The Multinational Monitor


T H E I R    M A S T E R S '    V O I C E

Microsoft Tax Scam

ONE OF THE 1997 U.S. tax bill's biggest winners was the software industry, which gained a tax break worth over $1.7 billion over the next 10 years.

The number one beneficiary of the provision, called the Software Export Equity Act (SEEA), was industry giant Microsoft, a company which hardly needs help. Its profits increased by 51 percent in 1996 to more than $2 billion. The SEEA allows companies to exempt 15 percent of foreign sales from corporate income taxes. Microsoft and congressional supporters of the SEEA say the Act merely gives software companies a tax deduction that is afforded many other manufacturers.

Asked to comment about that argument, Robert McIntyre, head of the Washington, D.C.-based Citizens for Tax Justice, mocks its logic. "Great," he says, "other companies got a stupid tax break, so let's give it to Microsoft, too."

Microsoft tried to keep its fingerprints off the SEEA, but the company was a prime mover behind the legislation.

Representative Jennifer Dunn, R-Washington, one of Microsoft's closest allies in Congress (she once publicly declared that company lobbyists are "on the inside group of advisers that I turn to when I need to discuss regulation issues and so forth") introduced the Act in the House of Representatives.

Washington state's two senators, Democrat Patty Murray and Republican Slade Gorton, served as co-sponsors in the upper chamber.

Dunn's office has a "strong relationship with Microsoft," says Dunn's spokesperson, Rob Nichols. He adds that the company had played a "pivotal role" in mobilizing support for the SEEA by "building grassroots support" for the measure among Microsoft employees and Washington state residents.

Microsoft helped build support for the SEEA in Washington, D.C., too. The company hired a small army of well-connected lobbyists to press Congress on the issue.

Chief among them were Grover Norquist, head of the conservative Americans for Tax Reform; Thomas Downey, a retired Democratic congressperson who served on the House Ways and Means Committee and is an intimate of Vice President Al Gore; Pamela Garvie, a one-time aide to Bob Packwood, the former Republican senator from Oregon whose favorite pastime as chair of the Senate Finance Committee was inserting tax breaks for big business in legislation; and Bruce Heiman, who is a former staffer for Senator Daniel Patrick Moynihan, the ranking Democrat on the Senate Finance Committee. (Both Heiman and Garvie now work at the Washington, D.C. offices of Preston, Gates, Ellis & Rouvelas Meeds. The firm's law partners include Bill Gates' father, William Gates II.)

Microsoft's principal partner in lobbying for the SEEA was the Redwood Shores, California-based Oracle, another big software exporter that will reap vast rewards from the Act's passage. The two companies joined forces to hire a group of six outside lobbyists to push for the legislation.

One of their joint hires was Kathleen Kies of Collier, Shannon, Rill & Scott, a powerhouse lobbyist whose other clients include UPS, Total Petroleum and the National Association of Convenience Store Owners.

Kathleen Kies is married to Kenneth Kies, staff director of the Congressional Joint Committee on Taxation and one of the most powerful staffers on Capitol Hill. Fortune magazine says that Kies is "the man to see when it comes to altering the nation's tax code," adding that he "ghosted virtually every line" of the massive 1997 tax bill which included Microsoft's tax break. (Kies says that he recused himself from all discussion of the SEEA due to his wife's relationship with Microsoft.)

Also hired by the two companies was Michael Lewan, who worked for 14 years on Capitol Hill, first as a staffer for retired Representative Stephen Solarz, D-New York, and then for Senator Joseph Lieberman, D-Connecticut. Lewan also maintains strong ties to the White House. He was a trustee of the Clinton-Gore National Finance Council and is a managing trustee of the Democratic National Committee. "Lewan has access all over the Hill," says a lobbyist who knows him. "Staffers are below his radar screen; he deals with the members directly."

Microsoft and Oracle also helped put together the American Alliance for Software Exports (AASE), which Nichols described as one of the most active Beltway proponents of the Software Export Equity Act. Its role was to drum up support for the tax break by mobilizing state and regional software associations.

Neither Microsoft or Oracle is listed in the AASE's membership roster, which boasts names of entities such as the Information Industry Association and the Ben Franklin Technology Center of Southeastern Pennsylvania. But industry and congressional sources confirmed that the two computer software firms were the leading players in the alliance.

The AASE, now defunct, was a mysterious group. Its executive director, a political consultant named Doug Larkin, refused during a phone interview to disclose the group's budget or funders. It turns out that this supposed grassroots outfit had operated out of Oracle's downtown Washington, D.C. lobby shop.

Incidentally, Larkin now heads the Alliance for a Secure Tomorrow, a group which sounds like it was formed to oppose nuclear war or international terrorism, but which actually will work to generate support for Microsoft's position on the sale of encrypted software.

Microsoft declined to respond to request for comment on its stealth support for the Software Export Equity Act.

-- Ken Silverstein

# END #