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avbanks · a month ago
The effects of Section 174 seem to be understated, it aligns with the layoffs and the size of the layoffs.
root_axis · a month ago
IMO the effects of Section 174 are way overstated. Time will tell, but my bet is that the market for software engineers continues to decline indefinitely. Maybe super low interest rates could mitigate the trend but other than that we're probably not going back to the days of high demand software engineering roles.

Why? A dozen different reasons. Of course LLMs are one facet, there's also the commodification of software and infrastructure which means buying something off the shelf is far cheaper than running an engineering org in-house, there's also the fact that the market is extremely oversaturated with software engineers with hundreds of thousands laid off over the last few years, then there's the aggregate effect of advancements in PL and software system design which makes it a lot easier to do more with less, the broader homogenization of runtime systems with modern browsers and mature cross-platform toolkits... and many many other factors. All these trends are converging on downward pressure for demand, and I personally don't see any reason why the trend will reverse.

crackrook · a month ago
I don't fundamentally disagree but I feel there's a selection bias at work here. I'm not an economist, but: maybe the things that could have a market bolstering effect are - by nature - harder to identify because they represent growth opportunities that haven't been captured yet? The sector-reinvigorating innovations over the horizon wouldn't be innovations if they were easy to anticipate.
Izikiel43 · a month ago
Disclaimer, not an economist.

A coincidental combination of economical conditions happened before the layoffs, and I know correlation doesn't imply causation, but these conditions look like a big cause:

* Companies hired like crazy in Covid * Section 174 got disabled * Interest rates rose

This made money much more expensive, and employees became a much higher cost due to the fact you hired like crazy, so you have a ton more, and you can't amortize them, also combined with fears of recession in 2023.

In a very short term, this cocktail of conditions made operating a company much more expensive, thus the layoffs and reorgs as an attempt to cut costs.

What you are saying is also true, but I see that taking effect over a longer period of time.

enjo · a month ago
I feel like we'll get a good feel for this if hiring domestic engineers picks back up without an influx of foreign folks who are not receiving the positive tax treatment.
culi · a month ago
It seems like this reversion is being paired with changes to 41(d)(1)(A) and 280C(c)(1)

> The domestic research or experimental expenditures . . . otherwise taken into account as a deduction or charged to capital account under this chapter shall be reduced by the amount of the credit allowed under section 41(a). Read in conjunction with Section 41(d)(1)(A), discussed above, it seems that all taxpayers claiming a research tax credit will necessarily have costs which are treated under Section 174A and thus subject to the reduction specified under amended Section 280C(c)(1).

> To our knowledge, many taxpayers have interpreted this language to mean that there is a reduction under 280C(c)(1) only to the extent the research credit exceeds the amortization allowed under Section 174, generally 10% in the year the expense is incurred under the applicable half-year convention. In that case, there would typically be little or no reduction to deductions and capitalized amounts, and correspondingly no reason to elect a reduced credit in lieu of a nonexistent or minimal reduction.

https://www.morganlewis.com/pubs/2025/07/new-section-174a-re...

TL;DR: I don't think we're out of the woods yet

UncleMeat · a month ago
Layoffs were a reaction from capital against labor gains.
ch33zer · a month ago
If you think layoffs were bad the last few years then just wait until the costs for all the ai hardware, massively overpriced talent, and acquisitions hit the books for these companies. It's going to be a bloodbath.
spwa4 · a month ago
Given the wage difference ... what does it matter? You make 200%-300% after tax in the US what you make in high cost areas of Europe (despite that the pre-tax difference is closer to 75% to maybe 125%). Normal US pay is comparable to tax-haven pay elsewhere: Europe (London, Luxembourg), Middle East (UAE), Asia (Singapore).

So in "a few years" (let's say 2-3 years) you'd be able to make between 5 and 10 years' worth of European net pay. If you don't raise your spending, that will easily cover your living expenses during the next recession, even if you spend all of it unemployed.

And that's if you start now. If you've been doing this for 10 years already ... wow.

bsuvc · a month ago
Interesting.

