The House Ways and Means Committee yesterday refused to eliminate newly proposed limits on tax deductions for business meals and entertainment.
On a voice vote, the committee rejected an amendment to its massive tax-overhaul bill that would have allowed businesses to continue to deduct fully the cost of such business expenses.
Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), in the bill that forms the basis for the panel's deliberations, proposed to limit the deduction on business meals to 75 percent of their cost. He would set a 50 percent limit on the deduction on business entertainment.
Moving slowly through the huge piece of legislation that would reshape the tax code, the panel also rejected a move to repeal the $1 checkoff on tax forms for financing presidential campaigns.
Rostenkowski has emphasized to members that permitting business entertainment deductions, which has been criticized as a tax advantage for wealthy taxpayers, would send the wrong signal to the hundreds of interest groups anxiously watching the committee.
But committee members and aides said that, despite yesterday's vote, they expected additional attempts to weaken the Rostenkowski provision, probably by permitting the full deduction but for a narrower range of expenses.
Rep. Bill Frenzel (R-Minn.) proposed an amendment to eliminate the Rostenkowski proposal. That would have cost the federal treasury $13 billion over five years.
The committee is under pressure to preserve many popular deductions, but at the same time it is attempting to write a bill that is "revenue neutral," meaning that it would neither raise nor lose revenue.
"Every time we get to a big number, the chairman says making a big modification would send a bad signal," Frenzel said. "Eventually, the committee will do what it wants to do no matter what the signal is. So far, we've been nervous about knocking big pieces of pie off the table. Right now, we're happy to take a few pecks."
Among other action taken yesterday, the committee voted to limit deductions for offices at home and to cut back on losses taken for tax purposes in quasi-business activities that could be considered hobbies. The change broadened the definition of hobbies, for which tax losses are more limited than they are for businesses.
But an amendment by Rep. Carroll A. Campbell Jr. (R-S.C.) preserved full deduction for horse breeding and racing.
Hotel and restaurant interests lobbied hard to retain the full meal-and-entertainment deduction and vowed after yesterday's loss to try again.