Tempest over a Martini Glass

By John Greenwald

The surprise attack on meal deductions raises cries of alarm

Businessmen across the U.S. are sputtering over the Senate's attack on one of the most sacred traditions of American business: the expense-account meal. Fumed Alan Lewis, director of the Windows on the World restaurant in Manhattan: "It's just dead wrong. The business lunch is a way of life."

Two weeks ago the Senate challenged the so-called three-martini lunch by voting to slice in half the tax deduction for executive dining out. The National Restaurant Association predicted that the measure, which is part of the Senate's proposal to raise $98.4 billion in new revenues over the next three years, would lead to a $1.7 billion drop in restaurant sales annually and a loss of 63,000 jobs. Said Harry Freeman, senior vice president of American Express: "This is a threat to the entire travel and entertainment industry." In Philadelphia, the International Association of Convention and Visitors Bureaus protested the measure at its annual meeting. Don Tennant, president of his own advertising agency in Chicago, went further and criticized President Reagan, even though the White House has not taken a position on the issue. Said Tennant: "Reagan is a traitor to his class."

The Senate's bill would cut in half the tax deduction that firms can claim on business-related meals in their communities. The measure does not apply to food served in company dining rooms or to meals out of town that are part of a business trip. The Carter Administration in 1978 calculated that such write-offs totaled $3.2 billion and cost the Government $950 million in lost taxes annually.

The predawn passage of the measure was an unexpected consequence of a proposal by the Senate Finance Committee, headed by Robert Dole of Kansas, to improve the reporting of tips at hotels and restaurants. The Treasury Department believes that perhaps $10 billion in tips is not reported as income every year. After his tip provision was defeated during the

Senate floor debate on the tax bill, Dole rammed through the lunch measure, which some liberal Democrats have long favored.

The unexpected vote on business dining was the first effort to curb those deductions since Jimmy Carter's abortive crusade in 1978 against what he called the three-martini lunch. Reaganites were almost as startled by the decision as businessmen. Conceded John Chapoton, the Assistant Treasury Secretary for Tax Policy: "It came as a complete surprise to me. None of us had heard about this one."

The three-martini lunch has always been more of a political symbol than a business reality. Probably the most common drinks these days at executive lunches from Manhattan to Malibu are Perrier and white wine. John O'Toole, chairman of New York City's Foote, Cone & Belding advertising agency, was bemused by the Senate action. Said he: "I get a dismal sense of dej`a vu. Didn't this happen just a few years ago?" Harry Poulakakos, owner of Harry's at Hanover

Square, a Wall Street favorite, was blunt. Said he: "They signed the bill in the early hours of the morning, and they were probably asleep. This is really going to hurt a lot of people."

Many corporations are already urging employees to trim expense-account spending because of the recession. Charles Gillett, president of the New York Convention and Visitors Bureau, expects a sharp acceleration of that trend if the legislation is adopted by the full Congress. He noted that lunch and entertainment receipts dropped 30% in a single month when curbs on deductions were proposed in the past. If the Senate curbs are passed, said Gillett, "companies will simply cut their spending."

Peter Salchow, owner of Biggs, a popular Chicago restaurant, was more hopeful. Said he: "Business dining is so entrenched in the American way of life that corporations won't cut back. They'll just pass any extra cost along to the consumer, who will pay higher prices." In Los Angeles, a spokesman for Security Pacific National Bank said extensive use of the executive dining room might help to cushion the bill's impact.

Most firms, however, apparently hoped that the Senate measure will simply disappear, which is what many businessmen expect will indeed happen. Scoffed one oil-company executive: "It's a smokescreen and a sham. It isn't going to pass." Restaurateurs who enjoy a lot of expense-account business, like Patrick Terrail of the fashionable Ma Maison in Hollywood, are trying to ensure the measure's eventual defeat by sending angry letters to Congress.

The tax bill, including the business-meal provision, will now be considered by a Senate and House conference committee. It is still unclear whether the group will accept the proposal, water it down or kill it entirely. Congressmen who have slashed federal spending for the school lunch program, however, may find it hard to leave the executive lunch program untouched. --By John Greenwald. Reported by David Beckwith/Washington and Sue Raffety/New York

$77.50 LUNCH

In 1962, the Internal Revenue Service ruled that anyone claiming outlays for entertainment of $25 ot more as a business deduction would have to submit documentation to the IRS. Previously, the Givernment just accepted an individual's word concerning the amount of any "reasonable" expense. That rule still applies, even though a $25 meal after two decades of inflation would now cost $75.50. The IRS says that it has never raised the reporting criteria because few companies have complained that the old limit is a bookkeeping burden.

With reporting by David Beckwith, Sue Raffety

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