A Project of The Annenberg Public Policy Center

Whitman, Unions Swap Misleading Charges

California Working Families, a coalition of labor unions, goes after GOP nominee -- and she fights back.


Summary

A coalition of labor unions called California Working Families for Jerry Brown has relentlessly attacked Meg Whitman since she won the Republican gubernatorial nomination June 8. Now Whitman is firing back — accusing Democrat Brown of being the candidate of special interests.

Both sides are making some false or misleading claims. In two recent ads, the union group falsely accuses Whitman of proposing no tax breaks for the middle class; wrongly claims that she says she would spend less on schools, and exaggerates Brown’s record as governor on taxes and surpluses. Whitman’s response ad leveled a new charge that unfairly ties Brown to the state’s current pension problems, which independent experts have traced to events that took place long after Brown left office.

Analysis

The latest sparring between the Whitman camp and California Working Families is over a TV ad called "World."

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California Working Families for Jerry Brown Ad: "World"

Announcer: Meg Whitman says she’ll run California like her company. But is that what we need? As CEO, Whitman hid her profits offshore to avoid paying taxes. She ranked second among CEOs for personal use of corporate jets. That’s Whitman’s world. And her plan for California? Tax breaks for corporations and the wealthy, but nothing for the middle class. And our schools? They can do more with less. Tell Whitman, in the world we live in, her plan won’t fly.

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The ad, which started airing June 28, portrays Whitman as out of touch with the middle class. It accuses her of proposing "tax breaks for corporations and the wealthy, but nothing for the middle class." That’s not true.

The group cites Whitman’s 48-page policy plan, “Building a New California,” as the source of its claim. The group points to Whitman’s proposal on page 11 to repeal the state’s capital gains tax. There is no question that repealing the capital gains tax will disproportionately benefit the wealthy. California Controller John Chiang wrote in an online newsletter that in 2005 "capital gains from the top five percent of taxpayers comprised $100 billion out of the $111 billion in total capital gains reported — an extraordinary 90%."

However, it is not true that Whitman is proposing “nothing for the middle class.” Her policy plan, for example, proposes a $10,000 tax credit for homebuyers — which would benefit all homeowners, including the middle class. The group could have argued that Whitman’s tax plan favors the state’s wealthiest residents, but it cannot truthfully say that she has proposed no tax breaks for the middle class.

More (Charges) with Less (Facts)

The ad also criticizes Whitman for allegedly saying that schools "can do more with less." But that’s not what Whitman said.

The ad cites a Whitman radio commercial in which she said, “If we ran things more efficiently, couldn’t we do more with less?” But she was referring to all of the state’s 350,000 employees, not to teachers specifically. She didn’t call for fewer teachers, and in fact she went on to say she wanted to “fix our public schools.” Here’s the full context:

Whitman radio ad, Feb. 18: Here’s what big spending looks like. Since 2004, we’ve added 40,000 new state workers. Now we have more than 350,000 employees, enough to fill every Major League Baseball stadium in the state plus the Rose Bowl, with 40,000 waiting outside.

California employs nearly 3,400 lawyers, twice as many as the biggest law firm in the country. And the state’s computers? Many run on software nearly 30 years old. That’s not a computer, that’s a museum piece. If we ran things more efficiently, couldn’t we do more with less? Creating A New California won’t be easy, but I know we can do it. Let’s end the outrageous spending, fix our public schools and streamline regulation to make it easier to create new jobs.

Avoiding Taxes?

In perhaps its most explosive charge, the ad says Whitman “hid her profits offshore to avoid paying taxes." But Whitman’s investments are not hidden — they are a matter of public record. And there’s no evidence that Whitman did anything illegal or improper to lower her tax bill.

The ad cites Whitman’s statement of economic interest, a financial disclosure form required of all state candidates. It is true that Whitman has some investments in companies based in the Cayman Islands. Whitman filed her disclosure report with the state on March 11. She listed more than 200 investments — including partnerships in five private equity funds based in the Caymans. She invested more than $1 million in two of them, and between $100,000 and $1 million in three of them.

Roger Salazar, a spokesman for California Working Families, said in an e-mail to FactCheck.org: "Why else would she invest in the Caymans? They are a ‘well known tax haven.’" That’s a quote from Los Angeles Times story on Whitman’s investments. Given the tax laws in the Caymans it’s possible that Whitman was seeking to reduce her tax liability. But it’s not illegal to "avoid" paying taxes, which people do all the time. Buying a home to get a mortgage deduction is one way to avoid paying some taxes, for example. It would be another matter entirely if Whitman were evading taxes illegally, but there’s no evidence of that.

Whitman’s a Frequent Flier

One claim that cannot be disputed is the one about Whitman’s personal use of the corporate jet while she was CEO of eBay. CPA Journal, a publication of the New York State Society of CPAs, reported that Whitman ranked second among CEOs for personal use of corporate jets. The article, titled “Tax Gross-Up,” dealt with the practice of paying CEOs money to cover their tax liability for corporate perks, such as personal air travel. The authors reviewed personal air travel for 2006 among Fortune 500 company executives:

CPA Journal, July 2008: CEO of Abercrombie and Fitch, Michael Jeffries, had the highest amount of personal air travel in the sample, $961,513. The CEO of eBay, Margaret Whitman, had the second highest amount of personal air travel, $773,467. In addition, she had $230,992 of tax gross-ups related to airplane usage. This means that in addition to paying for Whitman to fly, the company paid her taxes on this personal benefit.

