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This doesn't explain the mass tech layoffs. According to the article, the rule applies to R&D. The vast majority of tech workers laid off in the last two years

This doesn't explain the mass tech layoffs. According to the article, the rule applies to R&D. The vast majority of tech workers laid off in the last two years didn't work in research and development. They wrote regular software for sale, like games, for example. The games industry, while hugely profitable and bigger than TV, movies, and music combined, laid off tens of thousands of people. It's unmitigated greed is all it is.

tjchear 1y ago
> For almost 70 years, American companies could deduct 100% of qualified research and development spending in the year they incurred the costs. Salaries, software, contractor payments — if it contributed to creating or improving a product, it came off the top of a firm’s taxable income. According to the article, as long as the tech workers contribute to improving or creating a product (be it games or apps), they count as R&D cost.
- dtagames 1y ago
  I worked in games 2 years before the studio shutdown. It wasn't because of "R&D" tax breaks. None of the recent layoffs or studio closures are explained by that. Nor are the Microsoft, Dell, or Intel layoffs which aren't game-related.
- gregw2 1y ago
  To qualify for R&D tax breaks, IIRC having identified qualifying work for a segment of my firm, there must be elements of hypothesis, experimentation, results, etc that I would consider more science-y 'Research' than just turn the crank software 'Development.' It has to be both. And that has to be documented. And offshore research+development doesn't get you a tax break. The irony is that the R+D tax actually discourages onshore pure development as a 'trade' and encourages a split of onshore R+D and offshore D. This sort of thing appears to be self-reported; I don't know if it ever gets audited. I don't know if big tech lies or creatively interprets what counts and that has contributed to the issue. But this article sort of over-represents what qualifies as R&D for US tax purposes.
  - ghc 1y ago
    Under the new rules, all software development, excluding bug fixes, must be expensed in this manner. "Turn the crank" development is included. https://larsco.com/blog/section-174-updates-navigating-the-impact-on-software-development https://larsco.com/blog/section-174-updates-navigating-the-i...
    - ndriscoll 1y ago
      Which makes sense. Software is functionally a capital asset, so really it should be depreciated across the length of the copyright term (unless the company wants to release it to the public domain to fully depreciate it early).
      - robocat 1y ago
        Maybe software should be a capital asset, but these depreciation rules don't fix that issue. The rule says if you pay someone $200k to develop software: then you now have a $200k asset that then devalues to value of $0 over 5 years (starting midyear). That's just plain weird. For our example a depreciation table might look like: Year, %Amortized, Amount 2025 10% $20,000 2026 20% $40,000 2027 20% $40,000 2028 20% $40,000 2029 20% $40,000 2030 10% $20,000 The final effect of the 174 rule change is that you still finally end up with a software asset worth $0. However you now have taxable income of $200k in year one and expenses equalling $200k spread over 5 years. The taxes paid could be a lot: although the taxation money is really just being lent to the government for a few years at 0%. The actual financial costs are fucking complicated. Understanding accounting and taxes are two absolutely essential skills if you ever wish to be a founder (and useful anyways). Finding a solution to dealing with the valuation of assets is difficult. The historical solution of depreciation is broken for software, intellectual property and goodwill. In theory, taxes on dividends and capital gains taxation already deal with the issue (company taxation at x% kinda ends up at $0 because the shareholder pays y% and claims back the x% through imputation). And remember that salaries are properly taxed.
        ndriscoll 1y ago
jewelry 1y ago
Greed is too easy as a target.. industry space has shifted because of slower innovation and less growth, so cost cutting being more a focus would be a reasonable strategy
- dtagames 1y ago
  If your company is already profitable to the tune of billions annually, "cost cutting" isn't necessary. You're just cutting people out of jobs and out of economic participation in society -- which affects a far larger group than just themselves when those folks can't spend their salaries in other businesses. There is no justification for "cost cutting" when it hurts the larger economy. If the company were losing money, that would be different, but these mass layoffs are all from firms that make obscene, enviable levels of profit. It's greed.
  - RobGR 1y ago
    You can call any self-interested decision "greed" if you need to just turn off your brain and emote. But they were making high profits for decades, and being greedy for decades. Then there were a lot of layoffs. What changed ?
  - orangecat 1y ago
    If a company is making $10 billion in annual profits, and they discover that they're spending $100 million on a useless project, are they morally obligated to continue that spending indefinitely? There is no justification for "cost cutting" when it hurts the larger economy. It is not good for the economy to have people doing work that doesn't produce value.
    - kbolino 1y ago
      > It is not good for the economy to have people doing work that doesn't produce value. This is a political statement, not an economic one. What is or isn't good for the economy is up to the goals of that economy. In Japan, for example, they've more or less adopted the opposite principle as an important plank in their political system. Or perhaps it would be better to say that they've adopted the idea that people having jobs is more important than those jobs having a direct connection to some measure of productivity.
jokethrowaway 1y ago
You are correct saying it's not the R&D deductions. But it's not "greed": it's the end of zero interest rate policies. https://newsletter.pragmaticengineer.com/p/zirp https://newsletter.pragmaticengineer.com/p/zirp
mywittyname 1y ago
> The vast majority of tech workers laid off in the last two years didn't work in research and development. I bet they were classified as R&D for accounting purposes. Product development largely falls into R&D - it doesn't matter what the product being developed is for. Every job I had at a megacorp was classified as R&D, and I know because I had to track hours against such.
- demosthanos 1y ago
  > I bet they were classified as R&D for accounting purposes. It's not just that. Section 174 now explicitly calls out Software as always being an R&D expense: > (3) Software development > 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. https://www.law.cornell.edu/uscode/text/26/174 https://www.law.cornell.edu/uscode/text/26/174
kelnos 1y ago
> They wrote regular software for sale, like games, for example. Even though it sounds unintuitive, that activity is considered R&D for tax purposes.
jen20 1y ago
> They wrote regular software for sale, like games, for example. Wrote software, like, you know, "developed" it?

