A Project of The Annenberg Public Policy Center

Taxing the Truth in Nevada

False claims and strained facts in a contentious special election in the state's 2nd Congressional District.


Summary

Truth and context are taking a beating in a special election in Nevada to fill a vacant House seat. Both sides are adding some new twists to familiar talking points — and giving voters a peek at campaign tactics that may be coming to TVs across the country next year.

  • Republican Mark Amodei touts his record of tax cutting, without mentioning that he once sponsored a business services tax that would have been the biggest tax hike in state history.
  • Democrat Kate Marshall hammers Amodei for supporting that tax hike, but fails to note that it was offered as a less punitive alternative to another budget-balancing tax plan sponsored by the governor.
  • The National Republican Congressional Committee accuses Marshall of “gambling away” $50 million in state money as state treasurer. But not all the money invested through Lehman Brothers is lost, and the overall performance of the portfolio her office manages exceeded state benchmarks.
  • The NRCC accuses Marshall of supporting a $500 million tax increase, which is false. She never advocated any such increase, and two Nevada TV stations have now rejected the NRCC ad as unsubstantiated.
  • Marshall claims that Amodei would “end Medicare,” but her ad features a cast of seniors whose benefits would not have been affected by the House GOP plan.
  • Republican ads make the rehashed but false claim that Marshall supports putting "bureaucrats in charge of your medical decisions."
  • The NRCC blames the Democrat for Nevada’s high unemployment and skyrocketing foreclosure rate – but Marshall is the state treasurer, whose duties have no bearing on those problems.

Analysis

No Democrat has ever been elected to Nevada’s 2nd Congressional District seat, but Republicans aren't taking this Sept. 13 special election for granted. The seat was vacated by Republican Dean Heller, who was appointed to fill the Senate term of John Ensign, who resigned amid a sex scandal and ethics inquiry.

The district is huge, rural and mostly conservative; Republican registration outpaces that of Democrats by 30,000. And one recent poll gives the Republican a 13-point advantage. But both sides are spending as though this race could go either way.

The Nevada Supreme Court decided to allow the Democratic and Republican state party central committees to choose their respective candidates. Democrats selected State Treasurer Kate Marshall. Marshall has played down her party affiliation in some of her early ads (a fairly typical ploy in this conservative district). Her opponent, former state Sen. Mark Amodei, is the one airing ads picturing Marshall with President Barack Obama.

Marshall has been talking like a fiscal conservative and centrist. For example, she advocates closing tax loopholes enjoyed by some large corporations (something Obama has called for repeatedly), but she’d also like to extend the Bush tax cuts for everyone, even those making over $250,000 a year (a position that runs counter to the White House).

Taxing the Facts

In a conservative district like Nevada’s 2nd, being perceived as permissive of tax hikes is a losing hand.

Amodei presents himself as a longtime, ardent tax foe. But he has one glaring exception to that record that gets left out of a web ad touting his legislative record as an opponent of new taxes.

[TET ]

Amodei for Congress Ad: "Mark on Taxes"

Amodei: Hi. I'm Mark Amodei. Ever hear the old saying, the power to tax is the power to destroy? Well I believe that that's true. And that's why I'm proud of my history of fighting against taxes, here in Nevada, as a member of your state legislature. I fought and beat a Nevada income tax. I fought and beat the Nevada gross receipts tax. I fought and beat creating the Nevada I.R.S. And when I was lucky enough to prevail on those measures with the help of my colleagues, I wasn't just fighting Democrats. I was fighting against some in my own party. I'll do the same in Congress, because when it comes to taxes and the power to destroy, I'll fight that, no matter who proposes it – Republican, Democrat, or Independent. That's why I signed the Americans for Tax Reform 'No Tax Increase' pledge several years ago … [/TET]