Is there someplace I can find information about how section 174 aligns with the frequency and size of layoffs?

adamors · a month ago
The OP links to a deepdive on section 174
breakyerself · a month ago
Someone must have made a mistake. This government just broke its perfect record of only fucking things up.
randerson · a month ago
Considering this is reversing their own mistake, after damage has been done, it is still a net fuckup in aggregate.
tpetry · a month ago
But the damage has been done while the opponentparty was leading the country. Thats the important part. That was always the plan. And is again with the big beautiful bill when the big tax hikes will take effect with the next president…
1auralynn · a month ago
Agreed, it cost me at least $10,000 because I had to pay fancier accountants to do all the R&D calcs. Not to mention the interest lost, my time spent figuring it all out, etc.
wmf · a month ago
This thing was never meant to kick in. Congress has a loophole where they will pretend a bill is "revenue neutral" if it cuts taxes in the short term but increases them long term. So bills are full of time bombs that go off years in the future. Normally Congress cancels the tax increases before they take effect but they forgot to fix this one in time.
schneems · a month ago
Happy to report that the laws of the universe are still in effect. NPR and PBS were defunded today so I’ll call it a wash.

(This is a joke, I’m happy for this change, but also raising that it’s in the middle of a lot of other crappy stuff and I’m holding space for all of it).

em-bee · a month ago
one step forward, two steps back.
culi · a month ago
The amendments to 41(d)(1)(A) and 280C(c)(1) might cancel this out and mean things are still fucked up

https://www.morganlewis.com/pubs/2025/07/new-section-174a-re...

leptons · a month ago
>My understanding is that this provision was originally enacted by Republicans during Trump's first term, so it follows Trump's practice of fixing things he was the one to break in the first place and attempting to claim credit.

The [dead] comment is absolutely right.

AtlasBarfed · a month ago
Oh the roads don't work by you? The water? Electricity? Internet?
breakyerself · a month ago
What?

Deleted Comment

catlover76 · a month ago
My understanding is that this provision was originally enacted by Republicans during Trump's first term, so it follows Trump's practice of fixing things he was the one to break in the first place and attempting to claim credit.
BryantD · a month ago
It is slightly worse than that. The provision was changed by Republicans… but set to kick in after Trump’s first term, so the negative effects landed on Biden. Now that Trump’s back in office, it’s safe to improve the economy again without the wrong party getting credit for it.
ivewonyoung · a month ago
Then why didn't the Democrats fix it when they were in power?
walterbell · a month ago
"Tell HN: Help restore the tax deduction for software dev in the US (Section 174)", 900+ comments, https://news.ycombinator.com/item?id=44226145

"OBBB signed: Reinstates immediate expensing for U.S.-based R&D", 300+ comments, https://news.ycombinator.com/item?id=44469124

vineyardmike · a month ago
One thing that I haven’t seen widely reported on, but this article highlights is that the reversal is only for US based employees, so outsourcing jobs overseas will be more expensive compared to American talent (if salaries are equal). This seems good for the US tech industry, and I’m curious how this form protectionism compares to jobs in other sectors.

It’ll also be interesting to watch to see if this has any side-effects on the job market. In my experience in big-tech, a lot of the overseas jobs were historically supporting roles and “keep the lights on” for legacy services. I can imagine these tasks aren’t valuable enough to pay Silicon Valley salaries, and that’s why lower cost talent was used. It’ll be interesting to see if these roles move to low-COL or remote American workers. I can totally imagine that a European or even Indian salary for a senior engineer in big tech would be livable in some parts of the US.

ChrisMarshallNY · a month ago
> In my experience in big-tech, a lot of the overseas jobs were historically supporting roles and “keep the lights on” for legacy services.

I know a couple of tech CEOs (very small services companies), and they use offshore for all development. They don't have a single US engineer; only project managers.

commandlinefan · a month ago
> They don't have a single US engineer; only project managers.

That's what I never understood... why not outsource the project managers too? What is it about _project management_ that only onshore Americans can do? Whatever you think of programming, project management is much easier than programming.

aprilthird2021 · a month ago
If it's very small services companies using offshore for all development, they're not big tech at all
JeffMcCune · a month ago
These are effectively MSPs and perform the kind of role GP describes.
aprilthird2021 · a month ago
> It’ll be interesting to see if these roles move to low-COL or remote American workers. I can totally imagine that a European or even Indian salary for a senior engineer in big tech would be livable in some parts of the US.

I think they will, Indian salaries for the top top eng are already comparable to decent eng from MCOL or LCOL US, so I could see this happening.

lbotos · a month ago
> so outsourcing jobs overseas will be more expensive compared to American talent (if salaries are equal).

