President Trump wants to bring back the tax write-off for business meals and entertainment, but critics say reviving what is known as the “three martini lunch” tax break is not the answer to the problem that restaurants face today.
Trump is pushing Congress to restore the measure that gave corporations a tax break for the cost of food and entertainment for clients and potential customers. He says it will give restaurants a leg up when they reopen after the social distancing guidelines for the coronavirus are lifted.
“This is a great time to bring it back,” Trump said Wednesday. “It’ll keep our restaurants going. In fact, I think the restaurant business will be actually bigger and better than it is right now.”
But, while Trump has seized on the idea, it does not seem to be on the top of the policy wish list for the restaurant industry at the moment. Tax experts also say there were legitimate reasons for reining in the deduction.
Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, says the measure was derisively known as the “three martini lunch” tax break.
“It was subject to tremendous abuse,” Gleckman said. “What would happen is business owners would take their spouse to dinner and write it off or go on a trip and write it off.”
It also mainly benefited more high-end restaurants and restaurants located in hotels.
He said the subsidy is not going to help restaurants in the short term.
“There’s nothing that can be done that’s going to get people back into restaurants until we address the pandemic,” Gleckman said. “Even after the pandemic has passed, there’s no evidence that additional tax subsidies are going to improve the economics of the restaurant business.”
It was actually Trump’s signature tax cut law in 2017 that completely eliminated the tax deduction for entertaining clients, which Trump is now talking about reinstating.
The tax law kept in place a provision that allows companies to deduct 50% of business meals, as long as they aren’t “lavish or extravagant.”
Decades ago, companies were able to deduct 100% of such meals, but Congress began to chip away at that tax break in the ’80s and it dropped to 50% in the ’90s.
The White House declined to comment on Trump’s push, and the president hasn’t offered much in the way of details.
But Trump said on Sunday he wants to restore the deduction “so that corporations can send people to restaurants and take a deduction on it like they did in the old days.”
In a letter to the White House and Congress last month, the National Restaurant Association proposed a number of steps to provide restaurants with relief. The business meal tax deduction was not one of them.