Amodei in campaign ad: Ever hear the old saying, the power to tax is the power to destroy? Well I believe that that's true. And that's why I'm proud of my history of fighting against taxes, here in Nevada, as a member of your state legislature. I fought and beat a Nevada income tax. I fought and beat the Nevada gross receipts tax. I fought and beat creating the Nevada IRS. And when I was lucky enough to prevail on those measures with the help of my colleagues, I wasn't just fighting Democrats. I was fighting against some in my own party. I'll do the same in Congress, because when it comes to taxes and the power to destroy, I'll fight that, no matter who proposes it – Republican, Democrat, or Independent. That's why I signed the Americans for Tax Reform 'No Tax Increase' pledge several years ago.

What Amodei doesn’t mention is that back in 2003, when he was fighting a business gross receipts tax plan put forward by Republican Gov. Kenny Guinn, he cosponsored – along with Democratic Sen. Terry Care – Senate Bill 382, an alternative service tax plan that would have raised nearly $1 billion in new taxes. It included a 3 percent tax on services that cost more than $50, including car repair and other consumer and business services. It also would have raised taxes on cigarettes and liquor. Tax hikes were being proposed to deal with the state's projected $700 million deficit.

Marshall used that as fodder for an attack ad on Amodei.

[TET ]

Marshall for Congress Ad: "Judge Me"

Marshall: My name's Kate Marshall, and I approve this ad.

Narrator: Mark Amodei says 'judge me by what I do.' What's Amodei done? Amodei sponsored the biggest tax hike in Nevada's history. $1 billion on car repairs, movie tickets. Even a tax on creating jobs! He even admits it:

Amodei: Amodei sponsored a billion dollar tax bill. Well, yeah, that's true.

Narrator: And while Amodei was raising our taxes he voted himself a pay raise.

Amodei: Judge me by what I do.

Narrator: OK Mark, we will. [/TET]

“Amodei sponsored the biggest tax hike in Nevada's history,” the ad states. “One billion dollars on car repairs, movie tickets. Even a tax on creating jobs! “

“He even admits it,” the ad says, cutting to a video of Amodei telling the North Valleys Republican Women what he expected opponents to say about him: “Amodei sponsored a billion dollar tax bill. Well, yeah, that's true.' "

The full video of Amodei’s presentation is posted at NevadaTrends.com (the part in question comes around the halfway mark). As you could probably guess, the snippet of Amodei in the Marshall ad is immediately followed by Amodei saying, “Here’s the rest of the story on 2003.”

Amodei noted that then-Gov. Kenny Guinn had proposed a “gross receipts tax” that was projected to bring in an additional $1 billion in taxes. Amodei likened it to a “business income tax” that would have required the formation of a “Nevada IRS.”

Amodei and other big business interests didn’t like the Guinn plan. With a Republican-controlled Senate and a Democratic-controlled Assembly, Amodei said he and a small group of like-minded Republicans were forced to “play defense” and offer what they thought was a more palatable tax plan.

The Legislature settled on a different plan altogether, a "modified business tax,” a payroll tax on almost all businesses in the state and based on the number of employees they have, and Amodei voted for it. The tax ended up collecting more than $800 million in revenue for the state.

In a debate on Aug. 17, 2011, Amodei said the economic climate is much different now than it was in 2003. He said he would not consider such a tax hike now, and he has signed a Taxpayer Protection Pledge sponsored by the conservative Americans for Tax Reform.

Amodei's vote in 2003 also shows how much the political scene has changed, said Eric Herzik, University of Nevada-Reno professor and chair of the political science department. But the bottom line, Herzik told us, is that “he has voted for a tax increase in the past, and for many conservative Republicans, that’s a mortal sin.”

Marshall’s Tax Record

Meanwhile, as state treasurer, Marshall never had a chance to vote one way or the other on taxes (though she has repeatedly touted her “steady hand” in overseeing the state’s investments during the recession).

