How tax codes drive staffing decisions

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.

Whenever I hear about layoffs and smaller organizations I almost always think about this accounting change. So much of a business is run by the rules of accounting its important to understand all aspects of what makes a company tick. So far there doesn’t seem to be much traction on ‘fixing’ or reverting this.

_{Quote Citation: Catherine Baab, “The hidden time bomb in the tax code that’s fueling mass tech layoffs”, June 04, 2025, https://qz.com/tech-layoffs-tax-code-trump-section-174-microsoft-meta-1851783502}