A Project of The Annenberg Public Policy Center

Toss-ups: Wayward Ads in Washington State

American Action Network, Patty Murray find facts are flexible in deadlocked race.


Summary

A Republican-leaning group, American Action Network, makes misleading claims in an ad portraying Democratic Sen. Patty Murray as pro-tax and anti-small business. Meanwhile, Murray goes too far in her attack on the complicated business career of her rival, Republican Dino Rossi.

  • The AAN ad says Murray voted for "the largest tax increase in history," a grossly inflated claim about the 1993 Clinton tax hike. By most measures, several others were larger.
  • The ad also accuses her of favoring "a huge tax hike on small business." But what Murray supports would amount to an increase for only about 3 percent of people who have any business income on their individual returns.
  • Murray’s ad says Rossi "hid" a loan from someone who’s now under investigation. But there’s no evidence that his failure to report the loan was anything but the "oversight" his campaign claimed it was.
  • Her ad also implies that Rossi had something to do with the losses suffered by a bank in which he is an investor. But Rossi never has been an executive or board member of the bank, and owns less than 1 percent of its stock.

Note: This is the fourth in an occasional "Toss-ups" series, in which we will focus on ads appearing in the tightest Senate races.

Analysis

Murray and Rossi are fighting for every vote in a tight election for a Senate seat the Democrats consider a must-win.

Action Against Murray

American Action Network was formed earlier this year by former GOP Sen. Norm Coleman of Minnesota and Rob Collins, a former top aide to House Minority Whip Eric Cantor of Virginia. Like many other groups that are running ads to influence the upcoming elections, it is a 501(c)(4) and doesn’t have to disclose its donors. It shares office space with another big-spending, GOP-oriented group, American Crossroads.

[TET ]

American Action Network Ad: "Ouch"

Announcer: During her 18 years in Washington, Patty Murray voted for the largest tax increase in history.

On screen: Patty Murray. 18 years on our backs.

Announcer: And repeatedly against tax relief. But this November, Murray promises to vote for a huge tax hike on small businesses. Ever heard of helping small businesses, Patty?

On screen: Huge tax vote in November!

Announcer: Tell Senator Murray "ouch." We can’t afford more tax hikes. American Action Network is responsible for the content of this advertising. [/TET]

The group’s ad features someone in well-worn tennis shoes — Murray’s political trademark — walking across the backs of three actors with pained looks. It’s the work of Fred Davis, recently declared "perhaps the most sought-after ad man in politics" and a "hi-def political provacateur" in a Washington Post profile. The ad claims that Murray "voted for the largest tax increase in history."

We tried to contact the group to find out which tax increase it was talking about, but never heard back. We’ll assume, then, that it is talking about the 1993 Clinton tax increase, which Murrray supported and which Republicans have long referred to as the largest in history.

Only problem is, it’s not true – at least, not by any reasonable measure that takes into account inflation and other factors. A study by GOP President George W. Bush’s own Treasury Department showed that. Franklin Roosevelt’s tax increase of 1942, as the U.S. prepared to go to war, hiked federal revenues 71 percent. Adjusting for inflation, it amounted to $73 billion a year, while Clinton’s averaged $35 billion a year. (The average is for the first two years.) But even if we stick to recent history, the claim still isn’t true. By the Treasury study’s recommended method for measuring these things, revenue effect as a percentage of GDP, the tax increase Reagan signed in 1982 has been the biggest since 1968. It amounted to 0.8 percent of GDP, much more than the 0.5 percent of GDP that the ’93 increase accounted for.

Has Murray voted "repeatedly against tax relief," as the ad alleges? She certainly voted against some significant tax cuts, such as Bush’s in 2001 and 2003. But she’s supported smaller, more targeted ones, such as the 2008 stimulus bill that included tax rebates for individuals and tax breaks for small businesses. And Murray helped pass the Small Business Jobs Act that Obama signed in September, which contains a number of tax provisions favorable to small business.

