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say I work for a company for 5 years as a software developer, at $200k/yr the entire time. is this how it works: year 1: company deducts $40k: 1/5 of the sala

say I work for a company for 5 years as a software developer, at $200k/yr the entire time. is this how it works: year 1: company deducts $40k: 1/5 of the salary for year 1. year 2: company deducts $80k: 1/5 of the salary for year 2, and 1/5 of the salary of year 1. year 3: company deducts $120k: 1/5 of the salary for year 3, 1/5 of the salary for year 2, and 1/5 of the salary for year 1. year 4: company deducts $160k: 1/5 of the salary for year 4, 1/5 of the salary for year 3, 1/5 of the salary for year 2, and 1/5 for year 1. year 5: company deducts $200k: 1/5 of each of my 5 years of employment. I leave the company after year 5. Year 1 of my employment is fully deducted. year 6: company deducts $160k: 1/5 of years 5, 4, 3, and 2. Year 2 of my employment is fully deducted. year 7: company deducts $120k: 1/5 of years 5, 4, and 3. Year 3 of my employment is fully deducted. year 8: company deducts $80k: 1/5 of years 5 & 4. Year 4 of my employment is fully deducted. year 9: company deducts $40k: 1/5 of year 5. Year 5 of my employment is fully deducted. what is the corporate tax rate? It's not 100%, so you're deducting a fraction developer's salary from your income, right, you're not saving that much on your tax bill each year. you're paying tax on the income you used to pay the developer. I dunno man. In a world where places like Amazon pay $0 in income tax each year, I kinda feel like companies should be paying more taxes. companies get all kinds of deductions that employees don't get themselves, and will never get. businesses have a whole heap of unfair advantages already. I'm sure the capitalists among you will want me dead for saying this, but: pay your fair share. I don't care what the law says, pay enough that no one can say that you're a lamprey on society, please.

