Yet a provision in the latest Covid relief package, which Congress is expected to pass, does just that: It temporarily would let companies deduct 100% of business meals with clients, up from 50% currently.
The provision would be in effect for 2021 and 2022 at a cost of $6.3 billion, according to estimates of the Joint Committee on Taxation.
It’s a measure that President Donald Trump has pushed, claiming in a tweet last spring that if combined with resurrecting a business entertainment expense deduction, it would “bring restaurants, and everything related, back – and stronger than ever. Move quickly, they will all be saved!”
In fact, the economic benefits of the expanded business meals deduction are expected to be minor at best, especially given the Covid restrictions under which restaurants are operating.
“The effectiveness of the provision will be greater once restrictions are lifted. That said, it is still a very small provision, so its overall impact will be small,” said economist and tax expert Kyle Pomerleau of the American Enterprise Institute.
It’s also unclear which types of restaurants would be helped by the increased business meal deduction.
For one thing, the bill’s language doesn’t specify whether the expanded deduction applies only to in-restaurant dining or if it might also apply to company-purchased meals that are catered, delivered or prepared for takeout.
The broader the interpretation, the more helpful it could be to a broader swath of restaurants, not just high-end ones that cater to executives wining and dining clients in person.
“There is an open question as to whether this will apply to delivery and takeout. It may come down to interpretation and guidance [from Treasury] on this,” said Sean Kennedy, a spokesman for the National Restaurant Association. “We are working to have this implemented in such a way to reflect the way people do business meals [these days].”
Then again, with millions of people working from home and business travel on ice indefinitely, it’s hard to know when client meals of any kind will resume.
As a matter of tax policy, the expanded expensing of business meals gets low marks.
“The question isn’t whether the meals should be deductible. They should be and they are! The question is how much of the meal should be deductible given that a portion of it is personal consumption,” Pomerleau tweeted on Monday.
What’s more, the whole point of a tax break is to incentivize more of a given behavior. But as Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, has questioned, are companies really going to be any more inclined these days to throw a business dinner just because they can deduct more of it?
And the temporary nature of the provision may be deceiving. The tax code is littered with temporary tax breaks that are repeatedly renewed every few years.
“Temporarily bad tax policy is better than permanently bad tax policy, I suppose. On the other hand, they’ve created yet another tax extender,” Gleckman said.