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In addition to more layoffs/less hiring it looks like there are a lot of undesirable side effects of this change, especially for small to medium sized companies

In addition to more layoffs/less hiring it looks like there are a lot of undesirable side effects of this change, especially for small to medium sized companies. Including moving IP out of the US. What were they thinking? https://newsletter.pragmaticengineer.com/p/the-pulse-75 https://newsletter.pragmaticengineer.com/p/the-pulse-75

redcobra762 3y ago
The context of the 2017 tax cuts is important; it was/is a major feather in the administration’s cap.
- UncleOxidant 3y ago
  I've seen some suggestions that this was done specifically to punish blue states where most of these kinds of jobs reside. I'm not sure they were actually thinking that far ahead, but I guess I wouldn't put it past them.
  - nullserver 3y ago
    Or reward states that have lower taxes.
    - addicted 3y ago
      Since those states are receiving funds from the federal government you’re not really rewarding lower taxes. You’re just rewarding poor fiscal management.
  - ojbyrne 3y ago
    The fact that the same legislation capped the SALT deduction lends credence to your argument.
- cjbgkagh 3y ago
  I knew bracket creep was going to a land mine and did figure they included others to make the numbers work out the way they did. Now the government makes more money with higher inflation which I think is a risky alignment of incentives.
cscharenberg 3y ago
It definitely affected hiring. I work at a startup that is self-funded, profitable, and at about 24 people. The tax change increased our tax bill by around $125k, so that's an engineer we couldn't hire. Made me glad our founders are so fiscally conservative, as other startups around had to lay off some people to have cash on hand to pay the increased taxes.
nocoiner 3y ago
If I’m reading that right, that seems to be referring to foreign-originated IP, that’s been contributed to a Delaware corp, but is now being repatriated elsewhere to avoid Section 174. I assume the reason the associated software development activities are no longer subject to 174 is because there’s no longer a US taxpayer involved. Is this really applicable for US-originated IP? To the extent that there’s still US tax jurisdiction involved, doesn’t that just put you into the world of transfer pricing, GILTI and such? I’m also fairly skeptical that this is all that much of a deterrent to doing business in the United States. The US had uncommonly high corporate tax rates until recently, and that didn’t seem to adversely affect economic dynamism. I mean, sure, one can avoid this particular taxation regime by (checks notes) moving the entire operation to another country, but that obviously sacrifices the advantages of doing business in the US (deep and liquid capital markets, well-known legal regime associated with investing in a Delaware corp, network and agglomeration effects, etc.) and the replacement jurisdiction is certainly going to have its own set of downsides.
adrianmonk 3y ago
> What were they thinking? "Tech companies, specifically, have lots of money. How can we get some of it?"

redcobra762 3y ago

The context of the 2017 tax cuts is important; it was/is a major feather in the administration’s cap.

UncleOxidant 3y ago
I've seen some suggestions that this was done specifically to punish blue states where most of these kinds of jobs reside. I'm not sure they were actually thinking that far ahead, but I guess I wouldn't put it past them.
- nullserver 3y ago
  Or reward states that have lower taxes.
  - addicted 3y ago
    Since those states are receiving funds from the federal government you’re not really rewarding lower taxes. You’re just rewarding poor fiscal management.
- ojbyrne 3y ago
  The fact that the same legislation capped the SALT deduction lends credence to your argument.
cjbgkagh 3y ago
I knew bracket creep was going to a land mine and did figure they included others to make the numbers work out the way they did. Now the government makes more money with higher inflation which I think is a risky alignment of incentives.

cscharenberg 3y ago

It definitely affected hiring. I work at a startup that is self-funded, profitable, and at about 24 people. The tax change increased our tax bill by around $125k, so that's an engineer we couldn't hire. Made me glad our founders are so fiscally conservative, as other startups around had to lay off some people to have cash on hand to pay the increased taxes.

nocoiner 3y ago

If I’m reading that right, that seems to be referring to foreign-originated IP, that’s been contributed to a Delaware corp, but is now being repatriated elsewhere to avoid Section 174. I assume the reason the associated software development activities are no longer subject to 174 is because there’s no longer a US taxpayer involved. Is this really applicable for US-originated IP? To the extent that there’s still US tax jurisdiction involved, doesn’t that just put you into the world of transfer pricing, GILTI and such? I’m also fairly skeptical that this is all that much of a deterrent to doing business in the United States. The US had uncommonly high corporate tax rates until recently, and that didn’t seem to adversely affect economic dynamism. I mean, sure, one can avoid this particular taxation regime by (checks notes) moving the entire operation to another country, but that obviously sacrifices the advantages of doing business in the US (deep and liquid capital markets, well-known legal regime associated with investing in a Delaware corp, network and agglomeration effects, etc.) and the replacement jurisdiction is certainly going to have its own set of downsides.

adrianmonk 3y ago

> What were they thinking? "Tech companies, specifically, have lots of money. How can we get some of it?"