But that didn’t stop the NRCC from airing a misleading ad that said Marshall “supported a $500 million tax increase that would strangle the state's businesses” and another that said she “gambled away $50 million of your money on Wall Street.”

[TET ]

National Republican Congressional Committee Ad: "Steady Hand"

Marshall: I've taken the state through this fiscal crisis, steered it with a steady hand.

Announcer: Did Democrat Kate Marshall do that? Gambled away $50 million of your money on Wall Street. Increased office spending by 33 percent. Nevada's economy became the worst in the nation.

Marshall: I'm your state Treasurer and I'm in charge of your money, and you have some — but you don't got a lot.

Announcer: No wonder. You can't afford Democrat Kate Marshall in Congress. [/TET]

Let’s start with the claim that Marshall supported a $500 million tax increase. This is a claim that requires some political gymnastics to justify.  The NRCC is referring to a proposal Marshall made to pay off an existing state debt in a way she said would be cheaper. She never mentioned taxes at all.

Here's what happened. Amid record unemployment during the recession, Nevada found itself more than $800 million in debt to the federal government to pay unemployment insurance benefits. Marshall was invited to a meeting of the Nevada Employment Security Council on Oct. 5, 2010, to offer her advice on options to repay the federal government.

Because of potentially high interest payments due to the federal government, Marshall suggested the board could use capital markets to borrow what it owed.

“It’s just like a refinance,” Marshall said. “If you have a mortgage on your house and you want to pay it in a 15-year fixed, right, and the 15-year fix requires you to pay it at 4.5% interest over fifteen years and you find yourself unable to do that because your spouse is out of work, does this sound familiar, then you re-structure your home loan to a 30-year fixed at, you know, less interest so now you’re paying two and a half over thirty years and you just saved yourself some, gave yourself some breathing room. That’s what I’m offering you the option to put that in your stable, give yourself the ability to use that when the time comes if you judge, at that time, that that’s what you want to do.”

“You owe the federal government today, okay. I’m just talking about another way to pay them back that is cheaper for you,” Marshall said. “Many other states have already done this. I’m not inventing the wheel.”

The NRCC argues that the council would have had to approve an unemployment tax rate big enough to cover the $500 million shortfall between what was owed to the federal government and what was being collected at that time. That may or may not be so — but the fact is Marshall mentioned no such tax increase.

One way or another, sooner or later, the council had to satisfy the federal debt. Marshall proposed an alternative financing option that she suggested might yield a lower interest rate and keep the debt obligation lower over time. To paint her advice to the Employment Security Council as support for a $500 million tax increase is simply not accurate.

Two Reno TV stations pulled the ad, calling the claim unsubstantiated.

Now for the second claim, that Marshall “gambled away $50 million of your money on Wall Street.” As state treasurer, part of Marshall’s job is to invest state money in short-term, fixed investments like treasuries. The claim relates to a complicated, though fairly routine, financial transaction that went very bad. The short version is that in 2007, the state ended up investing $50 million with Lehman Brothers, which went bankrupt in 2008.

For a more technical explanation, Mark Robison of the Reno Gazette-Journal does a bang-up job summarizing the background: “The state takes in revenues from various taxes and fees. Some of that money goes back out to pay for salaries, services and projects. Some is used to buy low-risk investments such as bonds or certificates of deposit. To generate additional income, the state gives these assets to a lending agent such as a bank or broker, who then converts them to cash and reinvests the money, taking a cut of the return.”

In this case, the lending agent was Wachovia, which, in turn, invested $50 million in Lehman corporate notes, which were considered high-quality bonds at the time, said Mark Mathers, senior deputy state treasurer, in an interview with FactCheck.org. So it was actually Wachovia that decided to invest in Lehman Brothers, Mathers said.

“They don’t have to run that by the state and they didn’t,” he said.

In 2008, just before Lehman went bankrupt, Marshall contacted Wachovia with concerns about the investment, both verbally and in emails, Mathers said. But ultimately the state was convinced to hang tight. Shortly after, Lehman went bankrupt and defaulted.

