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I have a neighbor I like that is running for city council, so I feel obligated to go vote. Usually I prefer to stay home. There is a weird civic pride and happiness at polling places that I stridently hate. Old people handing out "I voted" stickers. Kids waving flags and handing out pamphlets. People smiling. Ugh.
I'm usually not a party pooper in my day to day life. But I'm libertarian, so when it comes to politics I absolutely am a party pooper.
Every time I go to the polls I am reminded that I strongly want a "none of the above" option, or more accurately "I hate all of these people". Something that just consistently says I disapprove of this circus. I don't care too much what they do in case a "none of the above" wins. Endless re-elections, a term with no one taking the position, etc. As it is I mostly just vote libertarian ticket if there is one available, since that feels like the closest option to me saying "none of the above".
I don't want to have to care about these elections. In some sense they kind of matter. They give a sort of mandate that pushes things one direction for a few years. In other important senses they don't matter, bother major parties seem equally capable of implementing policies that fuck my life up with me barely being aware that they've done it. Latest example is a Trump era tax cut and a change to how software development is amortized that has basically tanked the software dev job market and left me stuck at a job that is boring.
My hope is for deadlocked and unproductive government.
The 174 change has to be compared to all of the other changes (eg the 14 point rate cut). The nature of lowing the rate means the five year amortization pain is less because the deduction is worth about a third less. So that means the deduction isn’t driving decisions as much. Though yes I concede in the short run it is a bit of a drag.
The bigger drag may be Linda Kahn (sp) at the FTC killing M&A in the tech space. Tech development seems to happen a lot in an outsourced manner. Microsoft buys target X who did Y. Target X was funded by VC. But if FTC has practically shut down these outsourced R&D plays, then the economics means VC won’t invest as much into them since VC can’t exit timely. If VC can’t exit timely, then IRR gets screwy.
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That's when the tax change came into effect.
The market tanked because there was an insane VC bubble that deployed trillions of dollars of QE money into unprofitable software companies. The federal reserve (and every other central bank) directly subsidized software jobs for 12 years and then it stopped.
That's simplistic. Yes, the techo ecosystem was largely a money incinerator with even the biggest companies (e.g. Uber) burning billions a year. But they could do that because they weren't taxed on those losses. For a personal example (I disbanded a company because of this), 17 million in, 22 million out = no tax. 25 million in, 28 million out = 33.5 million out (5.5 million in taxes, some coming back along 5 or 15 years (as interest free loans to the government)) We went from (hopefully) burning 3 million to 8.5 million, almost triple projected costs (and backwards from 5.)
This came into effect in 2022 before the first interest hike in March. (The equity correction started at new years, coincidence but not related.)
The math doesn’t really math. These companies that had huge losses would have NOLs. Granted, the post 17 NOL limited to 80% of operating income. But that would mean at most 20% of the income subject to FIT so or an ETR of around 4%.
Really the change to 174 really would only impact a company that has only R&D expenses but didn’t have material historic losses.
If you're right, I should murder my accountant.
Your particular facts may vary (eg perhaps you were in a pass through and already used prior year loss on other income; you historically never had large losses). But as for an industry wide problem, I’ve looked at a large amount of tech start ups from a tax perspective and while there is a cash drag due to Section 174 changes it isn’t massive due to the historic losses. The bigger issue often is the BEAT issue / offshore R&D.
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I’m not disputing that these tax changes may have made a difference, your example is pretty clear. But at the same time from a finance perspective it also seems like what’s happening with software jobs is an exaggerated version of what’s happening in other industries that relied heavily on low rates and easy money, just in a more exaggerated way because tech benefited more than anyone.
See my point. Poster is ignoring NOLs. If the poster is in the weird situation where it doesn’t have big historic losses and is basically cash flow neutral, then the R&D is a timing difference and should be able to be financed.
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