The Whitman campaign did not dispute this, although it argued that eBay was a wildly successful company and stockholders who invested in the company while she was CEO would have made a big profit.

Who’s ‘Misleading’ Whom?

California Working Families launched its latest ad, “Misleading,” on July 9. The ad acts as a “fact check” on Whitman and claims to reveal the truth about Brown. Unfortunately for viewers, the group could use some help when it comes to running its own fact check.

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California Working Families Ad: "Misleading"

Announcer: How many lies can Meg Whitman jam into one ad? At least seven. As governor, Jerry Brown cut taxes and amassed a record budget surplus. As mayor of Oakland, Brown didn’t raise taxes, 70 percent of voters did. Putting 65 new cops on the street. And Brown moved into a high crime neighborhood to see the problems first hand. That’s the real Brown record. FactCheck.org called Whitman’s ad "highly misleading," saying "it’s Whitman who fails when it comes to the facts."

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The ad claims that Whitman lied about Brown’s record “at least seven” times in her recent ad (which we wrote about in a previous article). Well, not quite. We found two of the claims made in Whitman’s ad to be false. There were five other claims we deemed misleading or in need of more context to help the viewer understand the situation.

Facts About Taxes and Surpluses

The group’s ad also claims that as governor Brown "cut taxes and amassed a record budget surplus." That’s misleading. Brown’s history on taxes is a mixed bag, and he left the state with a budget shortfall of more than a billion dollars.

California Working Families cites an April 24 Sacramento Bee article that says Brown "cut state income taxes." What happened was that Brown signed legislation in 1978 that indexed personal income tax brackets to adjust for inflation. The Brown campaign says this saved taxpayers $5.1 billion in four years, which they backed up with a copy of a report — "Economic Report of the Governor"– issued by Brown’s office in 1981. The Los Angeles Times in a 1991 story on the history of California’s tax revolt said: "During Brown’s tenure, income tax rates were adjusted for inflation — so-called ‘indexing’ — saving taxpayers billions."

However, as we wrote in an earlier article, Brown also raised taxes as governor. For example, he signed a bill increasing the state’s gasoline tax by 2 cents a gallon, which was estimated to bring in more than $2.5 billion in new revenues over five years to improve the state’s highway system, according to the Los Angeles Times.

As for Brown’s “record budget surplus,” it’s true that the state of California amassed large surpluses during Brown’s time as governor. The height of the budget surplus was estimated at about $5 billion, the Los Angeles Times said, although we were unable to confirm those numbers with either the California Department of Finance or the California Legislative Analyst’s Office. But when Brown left office, the state of California had a budget shortfall of more than a billion dollars

The budget problems at the end of Brown’s term were largely considered to be a result of the voter-approved Proposition 13, a 1978 measure that rolled back property values to 1975 levels, dictated that property value assessments could not rise more than 2 percent per year, and capped annual real estate taxes at 1 percent. The Associated Press reported that this forced the legislature under Brown to spend the surplus on making up for the lack of property tax money, "bailing out local governments that relied on the property tax to prevent police layoffs, park closings, and other drastic budget cuts."

Whitman Fights Back

On July 13, Whitman began airing a commercial titled, "Their Governor."

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Meg Whitman for Governor Ad: "Their Governor"

Announcer in California Working Families ad: Meg Whitman says she’ll run California like her company.

Announcer in Whitman’s ad: Seen this attack on Meg Whitman? Who are these people? They are the unions and special interests behind Jerry Brown. They want Jerry Brown because he won’t rock the boat in Sacramento. He’ll be the same as he ever was. High taxes. Lost jobs. Big pensions for state employees. The special interests have chosen their governor. How about you?

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Whitman’s ad ties Brown to the state’s current pension problems. But the attack is misleading and unfair. It is true, as the ad says, that California Working Families for Jerry Brown is a coalition of unions and special interests that support Jerry Brown. The group is described on the state campaign finance website as "a coalition of public employees, firefighters, and building trades organizations." The two co-chairmen are Lou Paulson, president of California Professional Firefighters, and Bob Balgenorth, president of the State Building & Construction Trades Council of California.

Whitman’s ad suggests unions are backing Brown because he provided state employees with generous benefits while governor in the late 1970s and early 1980s. When asked back up this claim, the Whitman campaign said Brown signed into law the Ralph C. Dills Act, which gave public employees collective bargaining rights, and charged that the Dills Act "resulted in billions in unfunded pension liability." That’s not true. The state’s staggering pension problems stem from numerous actions that occurred long after Brown left office.

