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> I've seen no justification for the government deciding that from 2022 on we should actively discourage R&D, it just seems to be a mistake. Removing a specif

by Retric 1y ago

> I've seen no justification for the government deciding that from 2022 on we should actively discourage R&D, it just seems to be a mistake. Removing a specific tax exemption to create a level playing field isn’t discouraging R&D. That’s the thing, every year such exemptions exist the US taxpayers are handing out money. Just because we subsidize say EV’s or Corn doesn’t mean that’s the baseline forever more.

demosthanos 1y ago
Level playing field for whom? Who does incentivizing R&D disadvantage? Restaurants weren't competing with R&D-heavy corporations in any way. R&D-heavy corporations competed with each other, on a level playing field where all of them can build new stuff without having to pay taxes on negative income in their early years. The only change this has made is un-level the playing field in favor of old, established corporations that already have the revenue streams in place to fund their new R&D projects.
- Retric 1y ago
  > Who does incentivizing R&D disadvantage? Taxpayers who end up with the bill and every company is competing for workers, office space, etc. Incentives across decades shift what people study, what business get created, etc. R&D sounds great abstractly, but it’s not some panacea where unlimited funding results in pure gains. The economy is generally more efficient without central planning, and dumping money into anything that can be classified as R&D is simply inefficient.
  - demosthanos 1y ago
    > every company is competing for workers, office space, etc My company is all-remote and none of us would work for a company that isn't doing R&D. Most of an entire profession now has to be amortized over 5 years. > The economy is generally more efficient without central planning The old tax code isn't "central planning", it just had the very reasonable property that the government wouldn't force you to pay taxes on a loss. This scenario [0] is now possible. It wasn't before. That is a catastrophic level of stupidity, and you can't justify it with invisible-hand nonsense. https://news.ycombinator.com/item?id=44204353 https://news.ycombinator.com/item?id=44204353
    - Retric 1y ago
      > none of us would work for a company that isn't doing R&D So you’d just be unemployed for the rest of your lives? That’s a possible edge case not worth adjusting the tax code for, but it seems unlikely. > wouldn't force you to pay taxes on a loss. R&D is an investment, you only pay taxes if the rest of the company is profitable. If your company is spending 1M / year on R&D and not adding 800k in long term value then in theory you’d be correct. But at that point you either aren’t doing R&D, or are doing such a poor job of it that the government shouldn’t be encouraging that activity.
      - HillRat 1y ago
        The problem here is that all software development (excepting that done for hire) is classified as R&D. The software developer working on your Wordpress or Magento site (and arguably the accountant building a spreadsheet, to take the statute at face value) isn't an operational expense, they're now an R&D expense that has to be amortized and can't be taken as an expense against revenue. Previously, this was an optional choice (and many large and mature companies were amortizing anyway), but under the current tax treatment it's required, which essentially turns early-stage startups into cash bonfires, given how many small companies don't make it to year five.
        Retric 1y ago
        > Early-tags startups into cash bond fires As a practical measure it’s really not. The transition is difficult for existing companies, but a future startup is going to be minimally impacted. Year 0 you’re unlikely to have any profits, future years you have multiple years of R&D to offset with. But let’s assume the worst case. Taxes are 21% of profits and at minimum deduction 20% of R&D so the theoretical maximum distribution is 0.8 * 0.21 = 16.8% increase in R&D expenses if profits = R&D year 0. But that maximum case is only year 0, you’d be able to fund R&D with those same profits and easily be profitable after that. If profits where say 40% of R&D in year 0 you’d have to pay 16.8% of 40% so an increase is only 6.72% hardly likely to tank the business if it’s already generating that kind of income year 0, and again after that point you’ll deduct for multiple years. More realistic numbers are going to be really low multiples here, more importantly they represent significant investments not operating expenses.
