Reprinted with permission from DC Report
Buried near the end of the 5,593-page law granting new coronavirus relief is a tax break of particular interest, such as the Republican Saint Ronald Reagan cut in half when he waged war on the “three martini lunch”.
This new special interest tax break is worth far more to business owners than the tedious and lousy checks of $ 600 or less to most people. The Trump administration and Senate majority leader Mitch McConnell once again prefer business to the people.
The law doubles the tax deduction for most business lunches from 50% to 100%.
“It just doesn’t seem right for a wage earner wearing his tuna sandwich to work on subsidizing exorbitant business lunches in luxury restaurants.” – President Ronald Reagan
Since Reagan’s 1986 Tax Reform Act, Section 274 of our Tax Code has generally only allowed a 50% deduction for meals when traveling on business, meeting with customers, partners, or employees, or attending a business seminar. Employees were fully reimbursed, but employers could only deduct half, resulting in HR policies that limited how much anyone but the highest paid workers could charge for meals while on business.
This new favor will benefit most companies, but few as much as Donald Trump, who will enjoy a double benefit. The change was introduced at the last minute at the urging of the White House by Trump. There was no public hearing or even public debate about his merits.
Three advantages
The 12 lines of the revised Tax Act on page 4 956 of the Consolidated Appropriations Act of 2021 provide the following tax benefits:
- Companies with many employers or many meetings can deduct the full cost of such meals, which translates into a slight tax cut.
- Sole proprietorships like Trump, who shoulder the full burden of their company’s expenses, will see concentrated benefits. Had the provision gone into effect during the past decade, it would have saved me thousands of dollars in income taxes from traveling extensively around the world for investigations and lectures.
- Restaurant owners benefit from companies being more liberal on expense allowances.
This third point is important as up to 85% of privately owned small restaurants can go broke due to COVID-19 formwork, say restaurant industry advocates. But these mom and pop stores will benefit far less overall than the expensive restaurants preferred by executives, sales reps, and other high paid workers.
Trump, as the owner of golf, hotel and restaurant businesses, benefits every time he or his employees provide wine and food to a customer, seller or prospect because he can deduct the entire cost of meals, rather than just half.
Then he profits again when others spend money on food in his golf resorts, hotels and restaurants, because the full deductibility should lead to more expenses for meals.
But wait, there’s more.
This full business lunch deductibility will continue from New Years Day through the end of 2022. The pandemic is likely to be history sometime in early 2022, which makes it clear that this tax break is not aimed at the beleaguered restaurant industry, but rather at a return to the era of the three-martini lunch. Expect lobbying to extend the tax break.
Reagan’s tax policy killed
Republicans voted in 1986 to improve the playing field for restaurant meals. At this point, Reagan was campaigning for tax legislation that actually increased business taxes and reduced deductions for extravagance. Trump, who often claims Reagan’s cloak, is consistently promoting tax policies that would infuriate The Gipper.
Reagan said this during a meeting with business writers at the White House on June 7, 1985:
“Why not find smarter ways to put our money on work than investing so much in executive lunches? It just doesn’t seem right for a wage earner carrying his tuna sandwich to subsidize exorbitant business lunches at luxury restaurants.
“We’d still consider legitimate expenses, but for those who complain that they can’t live that big on the corporate account, all we can ask is why not a brown bag every now and then?”
From the outset, business lobbyists have gutted Reagan’s many level playing fields, doing themselves a favor, and shifting the burden on working Americans. That includes the massive borrowing required under Trump’s 2017 tax bill to shower the tax savings for the richest among us.
Under Trump’s 2017 Tax Bill, his only major legislative achievement, 20% of taxpayers lost the ability to deduct mortgage interest, state income taxes, local property taxes, and other tax breaks. The changes mainly affected married couples with three or more children, especially in the upper middle class.
This year, only about one in ten taxpayers and perhaps only one in twenty will list the deductions. But those who own their own businesses – from people working on the Trump scale to freelance graphic designers – will benefit. Under Trump, the tax code has become cheaper for the self-employed and entrepreneurs and less for employees.
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