The tax law change might be the reason behind Mark Zuckerberg’s “Year of Efficiency” and mass layoffs at Meta
When tax law hits innovation, tech companies like Mark Zuckerberg’s Meta begin employment cuts. As budgets tighten, projects slow down, and the race to innovate takes a back seat to cost-saving measures.
A change in the US tax law is forcing tech companies to pay significantly higher taxes on research and development (R&D), leading to mass layoffs and potential long-term consequences for innovation. Projects like Mark Zuckerberg’s AR glasses, potentially the next step after smartphones, or his recent ventures into military defense tech could be impacted. This could explain why there were so many downsizing in Meta between 2022 and 2024.
Why tech companies are cutting back on R&D
Until the end of 2021, companies could immediately deduct all their R&D expenses (salaries, materials, rent) thanks to Section 174 of the tax code. It was a huge help for keeping costs down, especially for companies pouring money into innovation. But starting in 2022, a change buried in the 2017 Tax Cuts and Jobs Act kicked in: those R&D costs now have to be spread out over five years (or 15 years if they’re spent overseas). That means a much heavier tax bill upfront, according to the ABGI report.
Source: flickr; Photo by girisimcihayatii
Before the change, tech companies could hand out big salaries and signing bonuses to attract top talent and write those off right away. It made competing for skilled workers a lot more affordable. Now, with those expenses stretched out over time, budgets are a lot tighter, so the pressure is on.
That’s why companies like Google and Meta have been slashing costs. Suddenly, Mark Zuckerberg’s infamous 2023 “Year of Efficiency” makes a lot more sense – and it probably explains why he recently tightened employee performance reviews.
But the ripple effects might not stop there. With the U.S. becoming more expensive for R&D, companies might start shifting more of their innovation efforts overseas.
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