The time bomb in the tax code that's fueling mass tech layoffs

a year ago

A change to Section 174 of the U.S. tax code, buried in the 2017 Tax Cuts and Jobs Act, altered how companies deduct R&D expenses, requiring amortization over 5-15 years instead of immediate expensing.
This change, which took effect in 2022, contributed to mass layoffs in the tech sector, with over 500,000 jobs lost since 2023, disproportionately affecting R&D and engineering roles.
Tech giants like Meta, Microsoft, and Google, as well as smaller companies, cut jobs to offset higher tax burdens, despite blaming over-hiring and AI for layoffs.
The tax shift undermined a decades-old incentive for U.S.-based innovation, impacting not just tech but also startups, DTC brands, and other industries that relied on R&D deductions.
A bipartisan effort to repeal the Section 174 change is underway, but it may come too late for laid-off workers and could face political resistance due to perceptions of corporate excess.
The broader economic impact includes reduced spending in tech-heavy cities, affecting ancillary businesses like restaurants, real estate, and gig workers.
The U.S. tax code's shift may have long-term consequences for innovation and global competitiveness, with analysts only now understanding the full effects.

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