What is the ‘three-martini lunch deduction’ Congress agreed to and why are Americans so furious?
Donald Trump has spoken out in favor of the withdrawal.
The White House and President Donald Trump pushed for a so-called three-martini lunch allowance to be part of the $ 900 billion stimulus package that Congress agreed this week.
The item is a way of deducting all expenses incurred in eating and drinking for business partners from taxable income. He was criticized from both sides of the aisle.
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Seth Hanlon, former Special Assistant on Economic Policy to President Barack Obama and a Senior Fellow at the Center for American Progress, said, “It's called the three martini lunch deduction because people eat on their business tab, and especially when that tab is subsidized by other taxpayers, they are more likely to opt for more extravagant restaurants. "
The idea is that you have to spend money to make money, and that profits should be taxed but not gross income.
According to Brian Galle, a law professor at Georgetown University in Washington DC, the trigger has been misused for a long time.
He said that taxpayers "quickly found that it was essentially impossible for the government to examine the real purposes of meals or other" business "entertainment" and that the IRS had disputes over the use of the deduction "as early as the 1930s " would have.
In 1993, Congress reduced the allowance to 50 percent of the cost of meals. Mr Galle said there were restrictions on how often the deduction could be claimed and "fairly strict documentation requirements".
Congress abolished the deduction entirely in 2017 to offset other tax cuts. However, the Trump administration decided to enact an ordinance, completed earlier that year, interpreting the new legislation to allow deductions for business meals.
Mr Galle said: "They claimed that 2017 legislation only ended the deduction for 'entertainment', even though the word 'entertainment' has included business lunches since the 1960s."
The 2017 legislation ended the documentation requirements, and this week's stimulus package ends the 50 percent reduction in the deduction, which means 100 percent of business meals can be deducted again.
Mr. Galle said, “There is no real evidence that the deduction actually increases restaurant spending. However, there is pretty good evidence that this increases the likelihood that people will claim to have had dinner with a "business associate". "
Business people “peel off their lifestyle and personal consumption. Which is normally not allowed, in other words, normal people cannot deduct the cost of the food, ”said Hanlon.
President Trump has repeatedly tweeted for the withdrawal.
“I would guess it ended up on the bill because (Finance) Secretary Mnuchin asked for it. Perhaps that's reason to believe that the trigger would actually be useful. But then the president seems to believe some things that are actually not true, ”said Galle.
The deduction is a "terrible way to help restaurants in trouble when compared to many other options." What's more, it's a terrible way to help restaurant workers, ”said Hanlon.
He said, "It is quite inexplicable why President Trump would stick to this policy. He is either looking for his own bottom line as owner of resorts and restaurants, out of touch with economic reality, or both."
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