throwawaymaths 1y ago
modulo accounting shenanigans company like amazon is ~ unaffected by this rule since its capable of amortizing salaries anyways
OneDeuxTriSeiGo 1y ago
That's not really the issue (and I say this as a socialist). The issue is that it's a weak and very leaky definition that attempts to redefine anyone that touches "software development" away from being taxed like employees into being taxed like machines that produce assets at the same value as their cost of operating. This punishes small businesses and new businesses more than any large org because it massively increases the cost of operating for the first few years. And importantly it just doesn't do so consistently. Orgs should have a higher tax burden. This just doesn't do that, instead this is punishing orgs for trying to do new things and rewarding existing momentum (i.e. the large corporations that already have a profitable revenue stream and a long trail of employment history).
- naikrovek 1y ago
  > it massively increases that depends entirely on how much the business is taxed. every $1 deducted from taxable income is NOT $1 saved in that business' tax payment. It's much more like $0.10-$0.30 saved in taxes.
  - OneDeuxTriSeiGo 1y ago
    Sure but for a startup/new business with little to no existing product, that is a massive amount. Especially as any software that is abandoned (ex: due to a pivot, etc) forfeits the amortised deductions that contributed to it. The only businesses this hurts are small or young businesses that have yet to develop an established product and reliably revenue stream. For them in the best case scenario they make so little that they can't even deduct but otherwise this means taxes being paid pulling away from the runway that a young business has before it builds up a stable income stream.
  - throwaway7783 1y ago
    Whether it is $1 or $0.10, it is non existent for young software companies. If I'm penniless (after real expenses), where will I get those 10 cents to pay the taxes? And I'm not making this up. We are about to get cash flow neutral in our company, and this law will literally kill us and make 20 US citizens unemployed.
    - gbacon 1y ago
      It is unjust. It is destructive. It actively impoverishes all of us. This is where they trot out the cold, detached assertion of Robespierre that one has to break a few eggs to make an omelet.
    - fwip 1y ago
      Well, same as any other expense. You find a way to pay for it, or you go out of business. If the number is 10%; you need either 10% more revenue or 10% less costs.
      - 1y ago
mediaman 1y ago
You're bringing up the question of "what is a fair tax rate," which is reasonable. The questions of this legislation, though, are different: Should we incentivize companies to hire corporate executives instead of engineers? Should we favor trillion dollar companies over startups? (It is much cheaper for Amazon to loan money to the government than three people starting a new venture from scratch, so this favors concentration.) If you agree that we should discourage hiring engineers in favor of management, that concentration is good, and that low corporate tax rates are good, then this legislation is perfect. I say that it's good if you believe in low corporate tax rates because this legislation was passed to pay for overall corporate tax cuts, which primarily benefits the largest companies. Amazon actually pays $11.3 billion in income taxes a year (not zero), so on net, even though they have a lot of software engineers, they benefit from this legislation, because they effectively traded having to float money to the government in exchange for lower tax rates. Big companies care about tax rates more than liquidity, because their borrowing rates are cheap, whereas small companies care more about liquidity (they effectively cannot borrow, or it is very expensive) and their profits are low. So this effectively subsidizes big companies at the cost of small companies.
- deleted 1y ago
  [deleted]
- dangus 1y ago
  I think ultimately your interpretation is correct in your last paragraph, but I do wish someone in government would explain what they were trying to incentivize with the change. Maybe they felt like software companies were too heavily incentivized by the tax code to invest in unproven, unsustainable businesses and would structure their businesses in a way that meant they’d never end up paying taxes. Startups would blow a bunch of money on R&D for unprofitable moonshot ideas for a few years then the company would fail most of the time, with the government missing out tax revenue where workers could have been allocated to more profitable ventures. Still, I think that the more cynical take is more likely (big companies lobbying to make it more difficult for small companies to disrupt their businesses)
  - 1y ago
throwaway7783 1y ago
I agree Amazon should pay taxes. But this bill is not the way to make such companies pay taxes. It will kill competition and startups along the way. That is the crux of the issue. Edit: Looks like Amazon did indeed pay 15B+ federal taxes in 2024 (excluding sales tax etc)
- floxy 1y ago
  Here are some charts and tables showing Amazon income taxes: https://www.macrotrends.net/stocks/charts/AMZN/amazon/total-provision-income-taxes https://www.macrotrends.net/stocks/charts/AMZN/amazon/total-...
  - pj_mukh 1y ago
    Incidentally, should we really count "income taxes" as something "Amazon pays"? Amazon doesn't pay income taxes. Amazon employees do. The fact that Amazon conducts the transaction via withholding seems irrelevant. It's the employee losing the money.
    - floxy 1y ago
      You are confusing income taxes paid by employees with the corporate income tax paid by companies: https://en.wikipedia.org/wiki/Corporate_tax_in_the_United_States https://en.wikipedia.org/wiki/Corporate_tax_in_the_United_St...
    - 8note 1y ago
