Good job Gary, now take all your knowledge to the Hill>
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Washington, D.C. - On a warm summer day
here, a sizable crowd has gathered in the halls
outside the House Judiciary Committee hearing
room on Capitol Hill. Several hundred Vietnam
War veterans have come to campaign for military
benefits and are waiting their turn to go before the
committee.
Waiting in the halls amid the uniformed soldiers is
a group of lobbyists from the IT industry. The
lobbyists represent vendor companies and
industry trade associations that for the past few
weeks have been working behind the scenes for
legislation that would prohibit, temporarily at
least, taxation on Internet transactions. Known as
the Internet Tax Freedom Act, the bill is
scheduled to go before the House Judiciary
Committee this day for "markup" - a final
modification before it is put before the full House
for a vote.
The Internet tax bill is just one of many pieces of
IT-related legislation currently under
consideration in our nation's capital. Microsoft
and Intel are under fire from the government,
while a laundry list of technology issues, including
encryption, privacy, software piracy, IT training,
digital copyright, Internet pornography and the
looming Year 2000 crisis, is under congressional
review. Policy makers are focusing on the
technology industry as never before.
"Is there more IT on the agenda here today than
in the past?" says Bruce Hahn, policy director of
the Computing Technology Industry Association
(CTIA), a Lombard, Ill.-based organization
whose 7,500 members come from all tiers of the
IT food chain. "Christ, yes. It's exploding. You've
got the IT sector accounting for as much as 10%
of the gross national product."
Key issues on the legislative schedule increasingly
seem to deal with electronic commerce and IT,
says Carol Cayo, a lobbyist for the Arlington,
Va.-based Information Technology Association
of America (ITAA), which counts Microsoft,
IBM and AT&T among its members. "All the
hearings are kind of related to this industry, and
everyone is trying to understand what the new
issues are," she says.
Timeout
Hahn and Cayo are backing the bill to stop
Internet taxation. In their efforts to promote the
legislation, they and a number of other lobbyists
have formed a loose-knit group that calls itself the
Internet Tax Fairness Coalition. In addition to IT
industry organizations, the coalition is composed
of major technology vendors such as America
Online, Hewlett-Packard and Microsoft, and
industry groups whose members might be
adversely affected by taxes on Internet
transactions, such as the National Retail
Federation and the Securities Industry
Association.
"We want a timeout," Cayo says of the coalition's
objectives. "What's happening is state tax
administrators have, by their own interpretation,
issued tax advisories to taxpayers who have
inquired whether they should collect taxes
through the Internet."
As a result of the advisories, states and cities
around the country have begun taxing Internet
transactions using differing rules specifying what's
taxable and under what conditions. "The rules
vary dramatically," Cayo adds. "Companies are
being told they have to serve as tax collectors for
these states. It gets confusing."
"We're looking for a moratorium on state and
local taxes to allow time so the government and
the private sector can make recommendations
regarding a future Internet tax policy," Hahn says.
Hahn, a veteran Washington lobbyist, explains
that the Internet Tax Freedom Act in various
forms has worked its way through several
subcommittees before arriving at the Judiciary
Committee. "Usually, most of the changes and
horse-trading go on at the subcommittee level,
and by the time it reaches the full committee, it's
been completely rigged in advance," he explains.
There's been plenty of horse-trading regarding
this bill. At the recommendation of the Judiciary
Committee's legal council, coalition members
have been meeting privately to iron out their
differences with representatives from state and
local governments who favor Internet taxation.
As a compromise, the lobbyists agreed to allow
certain states and cities that have al-ready
initiated taxes to continue taxation during the
proposed moratorium. "For there to be any type
of grandfathering was a major concession on our
part," Cayo says.
Other trade-offs are in the works, as well. The
day before the bill came before the Judiciary
Committee, Sen. John McCain (R-Ariz.) told a
group of IT executives that he would kill the
Internet taxation bill when it reached the Senate if
the group didn't support a bill that would ban
pornography on the Internet. "He was very
blunt," Hahn says.
At 2 p.m., Hahn, the rest of the lobbyists and
several dozen lawyers, public relations and press
people who have an interest in the bill file into the
Judiciary Committee hearing room. The
committee members and the chairman, Rep.
Henry Hyde (R-Ill.), take their seats.
Quickly, the bill officially known as H.R. 3849 is
introduced for markup. Just a few minutes earlier,
several of the lobbyists speculated that there
were going to be some last-minute changes, but
after only a few minutes of discussion, the
committee decides to make no further
modifications. H.R. 3849 is now bound for the
House floor. If passed, the bill will proceed to the
Senate.
