Halving the Expense Account

A pseudo-Solomonic tax decision

"When a business executive can charge off a $55 luncheon on a tax return and a truck driver cannot deduct his $1.50 sandwich, then we need basic tax reform."

So declared Jimmy Carter in his election campaign, during which time he swore off demon rum and all other strong drink. Now, as President, he takes an occasional light Scotch, and he is about to serve up at least a miniprohibition on what he calls "the three-martini lunch." What Carter intends to recommend to Congress in mid-October, as part of his tax "reform" program, is bound to set up howls from even teetotaling business people, as well as restaurateurs and hoteliers.

Carter is most likely to accept a recommendation that only half the price of a business meal may be treated as a legitimate expense and thus deducted from a company's pretax income. And that is the least drastic of three alternatives he is considering. Another is to set a limit on deductions of $15 a person per meal.

The third, most unlikely recommendation: restrict business people to deducting expenses equal to those granted Government employees traveling on official business--$50 a day for both meals and lodging in New York City, $35 in most of the rest of the country.

The one-half proposal was put forward by Treasury Secretary W. Michael Blumenthal--unenthusiastically. The former chairman of Bendix Corp. at first sought to defend the expense-account lunch. But in a long session in the White House earlier this year, Blumenthal and his aides came away convinced that Carter's moral conviction compelled him to take action against what he believes to be an unjustified excess.

Blumenthal's recommendation is a pseudo-Solomonic decision that Treasury people estimate would barely raise $100 million in tax revenue. That is a piddling amount on the scale of Government finance and an indication that nowhere near the numbers of executives Carter seems to suspect are using expense accounts to live it up at taxpayers' expense.

Undoubtedly there are abuses, but the overwhelming majority of companies carefully monitor the entertainment spending of their executives, most of whom do not dare down three martinis at lunch for fear of flying back to the office without benefit of airplane.

The expense-account meal stretches an executive's time by enabling him to conduct business over a lunch table, and the atmosphere in many restaurants, where both host and guest are on neutral turf and no phones ring, affords a more congenial setting for discussion than an office. In many companies, the expense account is also a perk for executives who have earned at least limited discretion over how they spend their time and the company's money. Manhattan Public Relations Man John Scanlon makes a wry complaint: "It took me all my life to get into the eating class, and now they want to take it away from me!"

There are no exact figures, but owners of a number of leading restaurants estimate that more than 50% of their lunch business comes from expense-account customers. Sometimes business spending approaches 100%, especially in luncheon clubs and restaurants that cater to conventions. Says Stig Jorgensen, manager of the Midnight Sun in Atlanta's convention area: "We figure 65% of our volume is business-related. If we lost even 10% of that, it would put people out of work."

The National Restaurant Association pledges a hard lobbying fight against the Carter proposal.

Similar pleas from restaurateurs and unions defeated a harsher plan by John F. Kennedy in 1961 to put a $4 to $7 limit on the deductibility of business meals. The greatest irony of the expense-account imbroglio is that the people likely to be most hurt by a crackdown are not high-living executives but modestly paid waiters and kitchen help.

Carter has received from the Treasury other recommendations that would further pain the business community.

Among the suggested cutbacks: an end to tax-deductible tickets to sports and cultural events for clients and no write-offs of the differential for first-class air travel.

Given Carter's tax-reform approach, businessmen may begin to wonder if they are not being treated like economy-class passengers.

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