      i generally think they should be counted to the company as a sales tax. amazon is losing the money, because theyre paying it to the government and not the employee, ao they need to increase the pay accordingly if they want the employee to have a certain amount.
gbacon 1y ago
Even if Amazon pays no corporate income tax (only one category out of many), they pay much more in taxes per year than you would in several lifetimes. The phrase “fair share” is political, which is to say meaningless. The people who have earnestly invoked this phrase in my experience have resisted requests to define the term and have sometimes launched personal attacks for daring to raise the question. Will you break this streak? What in concrete terms is Amazon’s fair share? Your fair share? If they differ materially, why? I’m a capitalist and therefore wish zero ill toward you. Cronyists, authoritarians, and collectivists may want to abuse you, and that is a contemptible way to treat one’s fellow humans. Both parties to a free exchange benefit. Both sides can win because it is not a zero-sum game. As a matter of fact, you are advocating for a game that your side cannot possibly win. Consider that Amazon has enormous incentive to hire the very tippy-top best accountants and tax attorneys to find every crack in the tax code that middling staffers and nepo hires can barely scribble. It does create some benefit to society in the form of the incomes that these highly paid tax pros generate, the comforts it affords them, and the downstream jobs demand for those comforts creates. But in the big picture, it’s adversarial rather than constructive. Certainly we can come up with a more peaceful and constructive arrangement.
eadmund 1y ago
> what is the corporate tax rate? 21% > It's not 100%, so you're deducting a fraction developer's salary from your income, right, you're not saving that much on your tax bill each year. you're paying tax on the income you used to pay the developer. Which is a problem if you don’t have the money to pay the tax. Let’s combine your and the parent’s examples: 1 principal engineer @ $300,000/year; 3 engineers @ $200,000/year = $900,000/year. $1,000,000 in sales. year 1: Company makes $1,000,000 and pays $900,000 to engineers for a $100,000 cash profit; it deducts $180,000 from $1,000,000 for a $820,000 paper profit, and owes $172,200 in taxes. Since $172,000 > $100,000, it has a $72,000 cash loss for the year. There is not year 2. Or maybe it raises enough capital to have a cash cushion. A similar thing happens in year 2: it makes $1,000,000 and pays $900,000 to the engineers for a $100,000 annual cash profit, deducts $360,000 from $1,000,000 for a $640,000 paper profit and owes $134,400 in taxes, still more than the cash profit. The cumulative cash losses are now $106,400. Once again in year 3 it makes $1,000,000 and pays $900,000 to the engineers for a $100,000 annual cash profit, deducts $540,000 from $1,000,000 for a $460,000 paper profit and owes $96,600 in taxes. Hey, it doesn’t owe more than it made in taxes! On the other hand, its cumulative cash losses are now $103,000. Three years, three million in revenue, 2.7 million in expenses but it’s in the hole by $103,000, still more than its annual profit. In year 4 it makes $1,000,000 and pays $900,000 to the engineers for a $100,000 annual cash profit, deducts $720,000 from $1,000,000 for a $280,000 paper profit and a $58,800 tax bill. It still has a cumulative $61,800 cash loss. In year 5 it makes $1,000,000 and pays $900,000 for a $100,000 annual cash profit, deducts $900,000 from $1,000,000 for a $100,000 paper profit and a $21,000 tax bill. Good news, the company now has a cumulative cash gain! At the end of five years and $5,000,000 in sales the capital owners have made … $17,200. The engineers made $4,500,000 and the government made $483,000. In year 6 it makes $1,000,000 and pays nothing (this is very unrealistic, because in the real world every product requires maintenance …) for a $1,000,000 cash profit, deducts $720,000 from $1,000,000 for a $280,000 paper profit and a $58,800 tax bill. People complain that it’s only paying a 5.88% tax rate, ignoring the years of amortised losses. But hey, after $6,000,000 in sales the owners finally have $958,400. They take it as a dividend and it gets taxed at the top marginal rate, so they pay an additional $354,608 in taxes. In the real world, of course, sales may or may not cover salaries, sales may increase or decrease from year to year, markets may change and so forth. > I don't care what the law says, pay enough that no one can say that you're a lamprey on society, please. That’s an impossible target. Any random person can say, unreasonably, that someone else is a ‘lamprey on society.’
mbesto 1y ago
Just to give you some perspective...this comment: > I'm sure the capitalists among you will want me dead for saying this, but: pay your fair share. Is the equivalent of a finance person saying to a developer "can't you just hire more developers and we can build our product faster". In other words, it's not that simple.
ojbyrne 1y ago
I haven't looked at the tax rule in detail, but it looks like the "half year convention" for amortization applies. The "half year convention" means that when you amortize a purchase, it's assumed you purchased it exactly halfway through the year, so you can only deduct half the amortization in the first year that you would normally (and the other half is in the year after the depreciation period). So it looks like year 1: 1/10 year 2: 1/5 + 1/10 year 3: 1/5 + 1/5 + 1/10 year 4: 1/5 + 1/5 + 1/5 + 1/10 year 5: 1/5 + 1/5 + 1/5 + 1/5 + 1/10 year 6: 1/5 + 1/5 + 1/5 + 1/5 + 1/5 (the last 1/5 being the other half from year 1 and the 1/10 from year 6).
keybored 1y ago
> I'm sure the capitalists among you will want me dead for saying this, but: pay your fair share. I don't care what the law says, pay enough that no one can say that you're a lamprey on society, please. They’re gonna lobby to get as low taxes as they can. Why would they do anything else? That people think they are “lamprey” is (or would be) a minuscule problem in a country like America.

