Microsoft, tax dodging, and David Hume’s nightmare

January 15th, 2010

The Seattle Weekly is running an article headlined “Microsoft Tax Dodge Letter Gets Sent to 150 Legislators, One Responds.”

This is about a former Microsoft employee, Jeff Reifman, who sent a letter about Microsoft to the entire legislature in Washington State, where Microsoft has over 40,000 employees and where a $2.6 billion deficit faces the state with “nothing but bad choices.” As Reifman says,

“Since 1997, Microsoft has used a series of Nevada subsidiaries to excuse itself from paying up to $728.8 million in royalty taxes.”

It’s one thing if Microsoft, if this story is correct, has been dodging taxes. (This may be legal, but it’s abusive, and no small matter – see Reifman’s for more details.) But the headline points us to a bigger problem: the fact that tax dodging, especially offshore tax dodging, is a crime (or at least an abuse) of the elites – which seems to make it very hard for politicians to take action. As the American author Jonathan Chait once put it: “there’s no bloc richer and more powerful than the rich and powerful.”

So we have the spectre of 149 legislators, desperately seeking funds to avert catastrophe, apparently taking no interest in this gigantic black hole in state finances. This touches on so many issues: the issue of party-political funding; the role of ideology shaping a consensus about taxation, and so on. It touches right to the heart of democracy. In our latest edition of Tax Justice Focus, Paul Sagar’s editorial points out this timeless quote from the influential Scottish Enlightenment Philosopher David Hume:

“It is easy for the rich, in an arbitrary government, to conspire against them [the poor], and throw the whole burthen of tax upon their shoulders.”

We see the same around the world: flaccid politicians in developing countries unwilling to crack down on large-scale corruption, or to take serious interest in transparency in international finance, even though their people have a screaming need for it.

Written by Tax Justice Network

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