Still plenty left to pay their business taxes.

And if it’s employees? Do you ask them to contribute to the company’s taxes as well? After they’ve paid their own?

You pay them less money so you can afford your taxes, like literally everyone else.

... or you never have the startup, and just have 2 people unemployed and no produce nothing of use to anyone.

Which is what's happening.

If you can't afford your taxes your business model was flawed to begin with. In the above example there is more than enough money for it to still be worth doing.

You don't seem to understand the implications here. This requires bootstrapped startups to have gross margins substantially above incumbents in order to compete and not be cash flow negative after paying taxes.

It makes it substantially more cashflow intensive to build a new software business, which entrenches incumbents and reduces competition. It favors companies who have the cash to wait for the full 5-year depreciation cycle, i.e. the opposite of most bootstrapped startups.

Quick example:

$10,000 revenue

$8,000 paid to software developer

$1,000 paid to AWS

leaves $1000 in profit.

You received $10,000 into your business account, but spent 8000+1000 = $9000. Your business account has a balance of $1000 at the end of the year.

Section 174 means you can only deduct 1/10th of the $8000 in the first year, $800. Your total deductible business expenses for the year will be 800+1000 = $1800.

Your taxable profit for the year is 10000-1800 = $8,200. If your effective tax rate is 25% (generously low), you owe $2,050 in taxes.

You pay your $2,050 tax payment and your business account is overdrafted by $1,050. You need to add $1,050 from your personal funds to the business to cover the shortfall.

Your business was cash flow negative for the year. This makes it extremely difficult to bootstrap a software company.

Well, I said elsewhere, this effectively means (heavily) taxing anyone who's doing something new (meaning adding additional taxes on top of income tax). Essentially all of Europe does this, and people here often decry how they totally lack innovation across the entire continent.

I don't think these two are unrelated.

I also don't understand the objection. It's not like anyone's getting away from taxes due to this rule. This is about a temporary exemption from company income tax IF AND ONLY IF companies have someone pay income tax on that money (and only up to the point where that keeps makes sense). This "exemption" lets you not add 15%-20% tax on top of 40-55% income tax just to try a new business as a company.

So on the $200,000 it’s reasonable to you that they have to pay $120,000 ($80k income+$40k business) in taxes?

What about state and city taxes? 80k might be a tad too high but in NYC on $100k, you would only take home around $65k.

The company doesn’t have any money to pay those taxes with.

If you give the company more money to use to cover its tax bill, then that further increases the company’s taxable income.

Pay less salary so you can pay your taxes? This isn't as complicated as y'all seem to want to make it.

That’s what makes them less competitive: they have to lower pay because they don’t have the cash on hand and revenue to amortize the deductions.

If you employ people on straight salaries, you are stuck. Not everyone is on share gravy train