Citizen Microsoft

By any measure, Microsoft is capitalism's greatest success. In July, the company announced plans to distribute $75 billion in dividends to shareholders over the next four years. One executive, in a morale-boosting internal e-mail, recently called Windows the most successful product in history. Even Googling "corporation" returns Microsoft at the top of the search results. But what has been best for Microsoft's shareholders has not always been best for Washington taxpayers and our community.

Every time Microsoft hires someone in Washington, it creates 3.5 new jobs here. According to the company, Microsoft created an estimated 117,620 new jobs in Washington between 1990 and 2001. But while Microsoft promotes the positive impact of success, all this growth has placed a heavy burden on our schools, roads, and overall livability.

Recently, Forbes ranked Seattle as the most overpriced city in the country. Our school class sizes are the fourth largest in the nation. Washington's percentage of residents enrolled in college ranks 46th out of 50 states. Seattle teacher salaries rank 97th out of 100 major cities. Our traffic is the 17th worst in the country. And let's not forget more than 167,000 Washington children without health care and the growing ranks of homeless citizens staking out highway off-ramps in search of handouts.

Most of us accept on faith that what's good for business is good for our state. Our Legislature spends much of its time trying to make Washington a competitive choice for businesses. But it's about time we started asking hard questions about where our competitiveness is taking us and who is pushing the agenda. How is it that with one of the richest corporations in the world in our backyard, our state has become less livable?

Tax exemptions are the mantra of Washington's Legislature. As Seattle Weekly reported earlier (see "$64 Billion Falls Through the Tax Cracks," Feb. 18), the state has amassed 503 business tax breaks valued at $64 billion per biennium budget. Cheered on by corporate lobbyists, including Microsoft's, Gov. Gary Locke and lawmakers implemented $20 billion of those exemptions in just the past four years. Last year, the state granted an additional $3.2 billion in breaks over the next 20 years to entice Boeing to locate the 7E7 assembly plant in Everett instead of some other state. Meanwhile, Forbes reports, Seattle ranks in the bottom fifth of major cities in job growth, income growth, cost of living, and housing affordability. And the state is predicting a $3 billion deficit by the end of the decade. As Microsoft's shareholders begin to reap their $75 billion dividend, they leave a growing infrastructure deficit in Washington.

That's the result of good times. Until now, Microsoft has enjoyed tremendous financial success. But it's entering a new era of software competition. It won't be able to rely on the dominance of the Windows operating system to be profitable. In fact, Microsoft's dependence on revenue from Windows and its other flagship product, the Office suite of applications, makes it vulnerable to new and increasingly popular alternatives to those now-ubiquitous programs. The free market is responding to the monopoly in Redmond. It's going to get tough. Meantime, last week the company said it plans to become far more active in Washington politics than in the past, citing the business climate, education funding, and transportation as areas where the state can do better. These aren't improvements with which Microsoft wishes to help. These are areas of concern the company wants remedied at taxpayer expense. If you want to anticipate how Microsoft might approach these and other local issues as the software business becomes more challenging, you need to study the company's track record with competitors and others during its heyday. It might also be good to know what Microsoft is already doing to gain advantage in its home state.

Tax Tactics

Let's start with how Microsoft has behaved when times are flush. Last year, according to the Seattle Post-Intelligencer, Chief Executive Officer Steve Ballmer told an audience of Eastern Washington University alumni: "Taxpayers in the state have to come to grips with the notion that we need to invest in higher education." It was a warning shot of sorts from the most influential CEO in the state. Ballmer had to know, however, that Microsoft wouldn't be footing much of the bill if taxpayers increased education funding. Seven years ago, Microsoft opened a small office in Reno, Nev., to collect the money it got from PC manufacturers that installed Windows and Office on the computers they sold. In the years since, Microsoft has sheltered more than $60 billion in royalty revenue in Nevada, a state with no corporate income tax, costing Washington an estimated $327 million in unrealized tax revenue.

Ballmer's remark wasn't the only time Microsoft has been hypocritical about taxes and education. In 1999, Senior Vice President and General Counsel Brad Smith raised the subject of lost state tax revenue in a press release promoting stricter state antipiracy laws. "To put in perspective the impact of software piracy on our taxes alone, consider that we've lost 41 times [$41 million] the amount already donated to the John Stanford Book Fund—and could have purchased well over a million new books for our schools," Smith said.