However, the state hasn’t lost all of the $50 million. The bankruptcy case is still in litigation but the bonds are estimated to be worth about 25 cents on the dollar, Mathers said. That comes to $12.5 million. That’s based on the recent sale of Lehman bonds on the open market. In addition, Mathers said, several banks have approached the state with offers to buy the bonds. The latest offer on June 30, he said, was for 26.6 cents on the dollar. That comes to about $13.3 million. Or the state could take its chances in court.

Any way you slice it, the state stands to lose a big chunk of money, just not the full $50 million.

Furthermore, the Lehman investment was a small fraction of the overall portfolio. So how did Marshall do if you look at the total blended return rate?

The state’s is a short-term fixed income portfolio, so its performance is largely at the mercy of Federal Reserve policy. As a result, the rates of return have plummeted in recent years. Nevada made more than $110 million in interest earnings in 2008, with a return of 4.52 percent. Interest earnings dropped to $46 million (2.14 percent return) in 2009; and $7.5 million (.51 percent) in 2010. Those last two years include amortized losses from the Lehman deal. Nonetheless, Treasurer's Office quarterly investment reports show that Marshall correctly boasts that Nevada has beaten its benchmarks and made money every quarter that Marshall has been treasurer. The benchmarks are based on the 90-day U.S. Treasury Bill's average yield over the last three-month period.

More Mediscare

What campaign is complete these days without a little Medicare rhetoric? It worked well for Republicans when they attacked Obama’s health care law in the 2010 midterm elections. And it worked well for Democrats when they attacked Republicans who supported Rep. Paul Ryan’s plan to subsidize the purchase of private insurance for those who go on Medicare after 2022.

Neither Amodei nor Marshall has provided much detail about what they might or might not do to try to rein in Medicare costs –both claim they would protect seniors’ benefits. But each has given the other just enough of a toehold to fall back on well-worn, partisan Medicare attacks.

[TET ]

Marshall for Congress Ad: "Why"

Narrator: Mark Amodei thinks a plan that would end Medicare is, quote, excellent. What do you think?

Unidentified man: Mark, do you want to end Medicare …

Unidentified woman #1: … to give tax cuts to rich people…

Unidentified woman #2: … making us pay double for it?

Woman #1: Can you imagine?

Woman #2: It would be devastating.

Man: Mark, I need Medicare.

Woman #2: I worked 45 years …

Man: … 50 years …

Woman #1: … 55 years …

Woman #2: I paid for it.

Man: I earned it.

Woman #1: You can’t end Medicare.

Marshall: I'm Kate Marshall and I approve this message, because we have to protect Medicare.

Woman #2: Amodei …

Man: Amodei …

Woman #2: … No way.

Man: I just can't believe this is what you want to do. [/TET]

For Amodei, it was having some nice things to say about Ryan’s budget plan, including its Medicare provision.

As backup for the ad, the Marshall campaign points to two quotes from Amodei praising Ryan’s Medicare blueprint.

“I like a lot of what he has to say in terms of Medicare,” Amodei told the Las Vegas Sun on July 14.

And Politico quoted Amodei on June 20, saying, “I like a lot of what he has to say in terms of Medicare. I think that’s excellent.”

As a result, Marshall took a page out of Democrats' current playbook and accused Amodei of wanting to end Medicare. It was a winning formula for Democrat Kathy Hochul, who beat Republican Jane Corwin in the heavily Republican 26th Congressional District in upstate New York earlier this year.

“Mark Amodei thinks a plan to end Medicare is ‘excellent,’ ” begins the announcer.

The ad then cuts to comments from three elderly Medicare recipients:

Marshall campaign ad: Mark, do you want to end Medicare … to give tax cuts to rich people … making us pay double for it? … Can you imagine? … It would be devastating … Mark, I need Medicare …. I worked 45 years … 50 years … 55 years … I paid for it … I earned it … You can’t end Medicare.