Hahn is already out of his seat. "I told you this
would be wired," he says of the brief
proceedings. For better or worse, interested
parties working behind the scenes had
determined the terms of H.R. 3849 - and to a
large extent, the nation's policy on Internet
taxation - well before the bill ever reached the
Judiciary Committee. That, Hahn explains, is how
things work in Washington.
A wake-up call
A variety of factors have made IT a hot topic
within the Washington Beltway. "Certainly, the
antitrust actions against Microsoft and Intel have
raised the visibility of the industry substantially,"
says Marc Pearl, the ITAA's vice president of
government affairs.
IT has gained prominence among politicians
because of "the perception of the importance of
information technology in the booming economy,"
says Glee Harrah Cady, senior director of
technology and public policy for Netcom and
author of several books on the Internet. Once
computers and software became more access-
ible to mainstream America, citizens began
discussing IT issues with their congressional
leaders, she says.
Politicians today are crafting many of the policies
that will shape the future of IT, Cady says. In the
process, they're directly or indirectly impacting
everyone who works in the field.
"It's obvious, if you just look at the substance of
the legislation that's been offered, we're in the
cross hairs of a lot of what's going on in
Washington," the CTIA's Hahn says. "This
industry has got to recognize that pretty quickly,
or we're going to be in bad shape."
For years, much of the IT sector has blown off
politics as inconsequential. "Not all industry
CEOs, especially in the software and Internet
fields, see involvement in policy as necessarily
important to their bottom line," Pearl says. "They
come from an entrepreneurial milieu and view
government as a necessary evil."
Today, that attitude has to change, Hahn says. IT
companies need to become more proactive in
policy matters on a national and regional front.
Otherwise, politicians who may not know the
difference between NT and an NC are going to
be calling more of the shots regarding the future
of American technology.
However, a good portion of the IT industry has
already begun to wake up to the importance of
having its influence felt in high places. A number
of old-guard companies, such as IBM and HP,
and the likes of AT&T and MCI, which of
course have been regulated for years, have long
had considerable political muscle in Washington.
More recently, the younger generation has caught
on, and the industry as a whole is boosting its
political spending. Computer and software firms
conservatively spent nearly $20 million on
lobbying efforts in 1995 and 1996, according to
the Center for Responsive Politics (CRP).
High-tech businesses donated $7.3 million to
political candidates during the same period.
Although that sum amounts to small potatoes
compared with what many industries dole out to
politicians, it's about 50% more than the IT
industry gave in the 1991-1992 period.
And political donations should increase markedly
for the 1997-1998 period. Through the first half
of 1997, for example, IBM spent a whopping
$3.2 million on lobbying. Other lobbying
expenditures for that same period included
Electronic Data Systems' $1.1 million; Oracle's
$400,000; Digital's $255,000; Sun's $200,000
and Netscape's $196,000. On the carrier side,
AT&T spent $4.1 million and MCI shelled out
about $1.3 million.
Among the newer IT companies, Netscape has
paved the way in showing how an aggressive
government affairs and public policy arm can
reap benefits in Washington. Netscape CEO Jim
Barksdale learned the political ropes in
Wash-ington as CEO of AT&T Wireless
Services. He is a friend of several Washington
heavyweights, including Senate Majority Leader
Trent Lott (R-Miss.), whom Barksdale has
known since their wives were in the same sorority
at Ole Miss.
Barksdale supports his friends in Washington
with generous campaign contributions. He and his
wife, Sally, each gave $5,000 to Lott's political
action committee. Under Barksdale's watch,
Netscape has brought aboard some top internal
lobbying talent, including Peter Harter, the
company's global public policy counsel.
In conjunction with several Microsoft
competitors, including Sun, Netscape recently
enlisted outside firepower to help further its
interests in Washington. The group recruited
former Senate Majority Leader Robert Dole and
Jody Powell, one-time press secretary to
President Jimmy Carter.
"Here is a very small company [Netscape] that
has benefited tremendously over the course of the
last few years by being involved in encryption,
privacy and copyright issues," Pearl says. More
important, if it hadn't been for Netscape loudly
beating the Microsoft drum in Washing-ton for
the past few years, insiders say the government
never would have initiated the current antitrust
suit.
Under fire from competitors as well as the
Department of Justice, Microsoft has dramatically
bolstered its own lobbying efforts. Until three
years ago, the vendor didn't even have a
government relations office in Washington.
Today, CEO Bill Gates spends almost as much
time courting legislators as he does corporate
customers.
"Bill Gates comes up to the Hill not just to testify,
but to visit his senators, Slade Gorton [R-Wash.]
and Patty Murray [D-Wash.], or other key
senators," Pearl says.
