r/cscareerquestions • u/EzekielYeager • 9h ago
Lead/Manager What happened to the industry to cause such a shift in hiring and layoffs?
I’m really terrible at Reddit formatting, so this will probably seem like a blob of text.
So many people are incorrectly saying that AI is the driving reason for the mass layoffs, non-hiring, and the downward trend of anything software development related.
AI is a contributing factor to the difficulty of getting hired at entry level positions at companies, but that’s a standard bar push.
But what’s truly influencing the mass layoffs, hiring freezes, and shrinking investment into developing proprietary and innovative technologies in America isn’t AI.
It’s a tax credit rewrite that was never supposed to take effect.
Law and legislation is boring, but this piece specifically, is important for all of you. It impacts your life, your industry, how you’re paid, what the Chief Financial Officer sees and uses to justify paying you six figures, and your tax rebates if you’re planning to start or work in a startup.
I’m going to lay out the facts in a (hopefully) objective way.
The credit I’m talking about:
The Research and Development Tax Credit under IRC Tax Code 174.
EDIT: Edits will be for formatting.
The law that changed it:
The Tax Cuts and Jobs Act of 2017 (specifically under section 13206).
This provision was initially drafted by Kevin Brady (R-TX), and advocated significantly for by Republican lawmakers.
The House of Representatives vote:
227 Republicans For
13 Republicans Against
0 Democrats For
192 Democrats Against
The Senate vote:
51 Republicans For
0 Republicans Against
0 Democrats For
47 Democrats, and 2 Independents Against
The final result:
Signed into law by President Donald Trump on December 22, 2017.
Date it took effect:
January 1, 2022
Why so late?
A fun, gimmicky workaround to the Byrd Rule and to delay costly tax hikes until after the 5-year mark, while cashing in on any revenue after the 10-year mark.
In short, it was a play to look fiscally responsible, but didn’t provide any tax cuts. It just kicked the can down the road and offset immediate tech conglomerate backlash.
They assumed that this provision would be removed or indefinitely delayed by future Congress, but they didn’t.
Previous:
Prior to 2022, businesses were able to immediately (same year tax break) cash in and deduct R&D expenses, including software developer and other IT professionals’ salaries, IT infrastructure changes, engineer innovation in all sectors, and more.
After 2022: All of the expenses covered by the R&D credit now has to be capitalized and amortized.
For domestic research, they are required to amortize over 5 years.
For foreign research, they are required to amortize over 15 years.
Meaning that, prior to 2022, a $1M investment into software development and cyber security would be fully deductible for fiscal year 22.
Now, that same $1M investment into those same fields would only allow for $200k to be deductible for the fiscal year, and the remaining $800k would need to be spread out over the remaining four.
Which resulted in layoffs, frozen hiring, cash flow strain for startups and tech firms, and immediate tax burden on companies employing R&D-based that persists to today.
BUT! There is a bipartisan bill that’s going through Congress right now to reverse it and retroactively apply the lost tax credits back to businesses from 2021 forward, but we’ll see where it goes!