President Trump has for months talked about securing the deduction — derisively referred to as the “three-martini lunch” by critics — as a way to revive the restaurant industry badly battered by the pandemic.
But critics said it would do little to help struggling restaurants and would largely benefit business executives who do not urgently need help at this time. Some Democrats recoiled at the proposal, though it has also been denounced as ineffective by conservative tax experts as well.
During negotiations, however, Democratic leaders agreed to the provision in exchange for Republicans agreeing to expand tax credits for low income families and the working poor in the final package, according to a Democratic aide who spoke on the condition of anonymity to share details of internal negotiations.
“Republicans are nickel-and-diming benefits for jobless workers, while at the same time pushing for tax breaks for three-martini power lunches. It’s unconscionable,” said Sen. Ron Wyden (D-Ore.), the ranking Democrat on the Senate Finance Committee.
The cost to taxpayers of the proposal is not known, though tax experts expect it to not exceed a few billion dollars a year.
Since the 1980s, businesses have only been able to deduct 50 percent of their meal expenses off their federal taxes. A proposal championed by the White House and Sen. Tim Scott (R-S.C.) would increase that deduction to 100 percent allowing companies to deduct the full cost of a business meal off their federal taxes.
Treasury Secretary Steven Mnuchin included the meal deduction as a White House priority in negotiations, two people with knowledge of matter said. A Treasury Department spokeswoman declined to comment.
In a statement, Scott heralded the legislation as a “pro-worker, pro-restaurant, and pro-small business bill will lead to increased spending in restaurants and more income for staff.” Republicans pointed to support for the measure by the American Hotel and Lodging Association, US Travel, and the National Restaurant Association.
Trump and Larry Kudlow, director of the White House National Economic Council, have been among the most aggressive proponents of restoring the meal deduction.
At the White House in April, Trump urged that the United States “go back to the original” version of a tax deduction for entertainment and meals.
The president added: “They’ll send their executives, they’ll send people there, and they get a deduction. That is something that will really bring life back to the restaurants; I think make them hotter than before. You know, they used to have it. And when they ended it, it was really never the same. It was never the same.”
During a roundtable discussion in May, Trump brought up the idea unprompted and suggested it would be more important than hundreds of billions in emergency small business loans.
“I think it’s, frankly, more important than even the other things we’re talking about,” the president said of restoring the deduction. “I guess, short term, what you’re talking about, is more important, but long-term, the deduction would be phenomenal.”
Liberal and conservative economists and tax experts have panned the idea.
“Months later it is still bad policy, and still not good economic relief for the current situation,” said Kyle Pomerleau, a tax analyst at the conservative-leaning American Enterprise Institute think tank. “It just should not be in there.”