Note: I want to point something out: I’ve given no references here. This is my current understanding. I’m still researching it, and you should research it yourself, don’t take my word as gospel truth. But this is how I understand it right now.

Googling section 174 layoffs will point you to a lot of information.

Ok, this needs to be fleshed out. But I find myself repeating this to a lot of people lately, so I’m going to stick a summary here, until I can flesh it out into a full essay.

I talk up Section 174 pretty frequently online because I really think it’s the root cause of the white collar job crash that started at the beginning of 2023, and most people who followed up and read up on it have come back and agreed with me, but it’s incredible how many people don’t know anything about it.

It has to do with the tax changes passed in 2017, when a procedural rule allowed Congress to put through the tax code changes without the possibility of a filibuster by including really draconian changes five years down the road, taking effect in June 2022, to balance the cuts.

This is a tactic congress has used before, but every time in the past, before the cuts actually took affect, they re-legislate it and fix them before they could do any damage. This time, however, Congress — and this isn’t a slight against either party, it’s a slight against both — they all just sat on their hands for five years and did nothing. Right through Dec 2022, everybody assumed that they would pass a law preventing the changes from taking affect… And they didn’t.

So, this is just my pet theory, but I believe it’s politically radioactive for either party to talk about the fact that it happened, it makes them both look bad because nobody did anything and now so many people are suffering.

The very brief capsule summary is that as of 2022 they made it impossible to deduct software R&D expenses the same year that they were paid, they now had to be amortized out over the following five years, so if you spend your tech company’s entire profit on R&D, suddenly you still had to pay taxes on the entire profit, even though you didn’t have the money, and only get to take the deduction slowly later on. So, to make ends meet, they laid off their software engineers, then they laid off their in-house recruiting staff, and the dominoes fell.

It really bothers me that it’s not being discussed. Apparently, within the tech startup industry it’s well known, but most media and politicians just won’t seem to go near it. It really bothers me.

I wouldn’t be surprised if, after the election, someone with national visibility suddenly “discovers” that section 174 is a problem and something needs to be done about it. We’ll see what happens.