Comment by dtagames
6 months ago
This doesn't explain the mass tech layoffs. According to the article, the rule applies to R&D. The vast majority of tech workers laid off in the last two years didn't work in research and development. They wrote regular software for sale, like games, for example.
The games industry, while hugely profitable and bigger than TV, movies, and music combined, laid off tens of thousands of people. It's unmitigated greed is all it is.
> For almost 70 years, American companies could deduct 100% of qualified research and development spending in the year they incurred the costs. Salaries, software, contractor payments — if it contributed to creating or improving a product, it came off the top of a firm’s taxable income.
According to the article, as long as the tech workers contribute to improving or creating a product (be it games or apps), they count as R&D cost.
I worked in games 2 years before the studio shutdown. It wasn't because of "R&D" tax breaks. None of the recent layoffs or studio closures are explained by that. Nor are the Microsoft, Dell, or Intel layoffs which aren't game-related.
To qualify for R&D tax breaks, IIRC having identified qualifying work for a segment of my firm, there must be elements of hypothesis, experimentation, results, etc that I would consider more science-y 'Research' than just turn the crank software 'Development.' It has to be both. And that has to be documented. And offshore research+development doesn't get you a tax break. The irony is that the R+D tax actually discourages onshore pure development as a 'trade' and encourages a split of onshore R+D and offshore D.
This sort of thing appears to be self-reported; I don't know if it ever gets audited. I don't know if big tech lies or creatively interprets what counts and that has contributed to the issue. But this article sort of over-represents what qualifies as R&D for US tax purposes.
Under the new rules, all software development, excluding bug fixes, must be expensed in this manner. "Turn the crank" development is included.
https://larsco.com/blog/section-174-updates-navigating-the-i...
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At the last couple of companies we worked at, they just sent out surveys on what time went to different activities. We couldn't possibly fill that out honestly, as that wasn't tracked.
Which, I think is an overlooked part of this. They must constantly have gotten feedback that people were lying to them.
> The vast majority of tech workers laid off in the last two years didn't work in research and development.
I bet they were classified as R&D for accounting purposes. Product development largely falls into R&D - it doesn't matter what the product being developed is for.
Every job I had at a megacorp was classified as R&D, and I know because I had to track hours against such.
> I bet they were classified as R&D for accounting purposes.
It's not just that. Section 174 now explicitly calls out Software as always being an R&D expense:
> (3) Software development
> For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.
https://www.law.cornell.edu/uscode/text/26/174
> They wrote regular software for sale, like games, for example.
Even though it sounds unintuitive, that activity is considered R&D for tax purposes.
Greed is too easy as a target.. industry space has shifted because of slower innovation and less growth, so cost cutting being more a focus would be a reasonable strategy
If your company is already profitable to the tune of billions annually, "cost cutting" isn't necessary. You're just cutting people out of jobs and out of economic participation in society -- which affects a far larger group than just themselves when those folks can't spend their salaries in other businesses.
There is no justification for "cost cutting" when it hurts the larger economy. If the company were losing money, that would be different, but these mass layoffs are all from firms that make obscene, enviable levels of profit. It's greed.
If a company is making $10 billion in annual profits, and they discover that they're spending $100 million on a useless project, are they morally obligated to continue that spending indefinitely?
There is no justification for "cost cutting" when it hurts the larger economy.
It is not good for the economy to have people doing work that doesn't produce value.
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You can call any self-interested decision "greed" if you need to just turn off your brain and emote.
But they were making high profits for decades, and being greedy for decades. Then there were a lot of layoffs. What changed ?
You are correct saying it's not the R&D deductions.
But it's not "greed": it's the end of zero interest rate policies.
https://newsletter.pragmaticengineer.com/p/zirp
> They wrote regular software for sale, like games, for example.
Wrote software, like, you know, "developed" it?