Economic policy ideas embraced by a president typically grow out of an interagency process that includes White House economic advisers and Cabinet secretaries, or committee hearings on the Hill. But one Donald Trump idea apparently came from a celebrity chef whose signature restaurant has a prix fixe menu starting at $158 a person (not including wine, of course). Trump has mentioned at least 10 times in the past few months the notion of expanding, as he tweeted on April 1, “the old, and very strongly proven, deductibility by businesses on restaurants and entertainment.” In other words, this concept—which, per an interview with The Wall Street Journal, Daniel Boulud mentioned to the president on a conference call with several celebrity chefs, including Wolfgang Puck—involves expanding a tax break for corporations that wine and dine their clients. With the nation experiencing its highest levels of unemployment since the Great Depression, the proposal neatly encapsulates how out of touch Trump is.
At issue is the wide range of expenses that businesses are allowed to deduct, thereby reducing the amount of taxes they owe. Historically, those deductions have included at least some dining and entertainment expenses—if, for example, an executive took a client to lunch or to a football game to discuss business, he could write off those costs on the company’s taxes. The entertainment deduction created some questionable ways for businesses to get a tax break. Say a business owner really wanted to see the Lakers play or eat at a fancy new steakhouse. Bringing a client would allow her to deduct the cost, even if not much business gets done courtside.
Over time, Congress scaled back the deduction—first to allow businesses to write off only 50 percent of the cost of business meals (including drinks!) and entertainment, and then, under the tax bill that Trump signed into law in 2017, to remove the tax break for entertainment-specific expenses such as tickets altogether. (Removing the tax break slightly reduced the overall cost of the much larger business tax cuts in the 2017 bill.) Now Trump presumably wants to—at a minimum—undo that limitation, allowing businesses to again deduct entertainment expenses, and perhaps expand the remaining 50 percent deduction the IRS allows on meals and beverages.
Trump is correct to worry about the health of the restaurant industry. To offer one statistic, weekly revenues from independent restaurants using the Toast platform—which provides management and point-of-sale services—dropped by more than 70 percent by late March, and remain about 40 percent below pre-crisis levels; leisure and hospitality jobs, despite an uptick through June, are still down 4.8 million since February.
To be sure, under more normal circumstances, the expanded deduction may very well entice more executives to go to high-end restaurants—that is, the kind that Boulud and Puck own. However, imagining that corporate expense accounts can keep the corner coffee shop, the local bar, or the community theater afloat requires either having a wholly mistaken understanding of what drives consumer spending in the American economy and how Americans are actually faring during this crisis, or simply not caring.
Restaurants, concert halls, theaters, and the like are struggling financially for a very simple reason: People can’t spend money at these places without being at risk of contracting the coronavirus. Many of these businesses are not permitted to open fully or even operate at all, and may not be able to for months. Where restaurants have opened, fear of the virus is enough to discourage people from dining out. According to OpenTable, restaurants that are taking reservations have served more than 40 percent fewer diners every day so far in July, compared with last year. In an industry that already runs on slender profit margins—71 percent of establishments surveyed by the Independent Restaurant Coalition and the James Beard Foundation reported profit margins below 10 percent last year, before the pandemic arrived—many cannot survive unless they are much closer to full capacity.
Any policy solution designed to help restaurants and entertainment venues, and their employees, needs to start with keeping the virus under control—which requires acknowledging that some may need to stay closed or significantly restricted for extended periods of time. It should recognize that the challenge most of these businesses face is maintaining their solvency now, as they rack up debts from unpaid rent, mortgage, or suppliers; and, in turn, provide small businesses with loans or grants. The government should focus on keeping workers who are still on the job safe—through enforced OSHA safety standards and access to sufficient personal protective equipment—and on continuing expanded unemployment benefits for those who are out of work. It should provide support for restaurants and bars that are being forced to change how they do business on the fly, whether that means converting to takeout and outdoor dining or reconfiguring their kitchens to make them safer. And when the pandemic is under enough control to allow people to return to restaurants, concerts, and sports games, the government should direct stimulus efforts to low- and moderate-income families. Their money tends to help the economy more than corporate or high-end tax breaks.
Trump is not addressing these challenges at all. His idea—like similar proposals that both he and Senator Martha McSally of Arizona have floated to provide tax breaks for tourism—could actually risk further spreading the disease and prolonging economic pain, by encouraging individuals to refrain from social distancing.
Trump, as usual, does not appear capable of considering policies that are more than merely transactional or that focus on people who aren’t like him. He gravitates toward ideas that reward people for doing what he wants (“reopening” the economy by going out to eat or traveling), while threatening to withhold federal aid that might go to mayors or governors who refuse to follow his lead on public-health guidelines. And his new ideas mirror his old ones: The $2 trillion tax bill relies on the notion that the money corporations and business owners save via large tax breaks will trickle down into prosperity for everyone else.
Trickle-down economics is not original to Trump. The economic theory has a long history of failing to deliver on its promises. In 1981, the journalist Michael Kinsley wrote about an earlier generation of supply-siders deducting lavish meals and entertainment expenses at the Reagan inauguration while eagerly awaiting “massive cuts in corporate taxes and other changes frankly intended to make it easier to get rich and stay that way.” Today is much the same. Under normal economic circumstances, this trickle-down approach results in gains going to the top—households in the top 0.1 percent of earners will receive an average tax cut of $252,300 a year, once the 2017 tax law is fully phased in—without spurring promised wage growth or a “good jobs” boom. During a public-health-induced crisis with double-digit unemployment, this misguided vision of the economy risks consigning millions of people to deep economic hardship—especially when Trump fails to embrace tools like state and local aid, expanded unemployment-insurance benefits, continued stimulus payments to households, and other policies that would do far more to support a faster recovery.
Solving an economic crisis like the one the U.S. faces requires both a clear-eyed diagnosis of the problem and a commitment to cushioning the blow for communities, small businesses, and workers. For Trump, that would require something he hasn’t seemed capable of doing throughout this crisis or his presidency—caring about a world that goes beyond high-end restaurants and luxury suites, one where economic problems can’t be fixed with a corporate expense account.
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