  - kelnos 1y ago
    > The economy is generally more efficient without central planning Big fat "citation needed" there. I know you chose the term "central planning" to try to invoke the communism boogeyman, but overall, free markets do not exist, and have never existed. Governments constantly use various levers (taxation being one of them) to encourage or discourage certain kinds of business activity. This is nothing new, and I find it laughable to suggest that this kind of thing should be done away with entirely.
    - Retric 1y ago
      There’s a lot of evidence for this outside of communism. Housing markets for example are a clear example of economic inefficiency created by subsides. But you also see problems with farm subsidies, flood insurance, and a host of other related issues. Markets operate on revealed preferences, which is just a massive advantage in terms of giving people what they want. There’s definitely a role for governments in economies around information asymmetry, safety, etc, but allocation of resources specifically doesn’t work well.
  - jt2190 1y ago
    It sounds like you’re talking about government funding of research? This is about private companies funding the costs of making product ideas into actual sellable products.
    - Retric 1y ago
      Money is fungible there’s zero difference between a tax break for 100$ and handing out 100$ directly.
      - jt2190 1y ago
        Are you asserting that software and other labor-heavy startups should raise additional private capital so that they can pay taxes before they’ve established themselves in the marketplace? I’m not sure what you mean to say exactly.
        Retric 1y ago
        I’m saying investers should pay the full cost of R&D without assistance from taxpayers. When the non R&D portion of the business is profitable they should start paying taxes. Assuming a company isn’t miss classifying operations as R&D it shouldn’t be a major issue.
        jt2190 1y ago
        Thanks for clarifying. This will of course discourage “riskier” startups and dampen innovation and give more power to profitable incumbents who will have less incentive to innovate. (Perhaps the result of this looks like Europe?)
        Retric 1y ago
        Risky startups with multiple years of R&D before revenue would be the least impacted. You’re only paying taxes if the business is profitable ignoring investments like R&D spending.
kelnos 1y ago
> Removing a specific tax exemption to create a level playing field isn’t discouraging R&D. If the end result of removing this exemption is that there is less R&D done in the US, then yes, empirically, removing the exemption discourages R&D. Assuming the mass layoffs were indeed fueled by the removal of this exemption (I don't know if the article is correct or not), then it is reasonable to assert that it is true that removing the exemption has reduced the amount of R&D done. Or, you could also say that the "default state" is some low level of R&D, and the tax exemption encouraged and incentivized more of it. Either way you slice it, though, the status quo prior to 2022 was some level of encouraged/incentivized R&D. That status quo changed to encourage/incentivize less R&D, and companies have followed these lack of incentives and have fired a lot of their R&D staff. Is that a good thing for the US? I can't see how it could be.
- Retric 1y ago
  > empirically, removing the exemption discourages R&D. Not clearing a road means fewer people use it, but you not going out with a shovel to clear a public roads isn’t you discouraging their use nor is you canceling your plans to clear said roads. Having zero subsidies is the default situation.
  - profile53 1y ago
    It didn’t create a level playing field, it just discouraged a very specific type of R&D while ignoring all others. All other types of employee salaries follow certain rules and some can optionally follow R&D rules. Software is now the only one required to follow 5 year R&D amortization so the deck is now stacked against software.
    - Retric 1y ago
      Software is an asset. If you pay people to build a building you don’t get to deduct their salaries as an operating expense.
  - anp 1y ago
    The default situation is whatever was yesterday. I’d be astonished to learn that even a single significant civilization functioned without subsidies or patronage of priorities held by a society’s leaders.