throwawaymaths 1y ago

modulo accounting shenanigans company like amazon is ~ unaffected by this rule since its capable of amortizing salaries anyways

OneDeuxTriSeiGo 1y ago

That's not really the issue (and I say this as a socialist). The issue is that it's a weak and very leaky definition that attempts to redefine anyone that touches "software development" away from being taxed like employees into being taxed like machines that produce assets at the same value as their cost of operating. This punishes small businesses and new businesses more than any large org because it massively increases the cost of operating for the first few years. And importantly it just doesn't do so consistently. Orgs should have a higher tax burden. This just doesn't do that, instead this is punishing orgs for trying to do new things and rewarding existing momentum (i.e. the large corporations that already have a profitable revenue stream and a long trail of employment history).

naikrovek 1y ago
> it massively increases that depends entirely on how much the business is taxed. every $1 deducted from taxable income is NOT $1 saved in that business' tax payment. It's much more like $0.10-$0.30 saved in taxes.
- OneDeuxTriSeiGo 1y ago
  Sure but for a startup/new business with little to no existing product, that is a massive amount. Especially as any software that is abandoned (ex: due to a pivot, etc) forfeits the amortised deductions that contributed to it. The only businesses this hurts are small or young businesses that have yet to develop an established product and reliably revenue stream. For them in the best case scenario they make so little that they can't even deduct but otherwise this means taxes being paid pulling away from the runway that a young business has before it builds up a stable income stream.
- throwaway7783 1y ago
  Whether it is $1 or $0.10, it is non existent for young software companies. If I'm penniless (after real expenses), where will I get those 10 cents to pay the taxes? And I'm not making this up. We are about to get cash flow neutral in our company, and this law will literally kill us and make 20 US citizens unemployed.
  - gbacon 1y ago
    It is unjust. It is destructive. It actively impoverishes all of us. This is where they trot out the cold, detached assertion of Robespierre that one has to break a few eggs to make an omelet.
  - fwip 1y ago
    Well, same as any other expense. You find a way to pay for it, or you go out of business. If the number is 10%; you need either 10% more revenue or 10% less costs.
    - 1y ago

mediaman 1y ago

You're bringing up the question of "what is a fair tax rate," which is reasonable. The questions of this legislation, though, are different: Should we incentivize companies to hire corporate executives instead of engineers? Should we favor trillion dollar companies over startups? (It is much cheaper for Amazon to loan money to the government than three people starting a new venture from scratch, so this favors concentration.) If you agree that we should discourage hiring engineers in favor of management, that concentration is good, and that low corporate tax rates are good, then this legislation is perfect. I say that it's good if you believe in low corporate tax rates because this legislation was passed to pay for overall corporate tax cuts, which primarily benefits the largest companies. Amazon actually pays $11.3 billion in income taxes a year (not zero), so on net, even though they have a lot of software engineers, they benefit from this legislation, because they effectively traded having to float money to the government in exchange for lower tax rates. Big companies care about tax rates more than liquidity, because their borrowing rates are cheap, whereas small companies care more about liquidity (they effectively cannot borrow, or it is very expensive) and their profits are low. So this effectively subsidizes big companies at the cost of small companies.

deleted 1y ago
[deleted]
dangus 1y ago
I think ultimately your interpretation is correct in your last paragraph, but I do wish someone in government would explain what they were trying to incentivize with the change. Maybe they felt like software companies were too heavily incentivized by the tax code to invest in unproven, unsustainable businesses and would structure their businesses in a way that meant they’d never end up paying taxes. Startups would blow a bunch of money on R&D for unprofitable moonshot ideas for a few years then the company would fail most of the time, with the government missing out tax revenue where workers could have been allocated to more profitable ventures. Still, I think that the more cynical take is more likely (big companies lobbying to make it more difficult for small companies to disrupt their businesses)
- 1y ago

throwaway7783 1y ago

I agree Amazon should pay taxes. But this bill is not the way to make such companies pay taxes. It will kill competition and startups along the way. That is the crux of the issue. Edit: Looks like Amazon did indeed pay 15B+ federal taxes in 2024 (excluding sales tax etc)

floxy 1y ago
Here are some charts and tables showing Amazon income taxes: https://www.macrotrends.net/stocks/charts/AMZN/amazon/total-provision-income-taxes https://www.macrotrends.net/stocks/charts/AMZN/amazon/total-...
- pj_mukh 1y ago
  Incidentally, should we really count "income taxes" as something "Amazon pays"? Amazon doesn't pay income taxes. Amazon employees do. The fact that Amazon conducts the transaction via withholding seems irrelevant. It's the employee losing the money.
  - floxy 1y ago
    You are confusing income taxes paid by employees with the corporate income tax paid by companies: https://en.wikipedia.org/wiki/Corporate_tax_in_the_United_States https://en.wikipedia.org/wiki/Corporate_tax_in_the_United_St...
  - 8note 1y ago
    i generally think they should be counted to the company as a sales tax. amazon is losing the money, because theyre paying it to the government and not the employee, ao they need to increase the pay accordingly if they want the employee to have a certain amount.

gbacon 1y ago

Even if Amazon pays no corporate income tax (only one category out of many), they pay much more in taxes per year than you would in several lifetimes. The phrase “fair share” is political, which is to say meaningless. The people who have earnestly invoked this phrase in my experience have resisted requests to define the term and have sometimes launched personal attacks for daring to raise the question. Will you break this streak? What in concrete terms is Amazon’s fair share? Your fair share? If they differ materially, why? I’m a capitalist and therefore wish zero ill toward you. Cronyists, authoritarians, and collectivists may want to abuse you, and that is a contemptible way to treat one’s fellow humans. Both parties to a free exchange benefit. Both sides can win because it is not a zero-sum game. As a matter of fact, you are advocating for a game that your side cannot possibly win. Consider that Amazon has enormous incentive to hire the very tippy-top best accountants and tax attorneys to find every crack in the tax code that middling staffers and nepo hires can barely scribble. It does create some benefit to society in the form of the incomes that these highly paid tax pros generate, the comforts it affords them, and the downstream jobs demand for those comforts creates. But in the big picture, it’s adversarial rather than constructive. Certainly we can come up with a more peaceful and constructive arrangement.

