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Dean's tax claims bring skepticism

In his just-published autobiography, "Winning Back America," Howard Dean underscores what has become a longstanding central theme of his campaign. He writes: "We cut taxes by 30 percent over the lifetime of my administration." In Iowa and New Hampshire, his campaign is airing a commercial promoting Dean as a "fiscal conservative who cut state income taxes -- twice."

On the campaign's website, Dean is even more specific, saying that his two cuts reduced the state's top income tax rate from 13.5 percent to 9.5 percent.

But an examination of Dean's record as Vermont's governor has found that the bigger tax cut was in fact signed into law by his Republican predecessor, Richard Snelling. In 1991, Snelling signed legislation authorizing higher tax rates that would "sunset" two years later. Dean, then lieutenant governor, took over after Snelling died, and the rates dropped automatically at the end of 1993.

While the section of Dean's website on his fiscal record highlights his role in eliminating the sales tax on clothing items, it omits the fact that the overall sales tax was raised from 4 percent to 5 percent during Dean's tenure.

Dean's assertions are prompting criticism from Vermonters familiar with the state's fiscal history. "No way. That is ridiculous," said Richard Heaps, a specialist on Vermont tax law and coauthor of the Vermont Economy Newsletter, when asked about Dean's income tax claims. "He didn't cut taxes by 30 percent. We would be dancing in the street if he did."

Vermont has the nation's 12th-highest tax burden as a percentage of personal income, according to the Tax Foundation. The state's tax rate could become a major issue in the primary in neighboring New Hampshire, which ranks 49th. Vermonters will pay 10.1 percent of their personal income in state and local taxes, compared with 6.6 percent in New Hampshire, the foundation says in a study.

Already, the Club for Growth, a Washington-based conservative group, is airing political ads in Iowa and New Hampshire attacking Dean as a candidate committed to raising taxes and comparing him to the likes of liberals such as George McGovern, Walter F. Mondale, and Michael S. Dukakis.

Dean campaign officials insist their assertions are fair because Dean believes Vermont's Legislature would have revoked the Snelling sunset provisions without Dean's leadership, thereby keeping in place the higher tax rates.

Dean's spokesman, Jay Carson, said the former governor does not believe he should change the wording in his autobiography or his website. He issued a response: "Governor Dean, who balanced budgets 11 times while still providing health care for kids and prescription drugs, stood up to the leadership in his party and cut the income tax in Vermont twice, resulting in significant income tax reductions."

The Dean campaign referred further questions to former state Senator Peter Shumlin, who was the Democratic minority leader at the time. Shumlin's viewpoint is that Dean deserves credit for ensuring that the Snelling plan on income taxes remained intact, but acknowledged that Dean did not sign the bill to cut income taxes.

"Factually, you are correct. He didn't have to sign a bill to sunset the income tax. But he had to sign a bill to keep the other ones up," said Shumlin in a reference to Dean's support for a hike in the sales tax.

Indeed, Shumlin said he is still angry with Dean for raising the sales tax, putting Vermont at a disadvantage with New Hampshire, with no sales tax. "I am still enraged," said Shumlin, who nonetheless is supporting Dean's candidacy. "If Howard Dean had agreed with the Democrats, we would have reduced the sales tax on the working poor and kept in place the high income tax on those who can afford it. It is the same argument he is making against [President] Bush, frankly."

A central fiscal theme of Dean's campaign is that Bush instituted irresponsible tax cuts that disproportionately benefited the wealthy and increased the deficit, while Dean made tax cuts only when a balanced budget was ensured.

In his autobiography, Dean writes: "In 1991, Vermont had the largest deficit in its history and also the highest marginal income tax in the United States. In the previous two years, taxes had been raised by $150 million, or 24 percent of the entire General Fund budget, as part of a deficit reduction package. I cut the taxes." But it was Snelling who signed the legislation to cut the taxes in the 1991 deficit-reduction deal.

The original fiscal plan that Snelling devised in conjunction with the Legislature in 1991 raised tax rates as a way to balance the budget. In 1993, as the sunset provisions were about to take effect, some liberal Democrats urged Dean to retain the higher rates in order to spare the state from budget cuts.

Dean refused to alter the Snelling plan, and the higher tax rates were automatically revoked. "It was written into the statute that it reverts," said Robert Gross of the Vermont Department of Taxation. Under the Snelling plan, the state income tax rate dropped from 13.5 to 9.9 percent, Gross said.

Dean originally planned to institute his own tax cut in 1995, but was unable to fulfill that pledge for another four years. Starting in 2000, the state income tax rate dropped from 9.9 percent to 9.5 percent. This is the income tax rate reduction for which Dean can claim credit -- much smaller than the drop from 13.5 percent claimed by the Dean campaign.

Moreover, even if Dean deserved credit for the Snelling tax plan, the 30 percent reduction Dean refers to in his autobiography is apparently a reference to a decrease in the top marginal tax rate, not necessarily the taxes paid by the average Vermonter. The marginal tax rate refers to the highest tax rate paid by a taxpayer.

Dean, giving himself credit for the tax reduction in the autobiography, nonetheless mentions that Snelling instituted a plan that would "automatically expire."

Still, when the Snelling sunset provisions took effect, Dean faced a series of tough budget decisions. The state was no longer able to afford some of the programs favored by liberal Democrats, leading to perhaps the biggest crisis of Dean's 11 years in office.

Fighting the liberal wing of his own party, Dean backed budget cuts in programs ranging from welfare to health care. Vermont newspapers published stories about Dean's proposed cuts for programs for the poor. "Medicaid on cutting board -- Dean outlines $26.8 million in possible cuts," said a Burlington Free Press headline. "Medicaid, Welfare to Take Hit, Dean Says," said a headline in the Rutland Herald, which wrote on June 1, 1995, that Dean "recommended cutting a range of benefits to poor and middle-income Vermonters."

Dean's final significant action on taxes came in 2002, when Bush's tax cut went into effect. Bush's tax cut would have meant an automatic reduction in Vermont's state income tax, which is a percentage of the federal rate. But Dean did not want to give Vermonters an automatic tax cut as a result of the Bush plan. Instead, Dean approved legislation that decoupled Vermont's income tax system from the federal government.

Tax Foundation data shows that the 10.1 percent of personal income that Vermonters pay in taxes is less than the 11.9 percent in effect when Dean took office in 1991, before the Snelling taxes were automatically revoked.

By comparison, the analysis found that residents in New Hampshire pay 6.6 percent of their personal income in state and local taxes in 2003, lower than every state except Alaska. Massachusetts residents pay 9.9 percent, the foundation study said.

Viewed another way, in 2001 Vermont ranked third nationally in state tax collections per $1,000 of income, and was seventh-highest in state taxes per capita, according to the Tax Foundation.

In his autobiography, Dean notes that he is proud that he balanced the budget. He adds, "The tax rate was no longer the highest in the nation."

Michael Kranish can be reached at kranish@globe.com.

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