There are a couple problems here. First, Amodei has walked back his comments about the Medicare provisions of the Ryan budget plan. In recent debates, Amodei has said that he would have voted against the Ryan plan because of its cuts to Medicare reimbursements.

More important, though  — as we have repeatedly written — the Ryan plan would not “end” Medicare, though it would dramatically alter it. Starting in 2022, it would give subsidies to new beneficiaries to help them buy private insurance on a Medicare exchange. This plan is expected to cost seniors more than the current program — a 65-year-old in 2022 would pay about $6,000 more, according to estimates from the Congressional Budget Office.

Moreover, the people in the ad all look to be well over 55 and their words indicate they are currently getting benefits. The Ryan plan would keep the traditional Medicare program for those who are 55 and older by the end of 2011. In other words, the big changes don’t apply to the folks in the ad.

For her part, Marshall hasn’t said much about the Obama health care law. But any fair reading of her comments could hardly be interpreted as a ringing endorsement. The Amodei campaign points to a June 13 story by the Associated Press in which Marshall called the law flawed, but said she “does not support Republican efforts to immediately overturn the law, because doing so would also not address ballooning health care costs.”

That gave Amodei enough of an opening to trot out a popular Republican attack line. The ad begins by asking why Marshall is "lying about Mark Amodei's record on Medicare” and then proceeds to relay misleading information about Marshall’s Medicare stance, saying that she “wants to cover up her support for a $500 billion Medicare cut. And Marshall supports the Obama plan to put bureaucrats in charge of your medical decisions.”

[TET ]

Amodei for Congress Ad: "Mom"  

Narrator: Why is Kate Marshall lying about Mark Amodei's record on Medicare? Because Kate Marshall wants to cover up her support for a $500 billion Medicare cut. And Marshall supports the Obama plan to put bureaucrats in charge of your medical decisions.

Amodei: I'm Mark Amodei and I approve this message, because while Kate Marshall and her friends have already supported cuts to Medicare, you should know that I will work to support and improve the program.

Amodei's mother: You'd better Mark, I'm counting on you.

Amodei: OK Ma, I'll do my best.

Amodei's mother: Good.

[/TET]

We’ve addressed these misleading claims numerous times. And we’ll repeat it again. The health care law calls for a $500 billion reduction in the growth of future Medicare spending over 10 years, not a slashing of the current Medicare budget or benefits. The law stipulates that guaranteed Medicare benefits won’t be reduced, and it adds some new benefits, such as improved coverage for pharmaceuticals.

As for putting bureaucrats in charge of your medical decisions, that's false. Republicans justify the claim by pointing to the Independent Payment Advisory Board, which was created to identify and recommend ways to slow the growth of Medicare spending. But as we have written numerous times before, the law on page 490 specifically bars the advisory board from making “any recommendation to ration health care.” And as for whether they are "bureaucrats," the law gives the president the power to appoint — with the advice and consent of the Senate — 15 board members. They must be medical providers and other professionals in the private sector with experience in such areas as health care finance, management and actuarial science.

Who’s to Blame for Unemployment, Foreclosures?

On the national scene, high unemployment and foreclosure rates have made for powerful Republican attacks on the White House. But are they a fair attack on a Nevada state treasurer?

[TET ]

National Republican Congressional Committee Ad: "More Bad News"

Announcer: Democrat Kate Marshall claims she's a financial expert. But under her watch, Nevada plummeted from the second strongest economy to the worst in the nation. 97,000 jobs were lost. The foreclosure rate skyrocketed by 243 percent. And Marshall even supported a $500 million tax increase that would strangle the state's businesses. Democrat Kate Marshall. More bad news you can't afford. The National Republican Congressional Committee is responsible for the content of this advertising.