The ad also claims Murray favors a "huge tax hike on small businesses." But that’s not exactly true. The ad is referring to the fact that Murray favors allowing the Bush tax cuts, which expire in January unless Congress acts, to lapse for the most affluent, couples earning $250,000 or more and individuals earning at least $200,000. How would this affect small businesses? About 3 percent of taxpayers who have any business income on their personal returns would see higher taxes, according to the nonpartisan Joint Committee on Taxation.

Another way to look at it, as the Tax Policy Center pointed out, is this: The average positive business income reported on individual tax returns is less than $40,000. That puts those people well out of reach of the tax increase, if they don’t have other income. Most do, of course, but it’s generally not small-business income.

And only about 775,000 taxpayers who have positive business income would pay higher rates if the Bush tax cuts were allowed to expire for those in the top brackets. About 500,000 of these top-bracket filers will report more than $700,000 in net-positive business income, according to TPC — many of them are doctors, lawyers and others who don’t conjure the classic mom-and-pop small-business people that opponents of the expiration like to evoke.

Republicans like to argue that, while only a small fraction of small-business owners will be affected, half the "small-business income" will be subject to higher rates. But that’s not true either. As we’ve noted before, the Joint Committee on Taxation points out that some of that "small" business income actually comes from several thousand businesses that each have receipts of $50 million a year or more.

 Disappearing Loan

Murray’s ad claims that Rossi "hid" a personal loan from "a businessman now under federal investigation." But there’s no evidence that Rossi intended to keep the $50,000 loan under wraps. 

[TET ]

Patty Murray ad: "For Himself"

Murray: I’m Patty Murray. I sponsored this ad.

Announcer #1: Would you trust a politician who hid a personal loan given by a businessman now under federal investigation?

On screen: Rossi hid personal loan.

Announcer #2: Dino Rossi then co-founded a bank together with business lobbyists. That bank’s now under federal watch.

On screen: Founded a bank with business lobbyists.

Announcer #1: Auditors found Rossi’s bank made unsafe and unsound loans.

Announcer #2: And lost millions of dollars.

Announcer #1: No wonder Dino Rossi wants to repeal tougher regulations on banks and Wall Street.

On Screen: "Dino Rossi backs repeal of Wall Street reform" – The Washington Post 7/27/10

Announcer #2: Because Dino’s out for himself, and not on our side.

On screen: Dino Rossi – not on our side.

[/TET]

It’s true that Rossi didn’t reveal the loan. He has admitted as much. As a state senator, Rossi was required to report all such debts on his personal financial disclosure statement. He borrowed the money in 1997 from Michael Mastro, a real estate developer, and used it to help buy an apartment building with other investors. Yet he didn’t list the loan on his statement during the several years before he and Mastro declared it settled in 2001. The issue came up in 2008, one of the two times that Rossi unsuccessfully ran for governor in Washington.

Rossi’s 2008 campaign explained his failure to list the loan as an "oversight" when it was brought to campaign officials’ attention by The Associated Press. Circumstantial evidence supports his explanation. According to AP, Rossi disclosed much larger transactions on his form.

As for Mastro, he is now under federal investigation, as the ad says. But does that reflect poorly on Rossi?

After a high-rolling career in real estate, Mastro was forced into liquidation in 2009, and creditors have filed more than $570 million worth of claims against him, with more than $200 million of that total unsecured. State regulators accused Mastro of multiple violations of the Securities Act, saying he sold more than $100 million worth of promissory notes to more than 175 investors to raise capital for his business without being properly registered to do so, and without revealing to investors the liquidity crisis in his business or the number of bank loans and projects he was involved in. In a consent order in January, he agreed to cease and desist from violating the anti-fraud and registration portions of the Act. Meanwhile, a raft of lawsuits accuses Mastro of transferring properties to other owners to protect them from creditors just before filing in bankruptcy court. And the U.S. Attorney’s Office opened an investigation of him in February 2010.

Mastro and Rossi go way back, according to press reports. Mastro sold apartment complexes to Rossi in the 1990s, when Rossi was a rising GOP politician; Mastro financed the purchases, and was an early donor to both of Rossi’s gubernatorial campaigns. But Mastro’s legal troubles didn’t come to public attention until last year, and we’ve seen no reports alleging that Rossi has been keeping company or doing deals with him since then.

