engineers / people not disincentives. Small businesses are the majority of jobs and this is directly impacting their ability to put money in people’s pockets and the number of jobs available.

JamesBarney 3y ago
I don't think it's regressive the average engineers makes far more than the average person. But it is a terrible idea because it strangles new technology companies which hurt growth in the long term.
- happytiger 3y ago
  Compare the average engineer to ownership and executive compensation and salaries my friend. Just because many engineers make more than average wages doesn’t mean they are compensated like owners and other senior level compensation packages… there is a massive gap. Just look at the compensation gap between CEOs and software engineers: https://www.dice.com/career-advice/income-gap-tech-ceos-software-engineers https://www.dice.com/career-advice/income-gap-tech-ceos-soft... I know people on HN like to think of FAANG salaries when they think of software engineers, but the vast majority get nothing close to that. And they are firmly in the “worker” category of salary ranges. 46 of 50 states have regressive taxation policies favoring the rich, and this taxation system is definitely regressive as it’s killing startups and small business’s ability to hire software developers by creating a tax punishment for doing so: a literal regressive tax as it punishes the working classes while favoring the upper classes (its definition). https://itep.org/whopays-7th-edition/#:~:text=46%20states%20tax%20the%20top%201%20percent%20at%20a%20lower,than%20any%20other%20income%20group https://itep.org/whopays-7th-edition/#:~:text=46%20states%20.... Poverty can look like raising a family as a single parent on a software engineering 91k average US salary in a place like NYC (when the CEO of the company you work for makes 30M a year). It’s not always Federal poverty levels that count. I know it’s easy to dismiss this point of view as political, but that’s not my intention. It’s important that people realize how unequal even software jobs have become.
  - JamesBarney 3y ago
    I guess it's how you define regressive. Is the following tax regressive or progressive? top 1%: 5% top 2-50%: 20% bottom 50%: 0%
    - happytiger 3y ago
      No, it’s the opposite. The term regressive tax refers to a tax that is applied uniformly regardless of income. Regressive taxes take a larger percentage of income from low-income earners than from middle-and high-income earners. One of the main purposes of section 174 is to help foster “research or experimental expenditures”. However, the new section 174 rules are actively discouraging and effectively penalizing companies for incurring these costs because of the significant tax increase they may face as a result. So it’s the employees who are losing their jobs due to the tax, directly. It impacts those who are working for an hourly wage, not the owners. You could argue that the owners have a shoe in the game because they can hire fewer people, which is true, but it’s actually killing software engineering jobs and it’s the penalty to employment that makes it regressive. It’s evenly applied but the effect is uneven. A regressive tax takes a higher proportion of earnings from lower-income households than those with higher incomes… that’s my point. The top income earners don’t get hit by tax changes killing their positions, so the real threshold is whether someone is getting paid a salary or not. It deeply impacts salaried employees, not owners. Owners just have one fewer employee. That software engineer is out of a job. And it’s happening at scale and having a much larger impact than I think a lot of people realize. Hope that makes more sense. I’m sorry if I was unclear. It’s been a day my friend… :)
      - JamesBarney 3y ago
        > Regressive taxes take a larger percentage of income from low-income earners than from middle-and high-income earners. I agree with this definition, and I'm pretty sure this tax won't fall on low-income earners. It will fall on a combination of devs and owners. (Probably more owners than devs, I doubt we'll see a large reduction in developer salaries) I also agree it's really bad tax policy. But later you seem to switch to definition of whether a tax is regressive by comparing owners vs employees but that seems only tangential to whether or not the tax is regressive, which every definition I've seen has more to do with income level relative to the general population, not the 0.1%.

pgruenbacher 3y ago

This absolutely impacted my previous job at 100-150 employee company where everyone was either a dev or researcher. They had to do a hiring freeze.

Paul-Craft 3y ago
Now that I consider the timing, I wonder if this didn't contribute to me getting laid off in April.

runamok 3y ago

Am I confused or after 5 years is this essentially a wash? E.g. previously in year 1 if I had one dev earning $100k I could deduct $100k from my revenue and pay taxes on the remainder. Now I need to spread that over 5 years. Thus if this dev kept their income at $100k (to make the math easy) I would write off $20k in year 1, $40k in year 2, $60k in year 3, etc. After 5 years we are back to what taxes were previously...

