No one understands or is willing to research these things anymore. Everyone (or at least everyone who is screaming and being heard) is mumbling points about interest, boom/bust, AI, etc...
The reality, in my opinion, the governments have made it so hard to start and maintain a business that the market is not liquid for employment anymore. It's not catastrophic, but rather dead (as not moving).
In 2017, the government passed a law that raised a tax in 2022. According to some, supporters of the tax raise could claim the raise wasn't real because it could be reversed before 2022.
> Because the 2017 “Tax Cuts and Jobs Act” was passed via the reconciliation process (in order to avoid a filibuster), it had to be budget neutral after 10 years; one tactic used to accomplish this is to make future changes to the tax code that increase revenue, even though the bill’s drafters anticipate those changes will be rolled back before they are implemented.
The US is one of the most business-friendly countries on the planet (it's why you don't have to provide your employees, you know, rights). No idea what GP is on about.
Lots of European tech work is just offshoring/outsourcing for US companies. S174 affects them to an even higher degree since foreign software development has to be amortized not over 5 years, but over 15 years.
Section 174 has been covered many times on this site.
It could explain part of Europe's dumping. If the hiring market in the US is weak, some of those displaced devs could work for European software businesses, at least on a contractor basis, because remote is a thing. I've done that. I'm not doing it now (I'm globally unemployed, ha) but I did do it in the past. Was quite nice actually, the European company I worked with actually paid almost immediately when invoiced, rather than than drag it out 30-60 days as is customary in the US.
My company has drastically reduced its foreign outsourcing because of Section 174, and I've heard the same from others.
I don't think 174 is the entire story -- I do think interest rates play a significant part, for one thing. But it's definitely part of the story, and definitely plays into some level of Europe's tech woes.
I've heard about it a million times, but I also tend to follow tech-business things (folks on twitter, Stratechery, etc). Agree it doesn't explain Europe.
Indeed. There is so much more going on and not going on than is apparent in these (apologies to the author, but I think this is accurate) long but simplistic takes. Hearsay and arbitrary correlations are great conversation fodder but I wouldn't make life decisions based on such discussions.
The difficult bit is that there is very little available to folks who want concrete "answers" to the job market, life and success questions. There is simple, quality advice but it doesn't give answers and I've noticed people don't like them.
But all of that is irrelevant since these tax changes don’t actually increase tax collections. All they do is make it harder for a company whose product development and/or research is dependent more on human capital as opposed to physical assets, to start doing business.
It has no impact on established businesses (since their taxes will offset over a few years) and the only impact will be that more businesses are likely to fail before they become established than otherwise. Alternatively, more businesses are likely to outsource and offshore their human capital.
Even if the work that was benifitting was not “research” when deciding tax policy taxonomy is far less relevant than actual impact.
And unfortunately it looks like we’re on track to re-elect the people who brought us this atrocity in 2017.
TL;DR on Section 174, Research & Experimentation costs went from being fully deductible in the year incurred to being deductible over a 5 year period.
Larger tax bills and a tightening on what roles/activities are deductible as R&E are likely what OP is pointing at with his comment.
To the best of my non-inside baseball research, Section 174 changes were simply one part of a package of revenue generating measures to offset the large tax cuts from the broader tax act they were a part of.
The changes came from The Tax Cuts & Jobs Act of 2017 that was introduced to the House of Representatives by Congressman Kevin Brady (R) Texas. The bill passed both houses of Congress along party lines. Then President Trump signed the bill into law. Section 174 changes did not take effect until 2021.
The entire history of at least the USA is that if conservatives want something, it will have extremely large negative consequences down the road for many years to come.
In theory, the Chairman of the Federal Reserve (who controls interest rates) is supposed to be insulated from political pressures: one explanation for the root of the "stagflation" malaise in the US economy during the 1970's was that Richard Nixon's chairman (Arthur Burns, who had been a direct advisor to RMN) kept interest rates too low for the economy at the time in order to help Nixon get reelected in 1972 (and then beyond, to make Nixon and then Ford more popular). Under this explanation- common among those who support central bank independence- it took Paul Volecker (a Carer appointee) to run interest rates very high for a long time (the so-called Volecker Recession of the early 1980's) to make up for the failure of Burns. This is where the tradition of Fed Chairman independence comes from. (1)
Donald Trump, as a real estate guy, instinctively understands the power of lower interest rates and definitely lobbied hard for Jay Powell (whom he appointed) to lower interest rates in his first term. So if he gets elected again I expect we will see that sort of pressure applied again, the question is whether the Chairman would continue to chart their own course or not.
1: The truth of this story is, as always with economics, impossibly hard to measure. There was a strong movement from the 1960's into the 1990's to try and create independent central banks- this is where the Nobel Memorial Prize in Economics came from, among other things- but the evidence is such that the physicist in me recoils at the idea that this has been proven.
It largely doesn't depend on him, but the 174 fix itself has bipartisan support. But so far they've been unable to craft a whole tax bill that will pass the Senate, because of other disagreements, and now Sen. Crapo is holding the bill because he thinks they'll be able to get a bill they like better next year (though they're talking about making the 174 changes retroactive to 2021).
Interest rates will almost certainly get lower in the next term, regardless of who's in the White House.
I mean, given that he _caused_ these changes (they're a consequence of the 2017 Trump tax 'cuts'), probably not, though then again he's not noted for his consistency.
Both the Republicans and Democrats do intend to fix this (and the rumor is that they intend the fix to be retroactive to 2021). It's generally considered to have been unintentional on Congress's part. However the fix has been held up in the Senate by the Republicans (esp. Sen Crapo), because it's part of a larger tax bill, and the Republicans think they'll be able to get a better bill overall in the next term. Meanwhile startups affected by it are left to swing in the wind.
Trump may face a Democratic House and that would make him unable to change tax rates. People forget that the president as of now is not a dictator - to Trumps dismay of course.
While the flip still seems unlikely, this probably doesn't matter either way for 174 -- currently any bill that passes is likely to have the 174 fix in it, because it has bipartisan support. The problem has been that it's attached to other tax changes that haven't been able to get through the Senate, and Sen. Crapo is intentionally stalling until after the election, because the GOP thinks it'll have more seats and will be able to get a bill they like better.