We’ll let readers judge whether Rossi has good taste in associates, but based on available evidence we can’t conclude that Rossi knew or should have known that Mastro was doing anything that wasn’t on the up-and-up.

Eastside Story

Just as Murray’s ad alleges, Dino Rossi did co-found the Eastside Commercial Bank with two lobbyists, Richard and David Ducharme, with whom he had invested in a building in 1997. Rossi was a state senator at the time. Richard Ducharme represented the Building Industry Association of Washington. But the ad doesn’t tell us that there were also 32 other co-founders. Rossi put in $10,000, a campaign spokeswoman told us, and later invested an additional unspecified amount.

The ad’s claim that the bank got in trouble with regulators is true, and in 2009 it reached an agreement with the federal Office of the Comptroller of the Currency to shape up:

Agreement, Eastside Commercial Bank and Comptroller of Currency, April 21 2009: The Comptroller has determined that the Bank has engaged in unsafe and unsound banking practices relating to its strategic and capital planning, credit underwriting, credit administration, concentration risk management and liquidity management.

But Eastside’s efforts weren’t enough to satisfy federal authorities, who on Dec. 22, 2009, ordered the bank to come up with more capital.

The ad implies, though, that Rossi had something to do with the bank’s losses. In fact, his campaign told us that he’d never been a director nor an officer of the bank. "He’s never had decisionmaking power there," said a spokeswoman. The Murray campaign provides no evidence that Rossi has influenced the bank’s direction, and the campaign spokeswoman said he owns less than 1 percent of the bank’s stock.

It’s also true that Rossi said in July that he supports repealing the Wall Street Reform and Consumer Protection Act, which imposes greater regulation on the financial system. But Murray can’t say he’s motivated by his stake in troubled Eastside – she doesn’t know, and neither do we. In fact, there’s reason to believe Rossi had a distaste for regulation since well before his investment in Eastside. The Murray ad’s claims are based on facts, but draw inferences about causality that aren’t supported by evidence.

by Viveca Novak

Correction, Nov. 9: We originally said the expiration of the Bush-era tax cuts for high earners would affect 500,000 filers with average business income of more than $700,000. However, about 775,000 taxpayers who will report positive business income would be affected by the expiration. We have changed the story to reflect this.

Sources

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Rucker, Philip. "Fred Davis, GOP’s ad wizard spins tempting tales and viral videos for candidates." The Washington Post. 22 Sep 2010. 

U.S. Senate. H.R. 2264. Roll Call Vote 237. 6 Aug 1993.

Hohmann, James. "Rob Collins leaves job at Capitol." Politico. 4 Feb 2010.

Crowley, Michael. "The New GOP Money Stampede." Time. 16 Sep 2010.

FactCheck.org. "Treasury Tax Expert to Bush: Clinton’s Increase WASN’T The Biggest." 16 Apr 2004.

U.S. House of Representatives. H.R. 4962. Bill Summary and Status. 1982.

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Brunner, Jim. "Murray, Rossi clash on tax-cut renewal." Seattle Times. 30 Aug 2010.

U.S. Congress. The Joint Committee on Taxation. "Present Law And The President’s Fiscal Year 2011 Budget Proposals Related To Selected Individual Income Tax Provisions Scheduled To Expire Under The Sunset Provisions Of The Economic Growth And Tax Relief Reconciliation Act Of 2001." 12 July 2010.

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Miller, Sean J. "Report: Dino Rossi will run against Sen. Patty Murray." The Hill. 24 May 2010.

Pryne, Eric. "U.S. Attorney’s Office looking into Mastro after bankruptcy." The Seattle Times. 19 Feb 2010.

Grind, Kirsten and Jeanne Lang Jones. "Washington state securities regulators charge Mastro." Puget Sound Business Journal. 9 Oct 2009.

Washington State Department of Financial Institutions. "Washington DFI Enters A Consent Order With King County Resident And Real Estate Developer Michael R. Mastro." Press release. 11 Jan 2010.

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Pryne, Eric. "Seattle developer Mastro has huge debts, bankruptcy papers show." The Seattle Times. 11 Sep 2009.

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