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"Three-martini lunch" tax break draws outrage. It also may fall short for restaurants.

Restaurant industry hit hard by pandemic
Many restaurants have had to close or find new streams of income during the pandemic 06:19

Tucked inside the $900 billion stimulus bill passed by Congress on Monday night is a provision that's sparking ire from some lawmakers and taxpayers: A tax break for business meals. Senator Bernie Sanders, an independent from Vermont, called the deduction "corporate socialism for the rich" that would allow CEOs to write off "a 3-martini lunch."

It's a tax break that has been championed by the White House, with President Donald Trump in April calling for the deduction as a way to revive the restaurant industry amid the coronavirus pandemic. Prior to the change, business meals were deductible at 50% of their cost. The provision will lead to $5 billion in foregone tax revenue, according to the Tax Foundation, an independent think tank on tax policies.

Mr. Trump, who owns hotels and restaurants such as the Trump Grill in New York City — where a Bloody Mary called "You're Fired" will set you back $18 — said the provision would "really bring life back to the restaurants; I think make them hotter than before." With the bill now passed by Congress, it has headed to the White House for Mr. Trump's signature.

While the provision has become a lightning rod for critics, there's a bigger issue at hand: A lack of business clients willing to pay for a three-martini lunch during a pandemic.

Many restaurants are struggling to keep their doors open amid a plunge in customers and state- and city-imposed restrictions. Employers across the nation continue to allow their employees to work from home, while business travel has plummeted as coronavirus rates are surging to new records. In other words, even though the tax break for meals is included in the bill, it may not help restaurants anytime soon. 

"We have exactly zero business clients other than vendors and partners we work with showing us mercy and stopping by," said Ashwin Deshmukh, owner of Short Stories, an all-day cafe and bar in New York City's Bowery district.

Before the pandemic, his all-day cafe and bar had plenty of business clients. But that dried up with the crisis, and he doesn't expect his business clientele to return until later in 2021. The tax break for business meals could help at that point, but, he added, "We just have to make it until then."

"Down payment"

The stimulus bill includes other provisions that will certainly provide more immediate help to restaurant owners and employees, such as a second round of the Paycheck Protection Program, which was refreshed with $284 billion.

Aside from new PPP loans, other provisions that could help restaurants include the deductibility of operating expenses paid with PPP loans, the enhancement of the Employee Retention Tax Credit as well as the tax deduction for business meals, according to the National Restaurant Association (NRA). 

But the stimulus bill failed to include some aid that the industry group had been pushing for, such as a dedicated $120 billion fund to help restaurants and other hospitality companies survive the pandemic. Already, 10,000 restaurants around the country having closed temporarily or permanently since the start of September, according the NRA.

The latest stimulus bill represents a "down payment" said Sean Kennedy, executive vice president of public affairs for the NRA, in a statement. The industry group said it will continue to press for additional support in 2021. 

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