Increasing state food tax to help fund public schools
Sanford raised controversy by increasing the North Carolina food tax and allowing a tax on tobacco. Critics argued for several exemptions on these items, but Sanford argued that the increase was necessary to properly fund public schools.
Citing this Excerpt
Oral History Interview with Terry Sanford, August 20 and 21, 1976. Interview A-0328-2. Southern Oral History Program Collection (#4007) in the Southern Oral History Program Collection, Southern Historical Collection, Wilson Library, University of North Carolina at Chapel Hill.
Full Text of the Excerpt
- BRENT GLASS:
-
As far as substantive decision making in office, we could go into a
number of things, but I wanted to go into things in particular for this
session. One was the issue of the food tax, which became an issue and
still is trotted out in campaigns, depending on which side you are on,
but as a campaign issue.
- TERRY SANFORD:
-
Well, it's demogoguery. It's easy to talk about the food tax without
knowing what you are talking about, but let's look at how you make that
kind of a tough decision that you know is going to be damaging
politically. In the first place, in my judgement, a man who wants to
hold that kind of political office ought not to mind making an unpopular
decision that hurts him politically if it helps
the state. So, that never bothered me. I didn't set my life on a
political career and if I had, I still would have made the same
decisions. So, I had made no commitments except that we would have taxes
if we needed them to support the schools. We would hope that the revenue
would be good, but I was very careful to keep myself absolutely
positioned as having almost advocated a tax while running. Certainly, I
came right to the edge of saying that I will propose it if it is needed.
I think that we already talked about that. So, I was positioned to do it
and it became obvious that we needed it. It was pretty much obvious
before except that you could sort of hope that the expanding economy
would be good enough, but it wasn't. Furthermore, we didn't have a sound
base. The sales tax that had been passed in the mid-thirties, including
everything, including food but then riddled with exemptions, including
food, which was the largest . . . it wasn't a question of a food tax, it
was a question of a sales tax that was across the board. The enemies
call it the food tax. I always called it the school tax.
(laughter)
All right, so I began calling people in. I first of all
delivered the budget message and said, "But this is not enough.
If we are going to have the kind of schools we want, I'll tell you right
now that I am going to add these items of a hundred and ten million
dollars to the school budget . . . " of which at that time, we
were talking about vitually 10% of the budget. Now, it's gotten so out
of hand that I don't know what a hundred million dollars would be, but
then it was a sizeable amount of money . . . and "I'll be back
with a special message on finance and I will tell you where I think the
money can come from." I had promised to do that.
I didn't say to them, "We are going to need it so
you find it." I figured that I had better take the burden and
take the leadership. I did not have in mind what it was going to be,
because at the time I hadn't seen the estimates of revenue to know how
much of that hundred and ten million we would need. So, I began to talk
to the Commission of Revenue and I began to talk to legislative leaders
and other people that I had confidence in who knew what we were talking
about and we looked at everything. I also very carefully had every part
of it researched so that I knew what every tax could be, what it would
bring in, what it would add. We looked at the tobacco tax very
carefully. From my point of view, that would have been the easiest thing
politically. Now, we would have gotten some flack from the tobacco
farmers, but still it would have gone through without much lasting flack
because every other state but one had a tobacco tax. There were two
considerations there. One, it was the state's principal business when
you take the agricultural and manufacturing aspects of it and the
argument of the tobacco people was that if North Carolina put the tax
on, everybody else will just keep putting higher taxes on it. I don't
know whether that's true or not but a great many people felt that was
true and made out a pretty good case. But the main reason was that there
was no way that we could tax tobacco to get more than about twenty
million dollars then. I've forgotten precisely what the amount that
would have been on the sales, but maybe five or six cents, which was
more than you could put at one time realistically, and more than you
should have perhaps . . . to jump from nothing one of the higher taxes
then would have been bad. And it wouldn't have given us enough money if
we had done it. We didn't need it in addition to removing the exemptions
to the food tax coming from the sales tax. So, I
looked at the increased income tax - nothing. Increased beer, whiskey
and wine tax - nothing. We actually did increase those by something like
25% and brought in five or six million dollars. There just wasn't enough
money on those things. So, you came back to the fact that the only real
tax available to states anyhow was the consumer tax of some kind.
- BRENT GLASS:
-
What about corporate tax?
- TERRY SANFORD:
-
Well, oh, of course. Without saying, corporate as well as personal
income. Oh yes, that would have brought in ten or twelve million dollars
and would have had the damaging effect at the time when we were trying
to add to the industry. Now, if it had corrected our financial problems,
that would have been one thing. If it just served as an irritant and
didn't help the schools either, it would have been a very foolish
decision. So, you weighed both of those things. Well, I obviously don't
have before me the precise comparitive figures, but as we began to look,
there was nothing that would do the job except increasing the sales tax
from 3% to 4% or removing some forty exemptions. Well, all the tax
people recommended removing the exemptions and leaving it at 3%, because
it was so very difficult to administer. As a matter of fact, we got a
windfall of maybe twenty million dollars. Again, I wouldn't want to have
to prove this figure and somebody can research it in the future if it is
of any importance. But we got a considerable windfall, because we now
had a precise way to administer the sales tax, whereas before it would
be necessary to send orders in, too look through invoices and see if you
charged taxes on brooms when you weren't supposed to or vice-versa, or
whatever the exemption was. Some poor little storekeeper might be
assessed so much that he would be put out of
business and it just wasn't a good tax administratively. So right now,
to talk about taking off the food tax, they don't know what they are
talking about. They can talk about taking off all the sales tax but they
are simply going to get back into disorder with no real advantage to
anyone if they remove just the tax on several items. Then of course next
year, "why not take taxes off coffins," or whatever.
You know, that's what happened before. They took it off of one and then
they began taking it off of one thing and another until ultimately we
had just a hodgepodge.
(Interruption. Tape turned off)
- TERRY SANFORD:
-
. . . talking to a number of people in front of the fireplace and the
study or what I call the library because I started a library at the
mansion and put it in there, and asking them right around,
"What do you think?" Now, these were people like
General Bowers, long experience in government, the Adjutant General,
"What do you think?" Bill Johnson, the Commissioner of
Revenue, "What do you think?" And Bill, of course, was
the best informed in terms of technical advice. Probably to Roney,
"What do you think?" And I listened to all of them but
it became absolutely obvious that if we wanted to get enough money to
have a real dramatic push in the school system that there wasn't but one
place to get it and that was the sales tax. And then you had the
question of which sales tax is better, a 4% across the board on items
then taxed or a removal of exemptions. Well, I think that just a logical
decision was the removal of exemptions. Now, we did several things. We
increased, among other things, welfare payments to more than offset a 3%
tax on food and we worried about the people at the lower end, but on the
other hand, when you started analyzing what each person paid in spite of
the fact that theoretically and philosophically
this is a regressive tax, when you think in terms of the actual amount
of money that was involved in anybody's budget, it wasn't all that
regressive. There was a certain amount of merit in everybody paying a
little something in order to have an orderly tax base that would do the
job, that would literally benefit people at that level of income more
than people at higher levels of income.