And Trump is the reason the problem exists. But I’m getting ahead of myself.

Every day, there’s a new story about how AI is letting bosses lay off workers. Some of this might actually be true, but it’s also about disciplining the workforce. But one thing should be absolutely clear, the loss of jobs and the adoption of ‘AI’, especially in the tech* sector, which predates the commercial advent of AI, is also about the U.S. Tax Code, specifically Section 174 (boldface mine):

Still, the delayed change to a decades-old tax provision — buried deep in the 2017 tax law — has contributed to the loss of hundreds of thousands of high-paying, white-collar jobs. That’s the picture that emerges from a review of corporate filings, public financial data, analysis of timelines, and interviews with industry insiders. One accountant, working in-house at a tech company, described it as a “niche issue with broad impact,” echoing sentiments from venture capital investors also interviewed for this article. Some spoke on condition of anonymity to discuss sensitive political matters.

Since the start of 2023, more than half-a-million tech workers have been laid off, according to industry tallies. Headlines have blamed over-hiring during the pandemic and, more recently, AI. But beneath the surface was a hidden accelerant: a change to what’s known as Section 174 that helped gut in-house software and product development teams everywhere from tech giants such as Microsoft (MSFT) and Meta (META) to much smaller, private, direct-to-consumer and other internet-first companies….

For almost 70 years, American companies could deduct 100% of qualified research and development spending in the year they incurred the costs. Salaries, software, contractor payments — if it contributed to creating or improving a product, it came off the top of a firm’s taxable income.

The deduction was guaranteed by Section 174 of the IRS Code of 1954, and under the provision, R&D flourished in the U.S.

…It was a baseline assumption — innovation and risk-taking subsidized by the tax code — that shaped how founders operated and how investors made decisions.

Did I hint that Trump and the Republicans (worst band name EVAR) fucked this up? Well, they did!

When Congress passed the Tax Cuts and Jobs Act (TCJA), the signature legislative achievement of President Donald Trump’s first term, it slashed the corporate tax rate from 35% to 21% — a massive revenue loss on paper for the federal government.

To make the 2017 bill comply with Senate budget rules, lawmakers needed to offset the cost. So they added future tax hikes that wouldn’t kick in right away, wouldn’t provoke immediate backlash from businesses, and could, in theory, be quietly repealed later.

The delayed change to Section 174 — from immediate expensing of R&D to mandatory amortization, meaning that companies must spread the deduction out in smaller chunks over five or even 15-year periods — was that kind of provision. It didn’t start affecting the budget until 2022, but it helped the TCJA appear “deficit neutral” over the 10-year window used for legislative scoring.

The delay wasn’t a technical necessity. It was a political tactic. Such moves are common in tax legislation. Phase-ins and delayed provisions let lawmakers game how the Congressional Budget Office (CBO) — Congress’ nonpartisan analyst of how bills impact budgets and deficits — scores legislation, pushing costs or revenue losses outside official forecasting windows.

And so, on schedule in 2022, the change to Section 174 went into effect. Companies filed their 2022 tax returns under the new rules in early 2023. And suddenly, R&D wasn’t a full, immediate write-off anymore. The tax benefits of salaries for engineers, product and project managers, data scientists, and even some user experience and marketing staff — all of which had previously reduced taxable income in year one — now had to be spread out over five- or 15-year periods.

…For cash-strapped companies, especially those not yet profitable, the result was a painful tax bill just as venture funding dried up and interest rates soared.

It’s no coincidence that Meta announced its “Year of Efficiency” immediately after the Section 174 change took effect. Ditto Microsoft laying off 10,000 employees in January 2023 despite strong earnings, or Google parent Alphabet cutting 12,000 jobs around the same time.

Amazon (AMZN) also laid off almost 30,000 people, with cuts focused not just on logistics but on Alexa and internal cloud tools — precisely the kinds of projects that would have once qualified as immediately deductible R&D. Salesforce (CRM) eliminated 10% of its staff, or 8,000 people, including entire product teams.

In public, companies blamed bloat and AI. But inside boardrooms, spreadsheets were telling a quieter story.

Maybe ‘AI’ will massively improve how efficient businesses are, but it really seems like the answer to how can bosses get away with cutting payroll. While employers always like to discipline labor, we should be clear that clamping down on payrolls preceeded AI, and is a result of a Republican budget gimmick–which allowed massive tax cuts for the rich and screwed over both the (upper) middle class as well as stifling startups. The big companies can take the hit, but small ones got crushed. In a sense, AI does solve a problem: how do we keep investors happy while Republican policies make it harder to turn a profit. Maybe, from the investors’ perspective, this will work, but there’s a good chance that the push for AI is just kicking the can down the road.

Of course, workers, admittedly often well-paid ones, get screwed in all of this no matter how this shakes out, so that’s an upside for the broligarchy.

Making America Great Again! (lolsob)

*Most of the tech sector should really be called the ‘coding and data’ sector, but the kids today, I guess.