Understanding Microsoft

Part 52. The Tax Man

"Two things in life are certain, death and taxes." -- Ben Franklin

Every time a personal computer is sold with a "legal copy" of a Microsoft product installed, Microsoft takes a percentage of the transaction. This in itself seems fair and reasonable; after all, the same thing happens for tire manufacturers whenever a car is sold. However, for millions of personal computers sold in this decade, a percentage of the transaction went to Microsoft even though there were NO Microsoft products installed. This is because of a licensing scheme that Microsoft enforced on the computer manufacturers, a scheme known as "per-processor licensing." Economically speaking, it was nothing more than a tax.

If a PC maker wanted to sell even one legal copy of one Microsoft product, then they were required by the onerous terms of the Microsoft licensing machine to pay Microsoft a tax for every PC they manufactured. Even if no MS product was installed. Even if the PC was never sold and just sat around gathering dust in the inventory storage. This process of extorting a percentage of the value of every major PC maker's inventory was as much a tax as the federal excise tax or a state property tax. It had the same effects that taxes do: transferring weatlh from a productive party to a nonproductive one; reducing the growth of productive economic entities; removing funds that could have been used for research and the growth of alternative products; allowing the taxing party to grow fat and lazy on its automatic proceeds.

Typically a tax burden as heavy-handed as this one would cause a tax revolt, or at least a tax protest. However, this Microsoft that currently claims not to have a monopoly on personal computer operating systems was able to coerce the paying of this tax for several years, until signing a 1995 federal consent decree promising not to do so. Then it merely modified the contract terms so that the choice effectively became "per-processor at tax rate X, or per product at the higher tax rate Y." The result has been to tax corporate licensees and PC makers just as effectively as when there was a per-processor Microsoft tax. Only a monopolist could bully such companies as Shell, Ford, and even IBM into paying a tax to a non-governmental entity.

When a tyrant exercises such a forceful level of control, the people will often hope for his death. But Microsoft has plans to cheat death as well. Since corporations don't expire when their founders do -- being blessed by the State Charters that give them existence -- the payments to the Microsoft Tax Man will continue indefinitely. Likely there will someday be a Microsoft private tax on every Internet transaction, even if there are no governmental taxes on the Net. Probably this tax will extend to every automobile purchase, every credit card transaction, and every airline reservation. Perhaps Ben Franklin's statement will then be amended to, "There are three things certain in life: death, taxes, and Microsoft monopolies."

Most recent revision: April 25, 1998
Copyright © 1998, Tom Nadeau
All Rights Reserved.

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