guments, even though people have
morals, motivations, and obligations
that differ greatly from the obligations
of corporations. This equivalence is
seen as a philosophical mistake by
some. 13 For instance, humans cannot,
without creating corporate entities,
split themselves into multiple clones
that take advantage of differing taxation regimes. In practice, not taxing
corporations is such a radical change,
affecting so many other aspects of the
economy and public perception, that it
is as unlikely as many other proposed
tax reforms. 8
The knowledge-based society brought
forth a revolution of human productivity in the past 50 years, moving well
beyond the industrial revolution that
started more than a century earlier,
and globalization is a means to distribute its benefits. But the growth
of assets in taxhavens deprives workers worldwide of reasonably expected
benefits. These hidden assets have
grown to be a multiple of annual industry revenue, exceeding the assets
held in the countries where the IP is
being created. The presence of significant IP rights in taxhavens provides
global corporations great flexibility to
invest capital anywhere, avoiding income due to IP from being taxed anywhere. The combination of reduced
support for education, government
research funding, and physical infrastructure, along with the increased
motivation to start new initiatives in
semi-taxhavens and the imbalance of
small businesses versus global corporations, is bound to affect the future of
enterprises in countries that initiated
high-tech industries, though the rate
and final magnitude is unpredictable
today. Better-educated scientists will
be less affected and feel the effects
more slowly. 26 But any industry requires a mix of related competencies.
It took 50 years for the U.S. car industry to be reduced to its current state.
The velocity of change when intangibles, instead of tangible capabilities,
are involved may well be greater.
The large amount of capital accumulated in taxhavens encourages
ever-greater investment in foreign
companies. As of August 2010, such
investment was reported to amount to
$7.6 billion, a 168% increase from the
same period in 2009.23 The eight largest companies have $300 billion available in taxhavens. Cisco Systems alone
reported it had $30 billion available
in its tax shelters and expects to keep
spending on foreign acquisitions. Such
investment will create jobs all over the
world, primarily in semi-taxhavens.
More support for CS education
was a major emphasis of the ACM report, but where will the funding come
from? The taxes on Cisco’s available
funds, were they to be used for investment in the U.S., exceed total funding for the National Science Foundation and Defense Advanced Research
Projects Agency. The IP, if it remains
offshore, would quickly refill Cisco’s
coffers there. Discussions concerning
future education, leading to growth of
knowledge-based industries, job creation, protection of retirement benefits, and the required infrastructure
for growing businesses are futile if the
creators of the required intellectual
resources are uninformed about the
interaction of IP and capital allocation. Initiating effective action is more
This exposition was motivated by the
Rebooting Computing meeting in Silicon Valley in January 2009 (http://www.
rebootingcomputing.org/content/sum-mit) and benefited from discussions
on the topic with Peter J. Denning
(the organizer), Joaquin Miller, Erich
Neuhold, Claudia Newbold, Shaibal
Roy, Stephen Smoliar, Shirley Tessler,
Andy van Dam, Moshe Y. Vardi, and
unknown, patient Communications
reviewers. Any remaining lack of clarity is due to my failure in presenting a
novel topic adequately to a technical
audience. Any errors and opinions are
also solely my responsibility.
1. Aspray, W., Mayadas, F., and Vardi, M. Y., Eds.
Globalization and Offshoring of Software. A Report of
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American Society of Appraisers, Herndon, VA, 1994;
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3. Becker, B. Cost sharing buy-ins. Chapter in Transfer
Pricing Handbook, Third Edition, R. Feinschreiber, Ed.
John Wiley & Sons, Inc., New York, 2002, A3–A16.
4. Boehm, B. Software Engineering Economics. Prentice-Hall, Upper Saddle River, NJ, 1981.
5. Bureau of Labor Statistics. National Employment
and Wage Data Survey. Bureau of Labor Statistics,
Washington D. C., May 2007; http://www.bls.gov/oes/
6. Clausing, K. The American Jobs Creation Act of
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7. Compustat. Financial Results of Companies in SIC
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8. Cray, C. Obama’s tax haven reform: Chump change.
Gio Wiederhold ( firstname.lastname@example.org) is Professor
(Emeritus) of Computer Science, Medicine, and Electrical
Engineering at Stanford University, Stanford, CA; http://
© 2011 ACM 0001-0782/11/0100 $10.00