This guest post is by Jeff Reifman, a Seattle-based technology consultant, writer, and activist. He’s also an eight-year Microsoft employee.

Royalty taxes received by Washington State (blue) vs. what Microsoft should have paid (red)
  • Royalty taxes received by Washington State (blue) vs. what Microsoft should have paid (red)

Generally, the Seattle Times’ new paywall provides good protection from bad premises and flawed reporting, but, unfortunately, non-subscribers may still unwittingly encounter troubling free content such as Sharon Pian Chan’s recent editorial, “What Happens When You Put Microsoft Managers in Charge of the State Budget?

“For the first time in state history, the Washington state budget is being written by Microsofties,” writes Chan. Representative Ross Hunter has “tamed his Microsoft-style head-butting with a politician’s trust-building.” While Senator Andy Hill is “the first Senate budget chair ever to request Excel files instead of paper spreadsheets.”

“After the Supreme Court’s McCleary ruling, the two must find $1 billion in new money for the state’s K-12 system," Chan continues. "The two are up for the challenge.”

But her editorial left out critical facts:

Firstly, the McCleary ruling was necessitated by Hunter and the legislature’s $4 billion in cuts to K-12 and higher education since 2008. This isn’t “new money,” the Court is actually ordering the legislature to restore $1 billion in funding.

Secondly, from 1997 to 2010, Microsoft’s Nevada-based tax avoidance operation deprived the state of an estimated $1.51 billion in taxes, interest and penalties. In 2010, Hunter led legislation that granted the company amnesty and redefined the state’s royalty tax to exclude Microsoft’s worldwide licensing revenue. If you include the company’s 1997 lobbying to reduce the royalty tax from 1.5 percent to 0.5 percent, Microsoft’s Nevada operations have saved the company $4.37 billion. (Here’s Microsoft Executive Vice President Brad Smith talking with me about it in a 2004 interview for Seattle Weekly.)

Chan neglected that Hunter and Microsoft have been running the revenue side of Washington’s budget for years—capped off by former governor Chris Gregoire’s appointment of now-Congresswoman Suzan Delbene to run the Department of Revenue.

“At Microsoft, when a product gets to $1 billion in sales it’s like entering Valhalla,” says Chan. “The team that built SharePoint... brags that it’s the fastest product in Microsoft to hit $1 billion in sales—in just seven years.” It took only eight years for Microsoft’s lobbying and Nevada tax operation to reach $1 billion in savings.

Since 1997, Microsoft’s recorded $652 billion in revenue. Last week, while state tax collectors scoured Yelp to find night clubs where patrons might have danced and the legislature debated taxes on beer and janitorial services, Microsoft added record quarterly revenue of $20.5 billion.

Senator Hill told Chan, “Instead of measuring success by the number of dollars, we wanted to measure success by the outcome.” By either measure, Microsoft’s tax avoidance has been a huge success for the company and had a larger negative impact on the state’s capacity to fund education. Chan writes of the cross-pollination between Microsoft and Olympia, but neglects the damage that this inside game has wreaked on the state. Washington taxpayers appear to have been scammed, and our children pay the price.

The late Molly Ivins wrote, “The mortal sins of the press have always been our sins of omission, not our sins of commission... It is the stories we don’t get, the stories we miss, pass over, fail to recognize, don’t pick up on that will send us to hell.”

The Seattle Times is guilty of both sins. I briefed Executive Editor David Boardman and five Seattle Times journalists about Microsoft Nevada in 2010; Boardman’s pledged coverage never materialized. Microsoft’s Smith is one of the paper’s seven luminaries and in 2012, it published Smith’s call to raise sales taxes to better fund education. Washington already has the most regressive tax system in the country.

It's ironic Chan highlighted Senator Hill’s failure to “preserve [funding for] social service for people who are blind” because her editorial similarly leaves Seattle in the dark to one of the primary forces behind Washington’s budget crises.

The Seattle Times remains an institution with great power, but its coverage of the budget has failed to help readers understand the critical context and impacts of Microsoft’s tax avoidance on education and the state budget.

One role for media is to confront power and challenge Microsoft’s Bill Gates, Steve Ballmer and Smith to account for the wide gap between their rhetoric on education and their damaging actions on tax avoidance and minimization. Instead local media perpetuates the mythology of our brilliant, benevolent tech billionaires. The reality is that the sophistication with which these men have manipulated the law and enforcement in Olympia has tremendously harmed our state and our schools, and undermined constructive dialogue over tax fairness.

“At Microsoft it was the idea that won,” Hunter told Chan. “Here, it’s do people trust you.” In 2010, Hunter persuaded colleagues to support his bill saying that changes to the royalty tax would increase state revenues. He even said it would, “encourage companies to remain in Washington and perhaps even move some of their royalty operations back here.” Chan failed to mention that none of Hunter’s predictions came true—nor were they meant to.

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Microsoft’s ideas have won in Olympia and decimated education funding as a result.

Chan ends her editorial by saying that the budget is like Windows 8, it’s got issues but is “headed in the right direction.” I’d say the same about Seattle Times paywall—it’s a step in the right direction but perhaps could go further. The legislature’s primary role right now should be to revisit the discussion around revenue and make our tax system more equitable and more able to sustainably meet the needs of our state and its students.

Want to know more about MIcrosoft’s Nevada tax dodge? Tune into Mind Over Matter’s on KEXP Saturday at 7:30 AM. I don’t expect you to get up that early—I don’t really want to either—but check out the audio when it's posted.

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