eadmund 1y ago

> what is the corporate tax rate? 21% > It's not 100%, so you're deducting a fraction developer's salary from your income, right, you're not saving that much on your tax bill each year. you're paying tax on the income you used to pay the developer. Which is a problem if you don’t have the money to pay the tax. Let’s combine your and the parent’s examples: 1 principal engineer @ $300,000/year; 3 engineers @ $200,000/year = $900,000/year. $1,000,000 in sales. year 1: Company makes $1,000,000 and pays $900,000 to engineers for a $100,000 cash profit; it deducts $180,000 from $1,000,000 for a $820,000 paper profit, and owes $172,200 in taxes. Since $172,000 > $100,000, it has a $72,000 cash loss for the year. There is not year 2. Or maybe it raises enough capital to have a cash cushion. A similar thing happens in year 2: it makes $1,000,000 and pays $900,000 to the engineers for a $100,000 annual cash profit, deducts $360,000 from $1,000,000 for a $640,000 paper profit and owes $134,400 in taxes, still more than the cash profit. The cumulative cash losses are now $106,400. Once again in year 3 it makes $1,000,000 and pays $900,000 to the engineers for a $100,000 annual cash profit, deducts $540,000 from $1,000,000 for a $460,000 paper profit and owes $96,600 in taxes. Hey, it doesn’t owe more than it made in taxes! On the other hand, its cumulative cash losses are now $103,000. Three years, three million in revenue, 2.7 million in expenses but it’s in the hole by $103,000, still more than its annual profit. In year 4 it makes $1,000,000 and pays $900,000 to the engineers for a $100,000 annual cash profit, deducts $720,000 from $1,000,000 for a $280,000 paper profit and a $58,800 tax bill. It still has a cumulative $61,800 cash loss. In year 5 it makes $1,000,000 and pays $900,000 for a $100,000 annual cash profit, deducts $900,000 from $1,000,000 for a $100,000 paper profit and a $21,000 tax bill. Good news, the company now has a cumulative cash gain! At the end of five years and $5,000,000 in sales the capital owners have made … $17,200. The engineers made $4,500,000 and the government made $483,000. In year 6 it makes $1,000,000 and pays nothing (this is very unrealistic, because in the real world every product requires maintenance …) for a $1,000,000 cash profit, deducts $720,000 from $1,000,000 for a $280,000 paper profit and a $58,800 tax bill. People complain that it’s only paying a 5.88% tax rate, ignoring the years of amortised losses. But hey, after $6,000,000 in sales the owners finally have $958,400. They take it as a dividend and it gets taxed at the top marginal rate, so they pay an additional $354,608 in taxes. In the real world, of course, sales may or may not cover salaries, sales may increase or decrease from year to year, markets may change and so forth. > I don't care what the law says, pay enough that no one can say that you're a lamprey on society, please. That’s an impossible target. Any random person can say, unreasonably, that someone else is a ‘lamprey on society.’

mbesto 1y ago

Just to give you some perspective...this comment: > I'm sure the capitalists among you will want me dead for saying this, but: pay your fair share. Is the equivalent of a finance person saying to a developer "can't you just hire more developers and we can build our product faster". In other words, it's not that simple.

ojbyrne 1y ago

I haven't looked at the tax rule in detail, but it looks like the "half year convention" for amortization applies. The "half year convention" means that when you amortize a purchase, it's assumed you purchased it exactly halfway through the year, so you can only deduct half the amortization in the first year that you would normally (and the other half is in the year after the depreciation period). So it looks like year 1: 1/10 year 2: 1/5 + 1/10 year 3: 1/5 + 1/5 + 1/10 year 4: 1/5 + 1/5 + 1/5 + 1/10 year 5: 1/5 + 1/5 + 1/5 + 1/5 + 1/10 year 6: 1/5 + 1/5 + 1/5 + 1/5 + 1/5 (the last 1/5 being the other half from year 1 and the 1/10 from year 6).

keybored 1y ago

> I'm sure the capitalists among you will want me dead for saying this, but: pay your fair share. I don't care what the law says, pay enough that no one can say that you're a lamprey on society, please. They’re gonna lobby to get as low taxes as they can. Why would they do anything else? That people think they are “lamprey” is (or would be) a minuscule problem in a country like America.