Paying taxes to Microsoft
[I started writing this at the Microsoft VC Summit a few weeks ago, but tax day spurred me to complete it.]
Other than hardcore libertarians, I think there are few who would debate that government funding of fundmental research is a good thing. Much of this research is done at top universities funded by government grantd, but there are also institutions like DARPA, NASA, and NIH that are directly funded. Most corporations, with their focus on quarterly earnings, have too short a timeline to spend significant amounts of money on research that doesn’t have an obvious return on investment in a relatively short time frame.
There have always been a few exceptions, and what is interesting is what they seem to have in common. For example, Bell Labs springs to mind as a great exception. They produced literally thousands of innovations, most of which were (at the time) commercially unusable. Another classic example is Xerox PARC. Once again, tremendous innovative and fundamental research, with little commercial application. What is interesting about both these companies is they were essentially monopolies, and highly profitable, such that their products were referred to as “taxes”. Today we see companies like Microsoft and Google engaged in similar research efforts (although Google’s is pretty young still).
I heard Steve Ballmer speak the other day, and he boasted several times about Microsoft earning $20 billion last year. Many who were with me groaned about the egregious “Microsoft tax” and expounded on how much better the industry would be if everyone used Linux and OpenOffice and the $20 billion were returned to the users.
This prompted a spirited discussion at lunch, which included some long-time Microsoft execs. The “Microsoft tax” is pretty small for each individual. Which creates the greater good: giving each computer user a small amount of money back to spend as they wish, or allowing Microsoft to engage in fundamental research that may improve the lives of everyone? Viewed this way, it looks much the same as increasing the income tax 0.01% to pay for NASA. Of course, this only applies to the $1 billion or so that Microsoft spends on research. The other $19 billion that is dividended back to shareholders is more like a reverse Robin Hood – take from computer users, give to MSFT stockholders.
Now, there are plenty of egregiously profitable companies – Exxon Mobil for example – that don’t spend nearly as much on blue-sky research as they could (despite their marketing that says they do). Perhaps instead of legislating lower profits for them, the federal government should consider legislating more pure research? Of course, this would be hard to verify, but it would be a start.
