POLITICS / VERMONT BATTLE : Socialist Could Wrest Seat in House From Republican : ‘The Lenin of Lake Champlain’ advocates a third party.

Vermont, once known for its rock-ribbed Republicanism, sent Mr. Smith to Washington two years ago--but may replace him with a socialist.

Newspaper polls in the Green Mountain State show a dead heat between Peter Smith, 45, a moderate Republican with a strong record on the environment and education, and Bernard Sanders, 49, an independent-socialist and the former mayor of Burlington, for the state’s only seat in the U.S. House.

Dolores Sandoval, a professor at the University of Vermont, is the Democratic nominee, but she has been shunned by outgoing Gov. Madeleine M. Kunin, Sen. Patrick J. Leahy and other leaders of her party after calling for legalization of drugs and the complete pullout of U.S. troops from Saudi Arabia.

Smith’s difficulties were underlined last week when he broke with President Bush and said he supported higher taxes on the wealthy--as he introduced Bush at a campaign rally for Smith.

The surprising dissent was in part a reflection of the populist appeal of Sanders, who, if elected, would become the only independent in Congress. Even before Smith’s public break with Bush, Sanders was reason enough for the race to attract national and even international attention. The Economist ran the tag line, “The Lenin of Lake Champlain,” under Sanders’ picture, but the candidate himself insists that he is much more a “Swedish-style democratic socialist.”

He advocates a third party, saying voters are fed up with Republicans and Democrats.

“Most of them are bought and sold by large multinational corporations, and most of them do not have the courage to fight for the rights of ordinary people,” Sanders said at a recent campaign gathering. “We need in this country a political revolution.”

Smith has hewed to a fairly independent line himself, co-sponsoring the Civil Rights Act of 1990, voting against the Stealth bomber and the MX missile and shepherding child care legislation. But he stood with the President on the ill-fated bipartisan deficit reduction package, a vote Sanders uses as a foil for his message that “the party is over,” that the rich have gotten richer and the poor poorer.

Smith defends his vote as courageous, the first step in solving an economic crisis that could lead “to recession or the ‘d’ word, depression.” Smith later supported an income tax rate of 33% on those who make more than $125,000, which put him at odds with Bush, who favored a lower rate.

Sanders, by contrast, advocated a 50% cut in the defense budget, with the money being used to free the education system from its property tax foundation, to create a national health care plan like that of Canada and to clean up the environment.

Residents of Burlington, where Sanders was mayor for 18 years until he stepped down last year, recognize those stands as vintage Bernie. There, the Brooklyn-accented Sanders led a progressive group tagged as Sanderistas for their leftish bent.

Each time he ran for reelection, his margin increased. Admittedly, 40,000-population Burlington is well insulated from the problems of big U.S. cities such as Boston, which is four highway hours to the south. But U.S. News & World Report named him one of the best mayors in the country in 1987; and, in 1988, Burlington shared top honors in the U.S. Conference of Mayors’ “most livable” cities awards.

His proudest achievement as mayor, Sanders said, was nearly doubling voter participation.

“People say the American people are apathetic,” said Sanders, who has lost all his previous bids for statewide office. “I don’t believe that. I think the American people are disgusted, they are in despair, they’re angry and they don’t know what to do . . . .”

“They say he’s going to be an outsider,” said Michael Beh, a building contractor who is co-chairman of Sanders’ Windsor County campaign. “So what? I want him to raise hell.”