Tech Companies Found An Unexpected Enemy in the Tax Code — Congress Could Undo That, Spurring A Turnaround in White Collar Employment

Tech companies have blamed everybody but themselves for their big layoffs — calling them a matter of efficiency, faulting AI, and crediting ‘changes’ in the macroeconomic order (code for: interest rates aren’t 0% anymore).

However, there’s one factor they never seem to blame — the tax code.

Changes made in the Republicans’ 2017 Tax Cuts and Jobs Act meant that tech firms were no longer able to immediately deduct R&D expenses, such as salaries. Instead, they’d have to capitalize and amortize those costs, paying for them over time and ultimately affecting their P&L. But as Republicans send their new tax bill to the Senate, they stand to fix that.

• Republicans have undone the “current amortization requirement for domestic R&D expenses,” allowing them to “deduct domestic research costs” starting in tax year 2025.
• Software development is included in the changes to Section 174, which is part of the “One Big, Beautiful Bill” awaiting red ink and eventual passage in the Senate.

Good for tech? The changes to Section 174 will allow businesses to immediately expense domestic R&D spending, while foreign spending will still need to be amortized. It remains to be seen if these changes could spur new hiring or revive high-capex businesses in software, biotech, and beyond. However, it still needs to clear the Senate before businesses can count on it to be a difference-maker in these uncertain times.