If the business of America is business, as former President Calvin Coolidge said, the business of many Washington eateries is the business meal
–the tax-deductible business meal, that is.
In this city, where the power lunch acquires extra punch and major policy disputes frequently are ironed out on a white tablecloth, restaurateurs rely on business meals for a substantial part of their business–30 to 50 percent, some say.
So restaurant operators, along with their brethren in the bar and hotel industries, are stridently opposing the administration`s proposals to limit the meal and entertainment expenses that businessmen or their companies are allowed to deduct from their taxes.
The battle surrounding this provision of President Reagan`s tax reform plan illustrates how ardently Washington`s fabled ”special interests” fight against encroachments on tax breaks they enjoy. It also demonstrates the difficulty the administration faces in trying to make taxes more ”fair” once lobbyists start their work in Congress.
”It is a confusing and disruptive intrusion by government on business,” Harris Machus, president of the National Restaurant Association, said at the trade association`s convention in Chicago last week.
Although complete details of the President`s proposed tax package aren`t expected until Wednesday, the restaurant group began mobilizing to protect the interests of its members last fall.
Current IRS guidelines say only that deductible meals must be ”ordinary and necessary,” not ”lavish or extravagant.” The Treasury`s plan proposed to cap deductions at $10 for each person for breakfast, $15 each at lunch and $25 apiece for dinner.
Restaurant association spokesmen brandished a study, prepared by prestigious Chase Econometrics, that said the limits would wipe out 264,000 jobs in the first two years. Further, the study said the proposal actually would cost the government money because it would necessitate increased unemployment benefit payouts and reduce the profits on which restaurants themselves pay taxes.
The restaurant group says 20 percent of the industry`s $178 billion in annual sales comes from deductible business meals. Although the Chase study estimated that only 14 percent of these meals exceed the Treasury`s allowances, the restaurant association said the proposals would ”devastate” the food-service industry.
In response to critics who charge the ”three-martini lunch” allows executives to eat at the expense of other taxpayers, Machus said, ”(The)
Treasury ought to remind that individual that he would be out of work if his boss had not landed a contract sometime before–probably during or after a deductible business meal.”
Although details remain unclear, the administration already appears to have bowed to complaints. The plan Reagan outlined Tuesday night would allow a 50 percent deduction for the portion of a tab that exceeds the proposed caps. But the restaurant industry argues that ”marketing meals” are a legitimate business expense, just like advertising and office supplies, and therefore their entire cost should be deductible from pretax profit.
The restaurant group also says the administration`s proposal is regionally biased because it would allow the same deduction for a meal in Washington as it does for one in Wichita, where prices are much lower.
Critics, including Common Cause, a watchdog lobbying group, say the current deduction unjustly mixes expenses for pleasure and business. Others doubt businessmen will scale back their dining significantly simply because deductibility is limited.
Moderately priced restaurants generally believe they have less at stake in the tax battle.
