I'm kinda weekly in agreement too but I can't really square the idea that it's all Section 174 with what I've been seeing as a tech worker.
1) At my company they already were capitalizing most of our time. We have to fill out time cards characterizing most of our time as R&D. As best as I can make out this is partially tax efficiency (and maybe we're getting credits) but it's also substantially about reporting and having a similar capital/operating structure to other companies in our industry.
2) From what I've seen at my company and others, most of the layoffs have been moving job functions overseas. Axlerod points out that the amortization schedule is even worse for overseas engineers, but brushes it aside by arguing that companies can get tax benefits from foreign governments. But then he points to Germany as a country that gives the old tax treatment, which is confusing because Germany's tech employment trends are similar to the USA. In fact, in my company, we used to have large German operations all of which have been moved to cheaper European countries and India.
3) He also mentions ZIRP but only to dismiss it. That seems kinda goofy as you talk to any financier and they will say the rising risk free rate of return will eviscerate speculative investment.
4) He also fails to really even address two other trends that I have seen in our industry: maturation of the industry as a whole (and a lack of new "platform" to take off since cellphones) and a post-covid post-WFH backlash by industry leadership against more assertive workers, and a desire for labor discipline.
No doubt Section 174 is also a cause for the tech slump. How much compared to all the others? I don't know. And I support its repeal since it was just an accounting trick in the trump tax cuts. My intuition is that its effect is pretty marginal and a repeal won't change much.
It's not all s174, but a lotta stuff in 2022 all happened at once and s174 accelerated that:
- Pandemic swells from tech was cooling off. It was simply not going to be a situation that facilitated constant growthong term. Likewise, this tail end also meant another round of trying to outsource tech overseas, now that companies spent a few years forcibly adjusting to remote work.
- some new privacy policies in Apple and Android changed that made it harder for ad tech to do their jobs. Great for consumers, but this does mean that a part of tech would be hit hard over the impacted revenue.
- the overall atmosphere in the world meant people were already taking recessionary measures. Companies were already staring to plateau in growth around this time
- interest rates would increase the next year which impacts everything. But tech would be hit pretty hard itself.
- the Ai hype bubble was starting to take off around this time. It wouldn't affect tech for a while, but it would slowly start this pivtot to try and push this as a marketing gimmick and shift priorities. And in a few cases, companies start to get this genius idea that this very premature tech can replace programmers.
A lot of stuff just happened all at once. S174 alone wouldn't have caused such a downturn by itself if companies thought they could still profit at the end of thr day.
I agree, it's a whole soup of things. Even still, I don't know why people continue to ignore or dismiss S174 and instead seem to blame AI on all of it. Maybe it's just hype being pushed by AI companies to make themselves seem more valuable? Maybe an excuse from companies that don't want to admit they over-hired?
1) At my company they already were capitalizing most of our time. We have to fill out time cards characterizing most of our time as R&D. As best as I can make out this is partially tax efficiency (and maybe we're getting credits) but it's also substantially about reporting and having a similar capital/operating structure to other companies in our industry.
2) From what I've seen at my company and others, most of the layoffs have been moving job functions overseas. Axlerod points out that the amortization schedule is even worse for overseas engineers, but brushes it aside by arguing that companies can get tax benefits from foreign governments. But then he points to Germany as a country that gives the old tax treatment, which is confusing because Germany's tech employment trends are similar to the USA. In fact, in my company, we used to have large German operations all of which have been moved to cheaper European countries and India.
3) He also mentions ZIRP but only to dismiss it. That seems kinda goofy as you talk to any financier and they will say the rising risk free rate of return will eviscerate speculative investment.
4) He also fails to really even address two other trends that I have seen in our industry: maturation of the industry as a whole (and a lack of new "platform" to take off since cellphones) and a post-covid post-WFH backlash by industry leadership against more assertive workers, and a desire for labor discipline.
No doubt Section 174 is also a cause for the tech slump. How much compared to all the others? I don't know. And I support its repeal since it was just an accounting trick in the trump tax cuts. My intuition is that its effect is pretty marginal and a repeal won't change much.