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Excerpt from Oral History Interview with Terry Sanford, August 20 and 21, 1976. Interview A-0328-2. Southern Oral History Program Collection (#4007) See Entire Interview >>

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

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.
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.
What about corporate tax?
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)
. . . 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.