Clinton Tax Plan Raises Restaurant Industry's Ire
THERE is at least one thing restaurant unions and management agree on: Thousands of jobs are at stake.
President Clinton's proposal to cut deductibility of business meals from 80 percent to 50 percent is raising hackles throughout the restaurant industry. Over five years, $16 billion in new taxes would be raised. But critics charge that the change will cost 165,000 jobs.
"Clinton's plan could not come at a worse time," says Robert Juliano, legislative representative of the Hotel Employees and Restaurant Employees International Union.
"Why do politicians want to hurt the industry that contributes 5 percent to the GNP?" asks Stephen Elmont, incoming president of the National Restaurant Association (NRA). "This industry puts money in their coffers."
Recession has already knocked the wind out of corporate expense accounts. Critics say Mr. Clinton's plan will hit business lunches again.
"In midtown [Manhattan], many restaurants only exist because they are in the right location for lunch meetings," says Sirio Maccioni, owner of Le Cirque. For many restaurants "lunch is already a tough sell." If Clinton's plan is enacted, Mr. Maccioni says he may have to fire 30 percent of his staff.
The recession and creeping recovery have kept restaurant profit margins thin, industry analysts say. "There's just not a lot of cushion to withstand any kind of financial hit right now," says NRA spokeswoman Wendy Webster. Plan has some support
Proponents of the Clinton plan say fairness is the issue. "I don't think it's ever reasonable for people to get the rest of us to subsidize their lunches," says Robert McIntyre, director of Citizens for Tax Justice in Washington. Under Clinton's proposal, 50 percent of a business lunch could be written off as a legitimate business expense. "They've kept half of it," Mr. McIntyre says. "You can write off the person you take to lunch, but you can't write off yourself."
"I can understand how it [deductibility of business lunches] might not play well in Peoria," Mr. Elmont says. "From middle America's viewpoint, it is perceived as a luxury.... But people do it because it is what they have to do to earn a living." Seventy percent of people who use meals to conduct business have incomes below $50,000 a year, and 40 percent earn less than $35,000, Elmont says. "There isn't anybody I know that looks forward to a business meal: It's work."
Business meal deductibility first came under the budget ax in 1986 when President Reagan signed a tax reform law reducing deductibility from 100 percent to 80 percent. Treasury Secretary Lloyd Bentsen testified before the House Ways and Means Committee last week that the 1986 move did not result in job losses. "The prophecies we had of what it was going to do to restaurants, to entertainment, and the rest just didn't happen," Mr. Bentsen said.
At the hearing, Rep. Bill Brewster (D) of Oklahoma said the change "certainly affects employment in states like Oklahoma." Grim projections
Industry advocates side with Mr. Brewster. Moving from 100 percent to 80 percent deductibility caused "the biggest recession our industry has ever had," Elmont says. The restaurant industry "created 700,000 less jobs [after 1986] than we did in the previous six-year period."
"Few groups worked as hard to get this guy [Clinton] elected [as we did]," says union spokesman Juliano. "We've been getting calls from [union] locals where we had people canvassing [for Clinton]. They're calling me saying, `What did you have us do?' "
Richard Newman, president and chief executive officer of the International Association of Convention and Visitor Bureaus, says the issue is whether government should dictate how people do business. "That's a marketing image decision that belongs to the company. Why don't they tell the lawyers in Congress that they can't deduct the cost of a leather chair for their offices? A folding chair will do just fine."
Opponents of the plan are getting ready for battle. "We'll fight 'em every step of the way in Congress," Juliano says. "It's ludicrous that they would do that to working people."