Microsoft now has a number of full-time lobbyists
on its payroll and works with several industry
trade associations, including the
Washington-based Business Software Alliance
(BSA). Like Netscape, Microsoft has enlisted a
number of outside lobbying and legal firms to add
to its political clout.
In 1996, Microsoft signed on with the
Washington D.C. lobbying firm Downey,
Chandler, which is headed by former Democratic
representative Tom Downey. From the
Republican slate, the company hired Vin
Webber, a former Republican congressman who
is currently a partner at Clark & Weinstock,
another Washing-ton lobbying outfit.
Microsoft has also learned that in the nation's
capital, it's necessary to give in order to receive.
The company's 1996 contributions to various
candidates and party committees totaled just
under a quarter of a million dollars. It also gave
$292,000 to Preston Gates & Ellis, the Seattle
law firm in which Bill
Gates' father is a partner. The firm,
in turn, parceled out those funds to politicians
who could be helpful to Microsoft's cause.
For example, Gorton received $10,976 from the
Preston Gates & Ellis firm in 1996 and $17,050
from Microsoft's political coffers the same year.
A grateful Gorton aggressively went to bat for his
constituents in Redmond when Microsoft came
under fire from the Justice Department. Gorton
spoke out frequently about the righteousness of
Microsoft's cause.
More recently, Microsoft spent $660,000 on
lobbying efforts through the first six months of
1997, according to the CRP. The software giant
spent another $160,000 with Preston Gates &
Ellis and $50,000 through antitax activist Grover
Norquist. In 1997 and early 1998, Microsoft
also donated nearly $300,000 to political groups
including the Republican National Committee, a
$100,000 benefactor of Microsoft's largess.
Business as usual
Today, most major IT companies have some sort
of lobbying and public policy organization in
place, and they are increasing their visibility in
Washington. Dell, for example, established
of-fices in Washington a little over a year ago.
CEO Michael Dell made the rounds on the Hill
when Congress tried to impose access charges
on the Internet - a move Dell, America Online,
Compaq and Digital opposed.
Despite their increased presence in Washington,
many IT companies are stretched pretty thin
when it comes to dealing with Congress and the
myriad agencies impacting the industry. Even
Microsoft remains relatively undermanned,
with only a half dozen or so full-time lobbyists
working out of its new government affairs office
in Washington's DuPont Circle.
Meanwhile, Novell only has one full-time lobbyist
on its payroll - Dan Burton, Novell's vice
president of government affairs. Burton, who
handles all government relations and public policy
issues for Novell, focuses, naturally, on areas of
paramount importance to the network software
vendor.
"The company's biggest concern is software
piracy," he says. The research and development
tax credit, encryption and Internet taxation are
also high on his agenda. Burton is concerned that
down the road the network software industry will
be regulated. "As we take on functions such as
transmitting data and voice, which are very similar
to what the Bells do, Washington is going to be
increasingly prone to regulate us," he cautions.
Burton spends much of his time dealing with
Congress and the administration. "I try to get our
message across to legislators or people in
agencies and make it happen," he says.
He also relies on Technology Net-work, a
lobbying group in Palo Alto, Calif., to address
special issues and draws on Novell's membership
in several trade associations, including the BSA,
to keep him abreast of pending developments
and to promote noncompany-specific issues.
Teamwork
Increasingly, too, Burton and other IT lobbyists
are working in concert to support important
industry initiatives.
"One of the best ways to get something done
here is to put together a coalition that touches all
the interests and develops common ground," he
says, noting that Novell just teamed up with a
dozen other vendors to obtain export licenses for
products that have strong encryption.
The effort entailed close coordination among the
vendors on a number of fronts, as well as the
support of legislators, industry groups and other
coalitions attempting to liberalize U.S. ex-port
controls on encryption.
The IT industry has experienced mixed results in
using coalitions to score points in Washington.
The jury remains out of the effectiveness of the
Online Privacy Alliance, a group of organizations
concerned that Big Brother may use the 'Net to
snoop on private citizens.
On the other hand, a number of IT companies,
many of them rivals such as America Online,
AT&T, Bell Atlantic, MCI and Netcom, played a
critical role in formulating Internet copyright
legislation. "You had natural enemies, people you
usually wouldn't find on the same side of an issue,
and we were all able to work together
successfully," Netcom's Cady says.
Despite such instances, the IT sector remains
fragmented into divergent camps, a situation that
prevents what has become one of America's
most important industries from exercising its full
clout in Washington.
"Other than the 'please don't regulate us' mantra,
we're not yet together enough as an industry to
go forward with some kind of coherent,
overriding strategy in terms of policy," Cady says.
"That's not going to change as long as we remain
divided into all these different little groups." |
