> In 2017, then-President, Donald Trump, signed the 2017 Tax Cuts & Jobs act, which overhauled tax codes and reduced tax – for example, it reduced the top tax bracket from 39.6% to 37%. To make the bill pass strict budgetary rules, the Senate used a process called reconciliation: adding in tax code changes that delayed tax increases. These delayed increases “balanced out” the tax reduction.
> One of these changes was Section 174, set to come into effect 5 years later, in 2022. These parts deliver the blow by making it clear that software development costs need to be amortized over 5-15 years. Most experts expected Congress to push back the Section 174 amendment to a later date, or simply remove it. But Congressional negotiations to repeal the changes fell apart at the last minute in December 2022, meaning it became law.
> Amazon, Microsoft, Intel, Ford, Lockheed Martin, and other US companies created the US R&D Coalition in 2018 to advocate in reversing this change. This group concludes... "By diminishing the near-term value of R&D expenditures, the Tax Cuts and Jobs Act will reduce incentives for companies to invest in the development of new products, ultimately hurting consumers and businesses alike.”
> What about VC-funded companies? For loss-making companies this change doesn’t make much of a difference. But the change does impact VC-funded companies near to break even. Most VC-funded companies close to breakeven have big-enough cash buffers with which to pay unexpected tax bills. However, these companies might reduce hiring – or even consider letting go staff.
My 2c are that big tech companies with large amounts of cash on hand wanted to be seen optically as fighting against this change... but those with cash on hand would also benefit from being the only ones able to weather the storm relative to their would-be competitors. It's unclear that incentives were aligned here among those companies with lobbying budgets.
> In 2017, then-President, Donald Trump, signed the 2017 Tax Cuts & Jobs act, which overhauled tax codes and reduced tax – for example, it reduced the top tax bracket from 39.6% to 37%. To make the bill pass strict budgetary rules, the Senate used a process called reconciliation: adding in tax code changes that delayed tax increases. These delayed increases “balanced out” the tax reduction.
> One of these changes was Section 174, set to come into effect 5 years later, in 2022. These parts deliver the blow by making it clear that software development costs need to be amortized over 5-15 years. Most experts expected Congress to push back the Section 174 amendment to a later date, or simply remove it. But Congressional negotiations to repeal the changes fell apart at the last minute in December 2022, meaning it became law.
> Amazon, Microsoft, Intel, Ford, Lockheed Martin, and other US companies created the US R&D Coalition in 2018 to advocate in reversing this change. This group concludes... "By diminishing the near-term value of R&D expenditures, the Tax Cuts and Jobs Act will reduce incentives for companies to invest in the development of new products, ultimately hurting consumers and businesses alike.”
> What about VC-funded companies? For loss-making companies this change doesn’t make much of a difference. But the change does impact VC-funded companies near to break even. Most VC-funded companies close to breakeven have big-enough cash buffers with which to pay unexpected tax bills. However, these companies might reduce hiring – or even consider letting go staff.
My 2c are that big tech companies with large amounts of cash on hand wanted to be seen optically as fighting against this change... but those with cash on hand would also benefit from being the only ones able to weather the storm relative to their would-be competitors. It's unclear that incentives were aligned here among those companies with lobbying budgets.