August 25, 2000

Internet veteran proposes Hacker Tax Credit

Author: JT Smith

By Tony Granata
News Editor

Internet pioneer Carl Malamud wants to keep good Open Source projects lacking sufficient funds from fading out of existence. Malamud from Invisible Worlds has proposed one solution he calls the "Hacker Tax Credit."

About Carl Malamud

Malamud is a co-founder and board member of Invisible Worlds, a data architecture development company located in Petaluma, Calif. He previously founded Internet Multicasting Service, the nonprofit group that helped pioneer some of the most important early content on the World Wide Web. Internet Multicasting is known for creating the first Internet radio station, for putting the SEC's EDGAR database online, and for creating the Internet 1996 World Exposition. He is the author of eight books, including the three-volume series "Analyzing Networks," "Stacks," and "Exploring the Internet." His most recent book, "A World's Fair for the Global Village," features a foreward by the Dalai Lama.

Malamud, through his prior work on EDGAR and with organizations like the Internet Software Consortium, has come to the realization that the infrastructure being built on the Internet is real, and it takes real money to do it properly. "In the real world we've always sustained these kinds of efforts through mechanisms like public works projects, community development groups, and tax incentives. Why not apply these concepts to the very real infrastructure we are building on the net?" he asks.

How it works

The Hacker Tax Credit would be a simple addition to the U.S. Tax Code, Malamud says. He uses an algorithm, #/us/usc/irs:

If you produce software that is in the public domain;

And if that software is used by at least 1,000 people;

Then you may deduct your development and operational costs from your gross income for tax purposes.

Practically applied, Malamud's words:

An average programmer makes a piece of shareware. She earns $70,000 a year on the day job. She spends $5,000 to keep a Web server going to host her code. She'd be able to deduct $5,000
from taxes. Assuming a 25% tax bracket (your mileage may vary), that means she can recoup $1,250.

The Hacker Tax Credit would give large corporations a way to deduct Open Source based expenses that year, instead of writing them off over several years, as with R&D. This results in substantial and immediate impact on a corporation's bottom line.

Malamud believes the tax credit would:

Provide even more fuel for the growth of our information economy;
Have a greater effect than any cuts in capital gains taxes;
Establish a stronger way to track previously written code, making it much harder for people who didn't write the code to get patents on it;
Insure a strategic national reserve of Open Source software.

The proposal's prospects

Malamud seems both optimistic and realistic. "[There's] lots of really good support, but no action," he says. "It takes a long time for legislation to percolate up. One of the things the Internet as a whole and community-based Internet projects have never been good at is making the case to more formal bodies, like Congress.

"We can assume that we'll route around obstacles, but I've always felt that you engage folks who don't understand and try to explain why things could be different. That's what I did on EDGAR and it took five years, but we finally got the SEC to run the database on the Net."

To learn more about the Hacker Tax Credit, visit the
Web site.


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