Cooking Up a Political Storm

By RICHARD BEHAR

Roughly half the ceiling at the National Restaurant Association's headquarters in Washington has been torn out to make way for a new sprinkler system. Though unintentional, it's a fitting symbol of President Clinton's proposal to install a 50% ceiling on the deductibility of business meals. Unfortunately, nobody at this 75-year-old trade association is in the mood for irony. "If the government keeps going the way it is, you won't have any fine- dining establishments in America," grumbles chief executive William Fisher, as he chows down a power lunch at nearby Mo Sussman's restaurant. "We are not a special interest. And I don't wear Gucci loafers. But what's good for our industry is good for the economy."

While most anti-Clinton lobbying groups are lying low (for now), the proposed bite on business meals is sparking a four-star effort by the restaurant association, which boasts a $21 million budget and one of the largest industry PACs in the nation. It will be a difficult souffle to concoct, since it's hard to find politicians willing to stand tall for $50 lunches. But a week before Clinton even announced his plans, the group persuaded Congresswoman Barbara Vucanovich of Nevada, where expense accounts run wild, to sponsor a bill that would re-establish 100% deductibility. Hours before the President's speech, angry restaurant lobbyists were telephoning Congress.

The industry points out that up to 30% of its $225 billion in receipts comes from deductible business meals. In the early 1980s, power lunches were 100% deductible. The Tax Reform Act of 1986 sliced that to 80%. "What's going to happen in five years?" asks Fisher, who adds facetiously, "Why not just knock it out completely and knock out the country's leading retail employer?"

But the dire warnings about the potential death of this market are not exactly bolstered by the restaurant association's own studies. In 1986 it released a report claiming that the 20% decline in deductibility would prompt a 6% drop in annual sales and job losses of more than 400,000 per year. As a result, the argument went, any gains to the Treasury would be more than offset by lost revenue from income and sales taxes.

In reality, nobody except the dead stopped eating. Restaurant employment jumped from 8 million in 1985 to more than 9 million today. Table-service revenues actually jumped in 1986 -- the year of the tax act -- and they grew more than 6% a year until 1989, when the recession prompted a dip. In 1992 sales began to rebound. Of course, high-ticket restaurants in particular have taken a beating, but that probably has more to do with a general post-1980s decline in lavish spending than it does with the deductibility of meals.

Even so, doom-and-gloom media stories are popping up everywhere. A week ago, the Boston Globe described its state's restaurant business as "limping through the past few years, when about one in every five establishments closed their doors," according to the Massachusetts Restaurant Association, which is affiliated with the national group. What the article failed to mention was that for every eatery that failed, a new one was launched.

A sampling of tony restaurants finds that many are doing better than their lobbyists would have the public believe. "The 80% rule has had little effect on our business, and we expect no change at 50%," says Thomas Baldwin, the chief financial officer of Quantum Restaurant Group, which owns 46 establishments, including the Morton's of Chicago steak houses. "It's now in vogue for restaurateurs to state that the tax change will have an adverse affect. But we've seen a surge in revenues just since the election."

In West Hollywood even the trend-sensitive Spago thrived after the 1986 tax change. "Our best years of the decade were 1988-89," brags owner Wolfgang Puck. Or take the posh Jean-Louis at the Watergate Hotel in Washington, where dinners run $90 (excluding wine) and where 40% of the weekday customers are writing off their meals. "I wasn't hurt at all ((by the 1986 act))," says owner Jean-Louis Palladin. He suspects that the new plan could cream someone like Roberto Donna, the owner of nearby Galileo, where 80% of the lunchers are lawyers. Yet Donna isn't bellyaching either. "Maybe we'll lose 10% of the business, but we'll make it up at dinner," he sighs. "Democrats are excellent customers."

In the end, the deductibility debate will not be decided by facts and revenues, for at its core are the more peppery issues of politics and fairness that have long made the "three-martini lunch" a hot topic. "A businessman often needs a congenial atmosphere away from the office in which to make his or her pitch," points out Jerry Berns, the 86-year-old co-founder of New York City's "21" Club. Moreover, it does seem unfair to penalize a hardware salesman showing a catalog to a client while sipping Sanka, yet allow a movie mogul to fully deduct a $3,700 ride on the Concorde and a $600 bungalow at the Beverly Hills Hotel. On the other hand, it isn't Sanka-sipping salesmen but well-fed executives who most savor the deduction and spark the most resentment. And after all, why should a single nickel be deductible at a place like The Men's Club, a lavish topless joint in Dallas, where up to 25% of the clientele are on expense accounts?