Wednesday, August 6, 2003

Vermont had one of the highest per capita tax burdens in the country when Howard Dean left the governorship in January to run for president.

Mr. Dean, a Democrat who calls himself a “fiscal conservative,” says he balanced all his state budgets by cutting spending. And allies and critics alike praise his budget-balancing record.

Vermont enjoyed a budget surplus this year while most states were in the red because of the recession that began three years ago.

What the former governor doesn’t say is that he raised hundreds of millions of dollars in higher taxes, including sales taxes, cigarette taxes, property taxes and corporate taxes, to balance the books while paying for his social welfare proposals.

After 11 years under Mr. Dean’s governorship, Vermont now ranks in the top tier of high-tax states, a fiscal legacy that President Bush’s campaign strategists say they intend to highlight should Mr. Dean become the Democratic presidential nominee next year.

Congressional Quarterly’s Governing magazine, based on data from the U.S. Census Bureau, ranks Vermont second highest among the 50 states in the amount of tax revenue collected as a percentage of personal income in 2001 — about 9 percent to 10 percent.

In a separate ranking that measured state tax revenue per capita in 2001, Vermont was in second place with six other high-tax states, including Massachusetts and California.

Another ranking in June by the Government Finance Officers Association put Vermont in 12th place when state and local tax burdens are combined, well ahead of more populous industrial states such as New Jersey, Michigan and Illinois.

Vermont’s budget has climbed sharply, too, from $662 million in 1991 to $1.8 billion last year. Between 1997 and last year, inflation and population growth combined totaled 18.1 percent, but spending rose 51.7 percent.

Once known for its Yankee thrift, the state has become a mecca for affluent liberals from neighboring New York. Vermont’s sole congressman, independent Rep. Bernard Sanders, is an avowed socialist.

“Roughly 20 percent of the population does not depend upon jobs for income, people who are trust funders or independently wealthy,” says Michael Quaid, executive director of Vermonters For Tax Reform.

Tiny, bucolic Vermont, with a population of 610,000 — about the size of Austin, Texas — does not have many of the problems of other states.

More than 96 percent of Vermont residents are white; only 3.8 percent are immigrants. The unemployment rate is barely 4 percent.

The birth rate is the lowest in the nation, which means Vermont requires less spending on education and welfare than other states. With a median age of 37.7, the population is the third oldest among the states, and its under-18 population (24.2 percent) ranks as the eighth smallest.

Analysts give a mixed assessment on Mr. Dean’s fiscal record. The Cato Institute, a libertarian think tank that rates the fiscal performance of the states, gave him a grade of B from 1994 to 1996. By 2000, his grade had plunged to a D.

“In 1999, he sought and won support for an across-the-board income tax cut to make the state more competitive. He was dead right on that score: Vermont has one of the highest income taxes in the nation and loses jobs and businesses to its income tax-free neighbor, New Hampshire,” the Cato report card concluded.

Mr. Dean denies that he overspent as governor or raised taxes unnecessarily. “I balanced more budgets than Bush ever did,” he says.

His fiscal policy as president “will be to limit the federal budget’s rate of growth to the rate of growth in the economy,” he said in an interview with The Washington Times earlier this year. “That’s what we did in Vermont. You never let the budget grow faster than the economy.”

At the outset of his governorship Mr. Dean did cut spending aggressively, fighting his party’s liberals in the General Assembly who wanted to raise income taxes and boost spending.

“He has always made fiscal responsibility one of his baseline issues,” said Christopher Barbieri, president of the Vermont Chamber of Congress. “He would rather cut the budget than raise taxes. He believes in the notion that reducing the personal income tax would be an incentive for the economy.”

But in the late 1990s, Mr. Dean shifted sharply. In 1997, he signed an education funding bill called Act 60 that raised property taxes in wealthier communities to redistribute money to poorer schools.

“That was probably the biggest tax increase bill the governor signed. It raised taxes for about half of Vermont’s homeowners and cut them for the other half. It was a redistribution of wealth toward lower-income property taxpayers,” Mr. Barbieri said.

Higher taxes were in part the legacy of Mr. Dean’s predecessor, Gov. Richard Snelling, a Republican who died in office in 1991 after substantially raising taxes or implementing new taxes.

In 1994, Mr. Dean allowed income- and sales-tax increases to fall back to their previously lower levels (25 percent of the federal tax rate and 4 percent for sales). But he called the legislature back into session and raised the sales tax to 5 percent, retaining other increases, including a 9 percent tax on hotel rooms and restaurant meals.

In 1998, with revenue pouring into the state Treasury, Mr. Dean promised to cut income taxes.

“He had a surplus and the 1999 legislature [cut taxes] over the screams of the liberals. Liberals up here think of him as a Republican in drag because he won’t raise the income tax even higher,” said John McClaughry, president of the Ethan Allen Institute, a Vermont think tank that tracked the Dean administration.

“But, yes, the state tax burden is undoubtedly higher because of the property tax increases, and during his years, he constantly increased tax rates on virtually everything,” Mr. McClaughry said.

And, he added, as taxes rose, so did the size of Vermont’s government.

“There’s no tendency toward smaller government with Howard Dean,” Mr. McClaughry said. “He wanted to expand government, and did.”

After losing a legislative battle in 1993 to enact universal health care in Vermont, Mr. Dean agreed to a scaled-down program to provide health insurance for children and lower-income adults through Medicaid that critics say does not cover costs.

“We have a huge state health insurance budget,” Mr. Quaid said.

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