The good times in Silicon Valley are over—at least as far as the current generation of coders is concerned. The software industry is shrinking and, since 2023, the tech industry has been hemorrhaging jobs at an astounding rate. Workers who would’ve been secure several years ago are now out on their asses. While the reasons for this are diverse (AI is often discussed as a potential culprit and the overall economy has had its ups and downs over the past several years), one potential driver could also be the tax cuts that Trump passed in 2017.
It turns out that a little-known provision of the Tax Cuts and Jobs Act (TCJA) of 2017 altered a longstanding loophole, known as Section 174, that allowed the tech industry to offload the cost of its research and development operations onto the federal government. Prior to the TCJA, tech companies could deduct 100 percent of the costs of R&D, allowing tech businesses the freedom to commit significant resources towards innovation. Bloomberg reports that, as Congress sought to find a way to offset the cost of giving big tax cuts to billionaires, one place where they discovered fat to trim was the tech industry’s R&D funding.
2017’s bill shifted the deduction from a full write-off to funding that would have to be parsed out over a period of several years. The provision that pared back the funding did not kick in until 2022, however. Not long after it went into effect, the tech industry began shedding jobs like nobody’s business.
Indeed, 2023 and 2024 were historically bad years for the tech industry, with major companies like Meta, Amazon, and Google booting workers by the thousands. Quartz took a deeper look at the ties between this policy shift and the tech industry’s troubles and now speculates that there is a positive correlation:
…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.
Quartz also notes that the policy change would have translated into a loss of income for a variety of positions:
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.
The reality of the government’s subsidization of Silicon Valley is particularly ironic given the rabid anti-government sentiment currently circulating in the industry. People like Marc Andreessen would have you believe that tech’s R&D can be funded through private money alone, despite no reputable track record of it happening. Elon Musk’s DOGE, meanwhile, recently attacked the very parts of the government that have been responsible for helping companies like his own (Tesla) flourish. It’s yet another sign that America’s billionaires are so greed-addled that they’re willing to shoot a gift horse in the mouth and call it victory.
Not everybody in the tech industry is an idiot, however. There is currently a concerted effort to reestablish the government’s R&D subsidy. The American Innovation and R&D Competitiveness Act, which was introduced by a bipartisan coalition of lawmakers, would restore the full flow of federal dollars for tech’s development needs. Last month, representatives from major tech firms reportedly signaled to the Trump administration that they might pull back from previous pledges of U.S. investment if the full tax subsidy didn’t return.
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