[/TET]

NRCC ad: Democrat Kate Marshall claims she's a financial expert. But under her watch, Nevada plummeted from the second strongest economy to the worst in the nation. 97,000 jobs were lost. The foreclosure rate skyrocketed by 243 percent.

The ranking statistic comes from a review of state employment trends by Portfolio.com and bizjournals in 2010. The group analyzed short- and long-term employment trends to determine the relative economic strength of each state (you can see their methodology here). They determined that Nevada’s economy plummeted from tops in the nation in 2005 to worst in 2010.

We’re not going to quibble with the study findings. The bigger question is whether Marshall bears responsibility for high unemployment and foreclosure rates.

According to the state website, “The State Treasurer’s Office administers the Gov. Guinn Millennium Scholarship, Nevada Prepaid Tuition Program, and the state’s 529 College Savings Plans programs; safeguards Nevada’s unclaimed property; and ensures the state’s investments and debt obligations are managed prudently and in the best interest of the people of Nevada.”

None of that has any direct bearing on Nevada’s overall economy.

What did? According to the Triangle Business Journal story highlighting the study, and cited in the NRCC ad, “several factors have turned” Nevada and Florida “into laggards during the past five years, notably the deflation of their hyper-expanded real-estate bubbles and a sharp downturn in tourism.”

Again, as state treasurer, Marshall had no influence over the real estate bubble or the downturn in tourism.

“I’m still trying to make that connection,” University of Nevada-Reno Professor Eric Herzik said. “She's the treasurer, c’mon.”

Special elections like this one allow parties to test their political messages to see what attacks resonate with voters. Whether true or not, it's a safe bet that the types of claims that move voters in Nevada's 2nd district on Sept. 13 will be repeated in scores of close elections in 2012.

— by Robert Farley

Sources

Silva, Christina. "Democrats go after GOP-leaning Nevada district." Associated Press. 13 Jun 2011.

Hagar, Ray. "Business tax cheaper than service tax, study says." Reno Gazette-Journal. 23 Apr 2003.

Hagar, Ray. "Business tax plan shelved." Reno Gazette-Journal. 18 Apr 2003.

Nevada Senate. S.B. 382, Making various changes to provisions governing public financial administration. (as introduced 17 Mar 2003).

Nevada Assembly. Assembly Bill 462. Increases salaries of certain constitutional officers. (as introduced 28 Mar 2005).

NevadaTrends.com. Video of Mark Amodei addressing the North Valleys Republican Women. 6 Jun 2011.

Cook, Glenn. "$50 million lost – so where's the outrage?" Las Vegas Review-Journal. 22 Mar 2009.

Thomas, G. Scottt. "Study unveils nation's worst economies: Nevada, Florida, California." Triangle Business Journal. 27 Jul 2010.

"Midyear state-by-state employment: Methodolgy and interactive database." Triangle Business Journal. 27 Jul 2010.

Vogel, Ed. "Jobless-benefits taxes to rise." Las Vegas Review-Journal. 6 Oct 2010.

Ralston, Jon. "Might the House special be special, after all?" Las Vegas Sun. 31 Jul 2011.

Tetreault, Steve. "Party split divides Nevada lawmakers on Boehner plan." Las Vegas Review-Journal. 29 Jul 2011.

Silva, Christina. "Kate Marshall slams Mark Amodei on Medicare." Associated Press. 5 Aug 2011.

Sebelius, Steve. "Kate Marshall broke the whole world!" Las Vegas Review-Journal. 29 Jul 2011.

"Campaign Ad Pulled from Air." KOLO TV. 8 Aug 2011.

Nevada Treasurer Office. Investments: General Portfolio. Fiscal Year 2010 Quarter 4.

Nevada State Treasurer Office. Treasurer's Office Quarterly Investment Reports.

Robison, Mark. "Factchecker: Did Nevada Treasurer gamble away $50 million?" Reno Gazette-Journal. 1 Aug 2011.