The state’s pension system has an estimated deficit of more than $500 billion, according to an April study by graduate students at the Stanford Institute of Economic Policy Research. That study cited three reasons for the state’s pension problems: risky investments (which hurt the state funds during the recent stock market collapse), inconsistent contributions (including skipping contribution payments in years when investment returns were high), and generous benefits. As for those benefits — the heart of Whitman’s charge — the study did not even mention the Dills Act as a factor. Instead, the Stanford students — and others, including Republican Gov. Arnold Schwarzenegger — largely blame a bill (SB 400) signed into law in 1999, when Gray Davis was the governor.

Stanford Institute for Economic Policy Research, April 2010: In 1999 California passed Senate Bill 400 (SB400), substantially raising benefit factors and lowering retirement ages for public employees (see Table 3). Based on a National Institute on Retirement Security report, average monthly public pension benefits in California were $2,008 in 2006, the eighth highest nationwide.

Joe Nation, an economist who teaches public policy at Stanford University and who served as advisor on the study, called SB 400 “a remarkably generous bill” that passed with overwhelming support at the time. The state Senate approved the bill 39 – 0, and the Assembly 70 – 7. A former Democratic assemblyman, Nation told us: “SB 400 was a bipartisan failure. There is enough blame to go around, but you really can’t tie Brown to this specific law.”

Schwarzenegger also blames the 1999 law and has been negotiating with the state unions to roll back the benefits provided by that law. In a July 8 press release, the governor discussed the problems caused by the 1999 law:

Office of the Governor, July 8: California has long provided generous pension benefits to its employees, but in 1999, the legislature and Governor Gray Davis significantly and retroactively boosted benefits after being assured by the California Public Employee’s Retirement System (CalPERS) that doing so would not cost “a dime of additional taxpayer money.” But since the passage of that legislation, taxpayer spending on pension benefits has skyrocketed by more than 2000 percent (nearly 3000 percent in the General Fund) while spending on University of California and California State University, parks and recreation and environmental protection has either declined or failed to keep up with inflation.

Yes, the unions are backing Brown and they and others are prepared to raise and spend millions on his behalf, according to the San Jose Mercury News. The paper said in a Feb. 10 article that California Working Families plans to raise $20 to $30 million and spend 70 percent of that on helping Brown’s campaign. But the Whitman ad goes too far when it seeks to blame Brown for the state’s current pension problems.

Correction, July 26: Our original article confused how much Californians paid in capital gains taxes with how much they reported in capital gains. We have updated the article to fix that.

– by Eugene Kiely and Kelsey Ferguson

Sources

"Building a New California: Meg Whitman’s Policy Agenda." Meg Whitman for Governor. Accessed 15 Jul 2010.

California State Controller’s Office. "Statement of General Fund Cash and Disbursements." Feb 2008.

"Meg Whitman releases new radio ad: "Big Spending Sacramento." Press release. Meg Whitman for Governor. 18 Feb 2010.

Fair Political Practices Commission. "Statement of Economic Interests, Margaret Whitman." 11 Mar 2010.

Halper, Evan and Michael Rothfeld. "Whitman’s funds could pose conflicts." Los Angeles Times. 12 Mar 2010.

Andrews, Angela et al. "Tax Gross-Up: Recruiting Tool, or More Compensation?" The CPA Journal. Jul 2008.

Gore, D’Angelo and Kelsey Ferguson. "Jerry Brown: A Legacy of Failure?" FactCheck.org. 1 Jul 2010.

Chance, Amy. "Ad Watch: GOP governors’ TV attack on Brown misleading." 24 Apr 2010, modified 26 Jun 2010.

Shuit, Douglas P. "‘Tax Revolt’ Endures Despite New Increases." Los Angeles Times. 14 Jul 1991.

Gross, Jame and Katherine Bishop. "The 1992 Campaign: Candidate’s Record; Brown Opened Doors but Failed to Build Coalitions." New York Times. 5 Apr 1992.

Stall, Bill. "Assessing Prop. 13." The Los Angeles Times. 29 May 2008.

California Secretary of State. "California Working Families 2010 Committee." Accessed 15 Jul 2010.

California Professional Firefighters. Accessed 15 Jul 2010.

State Building & Construction Trades Council of California. Accessed 15 Jul 2010.

California Public Employee Relations Board. "Ralph C. Dills Act." (as of 1 Jan 2009.)

Bornstein, Howard et al. "Going for Broke: Reforming California’s Public Employees Pension System." Stanford Institute for Economic Policy Research. Apr 2010. 

California Legislative Counsel. SB 400. 29 Sep 1999.

California Legislative Counsel. SB 400, Senate roll call vote. 10 Sep 1999. 

California Legislative Counsel. SB 400, Assembly roll call vote. 10 Sep 1999.

"Governor Schwarzenegger Hosts Pension Roundtable." Press release. Office of the Governor. 8 Jul 2010.

Nation, Joe, director of Graduate Practicum and Lecturer in Public Policy, Stanford University. Interview with FactCheck.org. 13 Jul 2010.

Salazar, Roger, spokesman, California Working Families for Jerry Brown for Governor 2010. E-mail to FactCheck.org. 13 Jul 2010.