tjchear 1y ago

> For almost 70 years, American companies could deduct 100% of qualified research and development spending in the year they incurred the costs. Salaries, software, contractor payments — if it contributed to creating or improving a product, it came off the top of a firm’s taxable income. According to the article, as long as the tech workers contribute to improving or creating a product (be it games or apps), they count as R&D cost.

dtagames 1y ago
I worked in games 2 years before the studio shutdown. It wasn't because of "R&D" tax breaks. None of the recent layoffs or studio closures are explained by that. Nor are the Microsoft, Dell, or Intel layoffs which aren't game-related.
gregw2 1y ago
To qualify for R&D tax breaks, IIRC having identified qualifying work for a segment of my firm, there must be elements of hypothesis, experimentation, results, etc that I would consider more science-y 'Research' than just turn the crank software 'Development.' It has to be both. And that has to be documented. And offshore research+development doesn't get you a tax break. The irony is that the R+D tax actually discourages onshore pure development as a 'trade' and encourages a split of onshore R+D and offshore D. This sort of thing appears to be self-reported; I don't know if it ever gets audited. I don't know if big tech lies or creatively interprets what counts and that has contributed to the issue. But this article sort of over-represents what qualifies as R&D for US tax purposes.
- ghc 1y ago
  Under the new rules, all software development, excluding bug fixes, must be expensed in this manner. "Turn the crank" development is included. https://larsco.com/blog/section-174-updates-navigating-the-impact-on-software-development https://larsco.com/blog/section-174-updates-navigating-the-i...
  - ndriscoll 1y ago
    Which makes sense. Software is functionally a capital asset, so really it should be depreciated across the length of the copyright term (unless the company wants to release it to the public domain to fully depreciate it early).
    - robocat 1y ago
      Maybe software should be a capital asset, but these depreciation rules don't fix that issue. The rule says if you pay someone $200k to develop software: then you now have a $200k asset that then devalues to value of $0 over 5 years (starting midyear). That's just plain weird. For our example a depreciation table might look like: Year, %Amortized, Amount 2025 10% $20,000 2026 20% $40,000 2027 20% $40,000 2028 20% $40,000 2029 20% $40,000 2030 10% $20,000 The final effect of the 174 rule change is that you still finally end up with a software asset worth $0. However you now have taxable income of $200k in year one and expenses equalling $200k spread over 5 years. The taxes paid could be a lot: although the taxation money is really just being lent to the government for a few years at 0%. The actual financial costs are fucking complicated. Understanding accounting and taxes are two absolutely essential skills if you ever wish to be a founder (and useful anyways). Finding a solution to dealing with the valuation of assets is difficult. The historical solution of depreciation is broken for software, intellectual property and goodwill. In theory, taxes on dividends and capital gains taxation already deal with the issue (company taxation at x% kinda ends up at $0 because the shareholder pays y% and claims back the x% through imputation). And remember that salaries are properly taxed.
      - ndriscoll 1y ago

jewelry 1y ago

Greed is too easy as a target.. industry space has shifted because of slower innovation and less growth, so cost cutting being more a focus would be a reasonable strategy

dtagames 1y ago
If your company is already profitable to the tune of billions annually, "cost cutting" isn't necessary. You're just cutting people out of jobs and out of economic participation in society -- which affects a far larger group than just themselves when those folks can't spend their salaries in other businesses. There is no justification for "cost cutting" when it hurts the larger economy. If the company were losing money, that would be different, but these mass layoffs are all from firms that make obscene, enviable levels of profit. It's greed.
- RobGR 1y ago
  You can call any self-interested decision "greed" if you need to just turn off your brain and emote. But they were making high profits for decades, and being greedy for decades. Then there were a lot of layoffs. What changed ?
- orangecat 1y ago
  If a company is making $10 billion in annual profits, and they discover that they're spending $100 million on a useless project, are they morally obligated to continue that spending indefinitely? There is no justification for "cost cutting" when it hurts the larger economy. It is not good for the economy to have people doing work that doesn't produce value.
  - kbolino 1y ago
    > It is not good for the economy to have people doing work that doesn't produce value. This is a political statement, not an economic one. What is or isn't good for the economy is up to the goals of that economy. In Japan, for example, they've more or less adopted the opposite principle as an important plank in their political system. Or perhaps it would be better to say that they've adopted the idea that people having jobs is more important than those jobs having a direct connection to some measure of productivity.

jokethrowaway 1y ago

You are correct saying it's not the R&D deductions. But it's not "greed": it's the end of zero interest rate policies. https://newsletter.pragmaticengineer.com/p/zirp https://newsletter.pragmaticengineer.com/p/zirp

mywittyname 1y ago

> The vast majority of tech workers laid off in the last two years didn't work in research and development. I bet they were classified as R&D for accounting purposes. Product development largely falls into R&D - it doesn't matter what the product being developed is for. Every job I had at a megacorp was classified as R&D, and I know because I had to track hours against such.

demosthanos 1y ago
> I bet they were classified as R&D for accounting purposes. It's not just that. Section 174 now explicitly calls out Software as always being an R&D expense: > (3) Software development > 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. https://www.law.cornell.edu/uscode/text/26/174 https://www.law.cornell.edu/uscode/text/26/174

kelnos 1y ago

> They wrote regular software for sale, like games, for example. Even though it sounds unintuitive, that activity is considered R&D for tax purposes.

jen20 1y ago

> They wrote regular software for sale, like games, for example. Wrote software, like, you know, "developed" it?