The federal government this year helped buy more than 400,000 Baltimore Orioles tickets, made almost half a billion dollars in mortgage payments for military personnel and ministers, paid for more than 1,000 meals at Washington's Le Pavillon restaurant and picked up the London hotel bills of several hundred New Jersey lawyers.
The expenditures were made not through appropriations but in the form of tax breaks through which Americans reap billions of dollars in indirect income each year. These breaks are so widely employed that they have shaped American life -- from how soldiers live to where business executives dine.
Now the Treasury Department is seeking to abolish many of them as part of its tax-simplification plan.
They involve two fine distinctions: one between income, which is taxed, and fringe benefits, most of which are not, and the other between personal expenses, which are not tax-deductible, and business expenses, which are.
The Treasury says these distinctions help "a businessperson who eats with clients at an elegant restaurant and deducts it as a business lunch , but not . . . a plumber who eats with other workers at the construction site."
The argument sounds fair to many, but large numbers of people -- the military, sports enthusiasts, religious leaders, restaurateurs and others -- say the price for such justice may be too high.
The Pentagon, upset because Treasury wants to abolish the tax-exempt status of the military's housing allowances, says the plan would "have a devastating financial impact" on hundreds of thousands of people in the military, lower their morale and force about 9,000 to leave the military within five years.
The United Methodist Church, dismayed by a similiar proposal to tax the housing allowances of the clergy, says the tax-simplification plan would siphon vast sums of money from church charities into ministers' salaries.
The National Restaurant Association, upset by proposed limits on business-lunch deductions, says the plan "would severely and irreparably impinge on restaurants to the detriment of the national economy." And Orioles' sales manager Dan O'Dowd, a fan of entertainment write-offs, says the Treasury plan would "put a dent into sports dollars, which are a valuable part of the American economy."
Some of the tax breaks Treasury seeks to eliminate or reduce sprang from the political clout of their beneficiaries, others from ambiguity in the definitions of income and expenses. How much business must be conducted over lunch before it becomes a "business lunch?" Should the government tax ministers for the value of parsonages?
"Not all of this was developed in a very systematic way over the last 70 years," said Ron Pearlman, acting assistant Treasury secretary for tax policy.
For example, the Defense Department for decades has provided housing allowances to military personnel who live off post. Because members of the military who live on bases pay no tax on the value of their quarters, Congress never has taxed allowances.
Almost 1 million homeowners in the military pay mortgages with their tax-free housing allowances. Then, like other taxpayers, they take a deduction for interest paid on mortgage.
The Pentagon estimates that this duplication costs the Treasury $350 million a year and that all tax-exempt allowances for the military's housing and their cost of living remove $7.5 billion annually from the tax base. One officer said the housing allowance covers $300 of his $1,000 monthly payment. Without it, he said, he and thousands of others in the military would be forced to sell their homes.
The Treasury proposal would tax all military allowances and basic pay as income, but it calls on Congress to raise military pay to cover the additional taxes.
Similarly, the Treasury has proposed to do away with a comparable exemption for the housing allowances of ministers, calling on congregations to take up the slack.
The ministers' exemption will take $164 million out of federal revenues in 1990 unless Treasury's proposal is adopted, according to the proposal. Clifford Droke, chief fiscal officer of the United Methodist Church, said the plan would force about 37,000 United Methodist ministers to pay taxes on their allowances.
"I think a lot of congregations would do everything they could to share in that tax burden," Droke said. "This would divert to the Internal Revenue Service some of the charitable funds that would otherwise go to the services the ministry provides to society."
Another indirect boost to income is the business deduction. The tax code allows corporations and business people to subtract from their gross income all expenses that are "reasonable and necessary" to conduct business. Treasury said it will lose more than $3 billion a year on these writeoffs by 1990 unless changes are made.
Over the years, this has been stretched to include the cost of country club dues and baseball, football and hockey tickets purchased by people who entertain clients. The tax code thus transforms Baltimore's Memorial Stadium, for example, into "an appropriate business setting."
Beneficiaries of the business deduction subtract the cost of trips, tickets, meals and more from gross income, saying that the expenses are "directly related" to or "associated with" their business. For those in the 50 percent tax bracket, this means that prices are cut in half since 50 cents of each dollar deducted otherwise would have gone to the IRS.
With this deduction in mind, the New Jersey Bar Association held its midyear meeting last month in London and held meetings in previous years in Puerto Rico and Bermuda. "We call it our offshore meeting," said a spokesman. "Our regular annual meeting is in Atlantic City."
Similarly, the Treasury estimates that 15 million baseball tickets a year -- or one-third the total sold in the United States -- are purchased by businesses as tax deductions. The same goes for one-half the hockey tickets, Treasury says.
Orioles sales manager Dan O'Dowd said his salesmen "play heavily on the tax advantages" of Orioles tickets when approaching prospective corporate customers.
"They the corporate customers have to use the tickets for business-related entertainment, but of course there are ways around that," O'Dowd said.
O'Dowd added that the corporations can donate unused tickets to charity and take a different deduction. This tactic is employed mainly in the Orioles' bad years, such as this year. With the Orioles effectively out of contention for the pennant, O'Dowd said, a seat at a game apparently was not as useful in business deal-making.
The business deduction is largely responsible for supporting many expensive restaurants. Janet Cam of Le Pavillon on Connecticut Avenue, where many dinners cost $100 without drinks or tax, said 60 percent of her lunch business and 40 percent of dinnertime business is put on expense accounts.
The full price of these meals is now deductible. The Treasury proposes to allow no more than a $10 deduction for breakfast; $15 for lunch and $25 for dinner -- a change that the National Restaurant Association said would run "some nationally acclaimed table-service restaurants" out of business.
Treasury also says business travel and all forms of entertainment should have to meet much stricter criteria to qualify for business deductions.
"Because of the way the business deductions are used, the tax code has had a major impact on the way people make personal and business decisions," Pearlman said. "We want to try to minimize the extent to which that happens, to let people make decisions on their personal judgment, not on whether they'll get a tax deduction."