by Retric 1y ago

demosthanos 1y ago

Level playing field for whom? Who does incentivizing R&D disadvantage? Restaurants weren't competing with R&D-heavy corporations in any way. R&D-heavy corporations competed with each other, on a level playing field where all of them can build new stuff without having to pay taxes on negative income in their early years. The only change this has made is un-level the playing field in favor of old, established corporations that already have the revenue streams in place to fund their new R&D projects.

Retric 1y ago
> Who does incentivizing R&D disadvantage? Taxpayers who end up with the bill and every company is competing for workers, office space, etc. Incentives across decades shift what people study, what business get created, etc. R&D sounds great abstractly, but it’s not some panacea where unlimited funding results in pure gains. The economy is generally more efficient without central planning, and dumping money into anything that can be classified as R&D is simply inefficient.
- demosthanos 1y ago
  > every company is competing for workers, office space, etc My company is all-remote and none of us would work for a company that isn't doing R&D. Most of an entire profession now has to be amortized over 5 years. > The economy is generally more efficient without central planning The old tax code isn't "central planning", it just had the very reasonable property that the government wouldn't force you to pay taxes on a loss. This scenario [0] is now possible. It wasn't before. That is a catastrophic level of stupidity, and you can't justify it with invisible-hand nonsense. https://news.ycombinator.com/item?id=44204353 https://news.ycombinator.com/item?id=44204353
  - Retric 1y ago
    > none of us would work for a company that isn't doing R&D So you’d just be unemployed for the rest of your lives? That’s a possible edge case not worth adjusting the tax code for, but it seems unlikely. > wouldn't force you to pay taxes on a loss. R&D is an investment, you only pay taxes if the rest of the company is profitable. If your company is spending 1M / year on R&D and not adding 800k in long term value then in theory you’d be correct. But at that point you either aren’t doing R&D, or are doing such a poor job of it that the government shouldn’t be encouraging that activity.
    - HillRat 1y ago
      The problem here is that all software development (excepting that done for hire) is classified as R&D. The software developer working on your Wordpress or Magento site (and arguably the accountant building a spreadsheet, to take the statute at face value) isn't an operational expense, they're now an R&D expense that has to be amortized and can't be taken as an expense against revenue. Previously, this was an optional choice (and many large and mature companies were amortizing anyway), but under the current tax treatment it's required, which essentially turns early-stage startups into cash bonfires, given how many small companies don't make it to year five.
      - Retric 1y ago
        > Early-tags startups into cash bond fires As a practical measure it’s really not. The transition is difficult for existing companies, but a future startup is going to be minimally impacted. Year 0 you’re unlikely to have any profits, future years you have multiple years of R&D to offset with. But let’s assume the worst case. Taxes are 21% of profits and at minimum deduction 20% of R&D so the theoretical maximum distribution is 0.8 * 0.21 = 16.8% increase in R&D expenses if profits = R&D year 0. But that maximum case is only year 0, you’d be able to fund R&D with those same profits and easily be profitable after that. If profits where say 40% of R&D in year 0 you’d have to pay 16.8% of 40% so an increase is only 6.72% hardly likely to tank the business if it’s already generating that kind of income year 0, and again after that point you’ll deduct for multiple years. More realistic numbers are going to be really low multiples here, more importantly they represent significant investments not operating expenses.
- kelnos 1y ago
  > The economy is generally more efficient without central planning Big fat "citation needed" there. I know you chose the term "central planning" to try to invoke the communism boogeyman, but overall, free markets do not exist, and have never existed. Governments constantly use various levers (taxation being one of them) to encourage or discourage certain kinds of business activity. This is nothing new, and I find it laughable to suggest that this kind of thing should be done away with entirely.
  - Retric 1y ago
    There’s a lot of evidence for this outside of communism. Housing markets for example are a clear example of economic inefficiency created by subsides. But you also see problems with farm subsidies, flood insurance, and a host of other related issues. Markets operate on revealed preferences, which is just a massive advantage in terms of giving people what they want. There’s definitely a role for governments in economies around information asymmetry, safety, etc, but allocation of resources specifically doesn’t work well.
- jt2190 1y ago
  It sounds like you’re talking about government funding of research? This is about private companies funding the costs of making product ideas into actual sellable products.
  - Retric 1y ago
    Money is fungible there’s zero difference between a tax break for 100$ and handing out 100$ directly.
    - jt2190 1y ago
      Are you asserting that software and other labor-heavy startups should raise additional private capital so that they can pay taxes before they’ve established themselves in the marketplace? I’m not sure what you mean to say exactly.
      - Retric 1y ago
        I’m saying investers should pay the full cost of R&D without assistance from taxpayers. When the non R&D portion of the business is profitable they should start paying taxes. Assuming a company isn’t miss classifying operations as R&D it shouldn’t be a major issue.
        jt2190 1y ago
        Thanks for clarifying. This will of course discourage “riskier” startups and dampen innovation and give more power to profitable incumbents who will have less incentive to innovate. (Perhaps the result of this looks like Europe?)
        Retric 1y ago
        Risky startups with multiple years of R&D before revenue would be the least impacted. You’re only paying taxes if the business is profitable ignoring investments like R&D spending.

kelnos 1y ago

> Removing a specific tax exemption to create a level playing field isn’t discouraging R&D. If the end result of removing this exemption is that there is less R&D done in the US, then yes, empirically, removing the exemption discourages R&D. Assuming the mass layoffs were indeed fueled by the removal of this exemption (I don't know if the article is correct or not), then it is reasonable to assert that it is true that removing the exemption has reduced the amount of R&D done. Or, you could also say that the "default state" is some low level of R&D, and the tax exemption encouraged and incentivized more of it. Either way you slice it, though, the status quo prior to 2022 was some level of encouraged/incentivized R&D. That status quo changed to encourage/incentivize less R&D, and companies have followed these lack of incentives and have fired a lot of their R&D staff. Is that a good thing for the US? I can't see how it could be.

Retric 1y ago
> empirically, removing the exemption discourages R&D. Not clearing a road means fewer people use it, but you not going out with a shovel to clear a public roads isn’t you discouraging their use nor is you canceling your plans to clear said roads. Having zero subsidies is the default situation.
- profile53 1y ago
  It didn’t create a level playing field, it just discouraged a very specific type of R&D while ignoring all others. All other types of employee salaries follow certain rules and some can optionally follow R&D rules. Software is now the only one required to follow 5 year R&D amortization so the deck is now stacked against software.
  - Retric 1y ago
    Software is an asset. If you pay people to build a building you don’t get to deduct their salaries as an operating expense.
- anp 1y ago
  The default situation is whatever was yesterday. I’d be astonished to learn that even a single significant civilization functioned without subsidies or patronage of priorities held by a society’s leaders.