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.

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.

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

Layoffs were a reaction from capital against labor gains.

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.

Interesting.

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

Considering this is reversing their own mistake, after damage has been done, it is still a net fuckup in aggregate.

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.

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).

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...

>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.

Oh the roads don't work by you? The water? Electricity? Internet?

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.

> 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.

> 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.

> 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?

> (if salaries are equal)

That's rarely the case, right?

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.

I had to wryly laugh when I read this framed as a bad thing. This is great news for American developers and product teams.

Same.

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.

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.)

Basically it's more about cash flow than profit. In the example, you can claim those expenses back eventually so if you survive the initial $1M hit then after the time period has passed you're back to normal.

For a small business this is astronomically harder than for Google.

The technical qualification is "everything that qualifies as research and development"

Unless you are speculating about tax policy, there is basically no case where you would want to do this. Losses now are worth more than losses later in terms of corporate tax. And if you are a startup burning runway, you might not live long enough to actualize the loss if you amortize it. From the perspective of day-to-day operations: the software engineers need to get paid, and that money has to come from somewhere, revenue, a loan, or the bank account. It's very much not spread out over 5 years in terms of your actual cash flow needs.

Typically businesses amortize large capital expenditures, and this allows the business to appear profitable even when they had a significant outbound cash flow. This is just something they're allowed to do with accounting in the US. There's an argument that you should take out a loan for situations like this, because then the cash flow events will more closely match the changing value of the business.

I would not try to make sense of it in terms of business accounting, there's no deeper understanding of business to be had. It's just politics; and it made it objectively harder for startups with revenue to survive and grow.

iirc some companies (google?) had been doing that before section 174 anyway. (which is why it imo isn't super convincing to tie layoffs with section 174 rather than e.g. end of zirp)

ok I read it in https://blog.pragmaticengineer.com/section-174/ "Google: the tax change was minimal, because Google was voluntarily amortizing software development expenses for most staff, already."

If your salaries exceed your sales by more than 5x, then it makes sense to deduct only 1/5 of those salaries this year, and save the rest of the deduction for later. That's in case your business lasts another year.

It's not just that the company is operating at a loss, but it has to be operating at a really big loss, such as a startup with a high burn rate.

Republicans needed to raise taxes to meet their own reconciliation requirements in order to get the bill passed.

Simple as that. It's just raising random taxes to balance the bill.

This law was written in 2017 not 2022.

The 2017 tax cuts were big cuts, but the way the government budget process works, they want to minimize the “appearance” of deficit spending across a decade window. To do this, added a cliff in 2023 that would raise the taxes on tech companies to help offset the cost of their cuts. Side effect is that the next administration gets shitty economic news. Dec 2022 and January 2023 had lots of crazy layoffs, right on schedule.

The reason it was tech companies specifically is that they’re super wealthy and could (ostensibly) afford it. If you’ll notice, the law exempted software development in oil and gas companies. It doesn’t hurt that tech companies and employees leaned strongly democrat in 2017. The conspiracy theorist in me thinks the tech companies accepted the 2022 hiring mania knowing layoffs were eminent.

@dang this appears to be a spam account.