Innovation is said to be the lifeblood of any economy, and the United States is no exception. But the current climate of high-interest rates, increased regulation, and crazy new tax laws are threatening to stymie the inventive thoughts, ideas, and products that help drive the success of the US and the world.
The new tax law has expansive terminology that states “any and all” software development must be amortized over a 5-year period if the development took place in the United States, and 15 in the case of overseas work. This may not sound too severe at first, with some arguing that it could even create many tech-related jobs in the USA. Sadly, this is not the case. Many other countries offer more beneficial R&D credits than the U.S., leading to companies restructuring so that the elements outside the U.S. do the main R & D for the company.
The law has many complexities and complications that severely threaten the success of startups and the future of breakthrough technologies like AI and blockchain. For some companies, this means that in spite of their losses, they must still pay taxes. The cash flow losses will result in the death of useful creative ideas and products. These tech-related layoffs in the USA may be a result of the tax changes mentioned above.
The challenges are being compounded by increased interest rates, crypto winters, and the failure of Silicon Valley Bank. There is a pressing realization that unless action is taken quickly and decisively, there could be a loss of numerous tech and creative firms simply due to the additional tax burden they cannot shoulder.
Thankfully, some action has been taken in the form of a repeal proposal that has been reintroduced in Congress. The idea was partially supported by both Democrats and Republicans, the latter even up until the last minute. Unfortunately, it was canceled due to a disagreement about the Child Tax Credit after much had been agreed upon and largely sorted. It does appear at the moment that this oppressive tax law is here to stay, at least until things can be sorted. Companies need to be agile and tech-savvy, adapting their accounts departments to better manage their expenses and get the most from their deductions. There are nooks and crannies in the law which, when properly exploited, can simplify the ability to pay the least amount of taxes for the greatest benefit.
The U.S. Treasury Department has proposed a 30% excise tax on the cost of powering crypto mining facilities as part of this fiscal agenda. This tax will be phased in over the next three years to encourage the decrease in energy consumption of digital asset mining, which has a large environmental impact. To top off these proposals, there are also plans to close tax avoidance loopholes, expand the securities loans rules, update Foreign Account Tax Compliance Act protocols, impose Mark-to-market rules, and require people with foreign financial accounts to report cryptocurrency holdings above $50,000.
Overall, there’s no denying that the current Crazy Innovation-Killing Tax Law has very worrying implications. Its presence will likely have an enormous adverse effect on the innovation, creativity, and products currently being worked on in the USA. Whilst there is some hope that the law can be repealed, companies need to be careful and ensure that their operations remain within the confines of the law and that their finances can withstand the increasing tax obligations that come with it. Maybe, with luck and careful preparation, the technological promise of the USA will remain intact and the new law will become a distant memory.
