That's not really the issue (and I say this as a socialist). The issue is that it's a weak and very leaky definition that attempts to redefine anyone that touches "software development" away from being taxed like employees into being taxed like machines that produce assets at the same value as their cost of operating.
This punishes small businesses and new businesses more than any large org because it massively increases the cost of operating for the first few years.
And importantly it just doesn't do so consistently.
Orgs should have a higher tax burden. This just doesn't do that, instead this is punishing orgs for trying to do new things and rewarding existing momentum (i.e. the large corporations that already have a profitable revenue stream and a long trail of employment history).
> it massively increases
that depends entirely on how much the business is taxed. every $1 deducted from taxable income is NOT $1 saved in that business' tax payment. It's much more like $0.10-$0.30 saved in taxes.
Sure but for a startup/new business with little to no existing product, that is a massive amount. Especially as any software that is abandoned (ex: due to a pivot, etc) forfeits the amortised deductions that contributed to it.
The only businesses this hurts are small or young businesses that have yet to develop an established product and reliably revenue stream.
For them in the best case scenario they make so little that they can't even deduct but otherwise this means taxes being paid pulling away from the runway that a young business has before it builds up a stable income stream.
Whether it is $1 or $0.10, it is non existent for young software companies. If I'm penniless (after real expenses), where will I get those 10 cents to pay the taxes?
And I'm not making this up. We are about to get cash flow neutral in our company, and this law will literally kill us and make 20 US citizens unemployed.
It is unjust. It is destructive. It actively impoverishes all of us. This is where they trot out the cold, detached assertion of Robespierre that one has to break a few eggs to make an omelet.
As far as I know, this law has been a thing for a couple of years now. How has your company been dealing with it so far? You say "this law WILL" but if it's already in effect, then it means that you would have already had to find a way to pay taxes for the last few years right?
Our other expenses offset it. (That is, we were making losses - typical VC funded company)
Well, same as any other expense. You find a way to pay for it, or you go out of business. If the number is 10%; you need either 10% more revenue or 10% less costs.
Except its a fabricated expense by law. Of course we can say "it is what it is, deal with it" for pretty much anything.
Sorry, I thought you were asking a question. I misread, didn't realize it was rhetorical.
From a more left-wing perspective, it certainly doesn’t feel like a coincidence that Section 174 kneecaps anyone who’d try to compete with the FANG trusts. I’m sure an oligarch paid good money to insert this rubbish into the tax code. Well, relatively good money. American politicians are shockingly cheap to pay off. Probably only took $10k each, to convince them to destroy billions in economic value.
It’s a rare thing these days: a law everyone can hate, regardless of ideology. You don’t have to be a Laffer curve believer to recognize that you can design tax schemes that would destroy competition and/or cause excessive deadweight loss. After all, if all taxes were created equal, we could just replace them with a money printer.
Hopefully it doesn’t take three years to reach a consensus on these moronic tariffs, which are far more destructive to the overall economy.
While I totally agree this is a ridiculous way to tax corporations, to my (probably very limited) understanding, it looks like this might actually be less bad for growing startups, because they don't make much money during their first years.
So a startup that's paying $200k in its first year but only making $40k in that year, they still get to deduct the labour costs over the next 4 years.
But of course this is only true as long as revenue is less than labour costs. Eventually you do want to make money, and it feels like you can only do that when you stop hiring more people.
But regardless of its effects on different types of companies, I don't understand how anyone could pretend that this way of handling labour costs makes any kind of sense.
I'd definitely say it smells like oligarchical fuckery but the more mundane reality is that it was an easy change that would produce enough revenue to balance first term trump tax cuts so they could pass congress. I doubt anyone really thought too much past that and the underlying rationale was probably just "we hate woke social media, this hurt woke social media".