The Hidden Tax Policy Behind Tech Layoffs (It's not just AI)
Tech layoffs aren't just about AI efficiency. Section 174 tax changes and R&D offshoring reveal the real financial drivers behind mass cuts
Every other day, I keep reading about massive tech layoffs. Reading those numbers got me wondering -
- Is AI really that powerful that it can replace people at this scale?
- Is there some secret AI sauce these big firms are using that most of us are not aware of?
Over the weekend, I came across a couple of articles that provided an alternate view on the current layoffs, supposedly driven by AI efficiency.
In the US, R&D tax breaks have ended and companies are readjusting to new tax laws. Section 174 changes meant R&D costs that were 100% deductible immediately now get spread over 5-15 years.
Companies went from zero tax liability to owing millions overnight on the same revenue. During COVID, assumptions about remote work drove massive hiring bets:
- Meta doubled headcount (March 2020-September 2022)
- Amazon more than doubled corporate staff vs 2019
- Microsoft, Google, Alphabet, Salesforce: 35% increase = 126,170 jobs added
Now these bets failed. Companies are cutting costs because reduced profits impact stock prices.
In the same period, US firms started outsourcing R&D for tax advantages and lower wages. Asia now accounts for 46% of global R&D vs 25% in 2000, primarily driven by China, which has increased its R&D spending by 18x. India hosts 196,000 foreign R&D employees while China hosts 85,000.
Rather than just repeating AI efficiency narratives that companies are using to justify layoffs to avoid blame, it would have bee better if media explained how tax policy changes might be driving the current layoffs
Reference Links
COVID Hiring Data:
- Meta Headcount Doubling (March 2020-Sept 2022):
- Amazon Corporate Staff Growth vs 2019
- Big Tech Combined Hiring (126,170 jobs, 35% increase):