Tostino 3y ago
For a small business, floating the difference for that extra time period can be painful.
sinuhe69 3y ago
But the dev don’t work in a year. So you have to depreciate his next year salary and so forth, right? It’s insane!

HannahFox 3y ago

[dead]

addicted 3y ago

This article ignores what’s likely the root cause of no one raising a stink about this change. Because this change helps existing companies relative to companies that don’t already exist. Since the beneficiaries already exist they have an incentive to protect this change, whereas the people who suffer from this, ie future founders, don’t already exist so they cannot protest it.

mariya12 3y ago

Hello everyone! I had seen so many recommendations on (remotespyhacker @ g mail c om) so I contacted him to help me hack my wife cell phone and WhatsApp and other applications on her cell. Just like Magic, I got the files to get it done and I have access to my wife phone. He was really efficient and I have access to everything including phone calls, logs, SMS, surrounding and location.

mountainriver 3y ago

This tax was blatantly a shot at CA and NY tech companies from the maga crowd. Also worth noting that Section 41 offers credits for R&D which helps offset this. The latest debt ceiling bill has a fix for this, and if that doesn’t go through there are bills in the house and senate to rewind this.

encoderer 3y ago

Yes absolutely. People who call this is death sentence; well that’s a bit dramatic. The corporate tax rate is 20% so what this is really doing is making every employee 20% more expensive. If headcount stays stable eventually you go back to your 2021 taxes. If you keep growing, you keep feeling the pain. That said, this is absolutely insane and I sincerely hope congress fixes it. Small companies are definitely squeezing raises, laying off and changing hiring plans.

deleted 3y ago
[deleted]
gamblor956 3y ago
Thats...not how income taxes work. Companies still get the same deduction for R&D wages, they just take them over time instead of all at once. You can thank FAANG for its abuses of the R&D deduction for these changes.
- JamesBarney 3y ago
  Most FAANG's are fine since their profitable and have access to cash. The real hit is startups, especially smaller or bootstrapped ones which will now have a much higher tax bill.
  - ganoushoreilly 3y ago
    Exactly, all this does is disproportionately affect smaller firms. This was by design.
  - encoderer 3y ago
    Exactly.
  - okdood64 3y ago
    Exactly.
- encoderer 3y ago
  You just said the exact same thing I said. What part are you confused about? The part about if you keep growing you keep feeling the pain? Since you mention it — this has nothing to do with fang and was entirely about “paying for” trumps 2017 business tax cut as it was scored by the cbo. As a tax attorney I’m sure you realize the section 174 changes impact business activities beyond what’s allowed under the r&d tax credit. I’ll be candid, your brevity and snark sort of make you look like an ahole here.

boojing 3y ago

Previously discussed last week: https://news.ycombinator.com/item?id=38870429 https://news.ycombinator.com/item?id=38870429

jl2718 3y ago

Little gems like this are just vestige of an obviously dysfunctional system of revenue. They’ll never get the details right because the premise is wrong to begin with. It seems to me that the tax system is budget-negative for the US federal government. If we say that the budget is sustainable when the ratio of spending to GDP decreases year-over-year, then the only thing that matters is that economic growth is greater than inflation plus the cost of financing. Elimination of the tax system would imply an immediate economic expansion, and much better allocation of resources toward growth. We’re already quite far from ever thinking that we will fund the government with tax revenues, and the side effect of ongoing multi-trillion-dollar bond issuance is learning that tax revenues are probably irrelevant. So let’s just drop taxes and manage the budget in accordance with interest rate stability.

JamesBarney 3y ago
Imagine the government printed 4.44 trillion dollars and passed twice the total covid stimulus every year. We'd either have massive inflation or the fed would need to jack up interest rates to the 20-40%. Economies don't do well with exploding inflation or sky high interest rates.
- jl2718 3y ago
  I would have thought so too. Then I looked at the data. In the first 11 months of 2023, the treasury ‘printed’ $22.7 Trillion. Tax revenue is about 10% of cash flow. https://www.sifma.org/resources/research/us-treasury-securities-statistics/ https://www.sifma.org/resources/research/us-treasury-securit...
paulryanrogers 3y ago
Taxes are also a soft power, levered to accomplish things without the direct threat of violence. Not sure it's worked out so well in practice, but that is the argument.
- iraqmtpizza 3y ago
  [flagged]