I think this very much depends on how companies are "outsourcing"/hiring.

Like, if the devs you are outsourcing to are delivering you a "project-based app with ongoing support". Did you hire "developers" or are you doing business with a development company?

For many large tech cos, they also have local entities or PEOs, where people working for Facebook work for Facebook Ireland, or Facebook India.

So I'm not sure how much impact it has -- probably mostly for smaller shops that might hire 1 guy directly in a different country?

vineyardmike · a month ago
> I think this very much depends on how companies are "outsourcing"/hiring.

Yes and no. Obviously there are a million ways to do business and taxes are really complex, but the law doesn't revolve around actual salaries but "cost of software R&D" so this still applies to hiring contractors and other companies if the deliverable is software.

From the article:

> US companies making foreign software development-related expenditures like hiring staff, or paying for contracts abroad, are still mandated to be expensed over 15 years.

jszymborski · a month ago
> (if salaries are equal)

That's rarely the case, right?

mediaman · a month ago
He's not saying it's only true when salaries are equal. It makes a significant difference at the margin: if you're an employer debating whether to employ US talent or offshore talent, weighing time zones, skill and other factors against cost, then introducing a tax advantage for domestic hiring will cause those employers who were otherwise indifferent between the two options to now prefer US labor.
walterbell · a month ago
https://news.ycombinator.com/item?id=44470230

> 15-year amort rule hurts your tax deduction, but 50 %+ lower offshore wages more than make up for it.

aprilthird2021 · a month ago
Eh, Indian software wages are no longer 50%+ lower then MCOL / LCOL US wages
mertleee · a month ago
Watch them increase the H1b cap after this "win"...
froggertoaster · a month ago
> The remaining thing that stings for companies is how foreign devs still need to be amortized for 15 years.

I'm having a hard time seeing the issue with this.

mortenjorck · a month ago
I had to wryly laugh when I read this framed as a bad thing. This is great news for American developers and product teams.
pcthrowaway · a month ago
Isn't it just going to lead to more H1B abuse? I assume H1B developers count as U.S. persons for tax purposes.
robotnikman · a month ago
Agreed! There are so many people in this country with the talent required for those positions.
eweise · a month ago
Same.
throwawaybbq1 · a month ago
Does this mean a huge hiring uptick in the US/layoff reversal? I do think this law caused some of the bad market. Will undoing it get us back to where we were?
jesol · a month ago
Definitely not. Repealing section 174 (or not extending it, as it were) helped pushed us into a new normal for the market. Adding it back doesn't in and of itself push the market into another new normal, we'd need a lot more. It might take the edge off though, hopefully.
UncleOxidant · a month ago
Agreed. Consider that we're in a big tech bubble right now (AI) and have been for at least a couple years. And yet tech layoffs have been way up, and hiring way down. Part of that that could be attributable to 174, but there are other issues that contribute more. One would be that there are vanishingly few people with actual experience in this narrow part of AI (LLMs) - I know people working in AI that have been laid off in the last couple of years because they were in the wrong area of AI (vision & CNNs). Secondly, it turns out that not that many people are needed to work on this stuff (mostly concentrated in large companies like Meta, Google, Microsoft & Amazon). And thirdly, folks in the C suite became convinced that AI is going to replace software engineers so they've quite hiring them.
aprilthird2021 · a month ago
A huge uptick / reversal, I'm not sure, that's ultimately far more driven by actual profit / market than taxes.

But as pointed out in the article, US devs now have a tax advantage vs foreign devs. That may lead to some "nearshoring" especially from foreign markets where dev salaries have been jumping up (India, Europe, etc.)

y-curious · a month ago
I pray this is true. How can an experienced dev in the Bay area compete with someone in India that would work for $10 an hour with chatgpt?

Now that I write this, it's still a hard decision for big companies.

qkeast · a month ago
Does the 15-year period for non-US developers only apply to developers? What about roles like designers, product managers, and so on?
semitones · a month ago
The technical qualification is "everything that qualifies as research and development"
jay_kyburz · a month ago
I have this image in my head that R&D is some boffins in the back room inventing a something new, and then expanding on that idea is execution.

But "and development" covers everything we do in software development. Whether you fix a bug or write some documentation you are developing the product in some small way.

I imagine some business will need to restructure so the US arm is paying a service contract to use the software, and the foreign arm will own and develop the software.