Despite ‘three martini’ tax break, COVID-19 bill leaves struggling US restaurants cold

NEW YORK (Reuters) – The $ 900 billion coronavirus package passed by the US Congress on Monday contains a high-profile loophole on business meals, but not the only one most in demand by independent US restaurants devastated by the pandemic : cash.

The Republican-backed “three-martini lunch rebate” doubles an existing tax break, allowing businesses to write off 100% of business dinner expenses through 2022. Defenders of the loophole say it supports the hard-hit restaurant industry.

This is “a bill for pro workers, pro restaurants and pro small businesses,” said US Senator Tim Scott of South Carolina.

However, it has been derided by economists, Democrats, and even the very conservative Wall Street Journal opinion page as politically deaf, given the millions of sick and unemployed Americans. The tax break will cost taxpayers $ 6.3 billion through 2023, according to analysis by a congressional committee here.

It also won’t boost the restaurant industry in a big way, at least at first.

“If less than 10% of employees have returned to their Midtown and Lower Manhattan offices, and food is closed indoors and freezing outside, this deduction doesn’t do much,” said Andrew Rigie, director of the New York City Hospitality Alliance . .

The coronavirus pandemic and associated restrictions on dining out have divided the fortunes of the U.S. restaurant industry, which generated $ 860 billion in sales in 2019 and employed 12.3 million before the pandemic.

Sales are on the rise and expansion is taking place at some of the largest restaurant brands, primarily drive-thru and delivery chains, including Starbucks Corp, McDonald’s Corp, Papa John’s International Inc, Chipotle Mexican Grill Inc and Domino’s Pizza Inc.

But small, independent restaurants and fine dining restaurants have come down.

Chef and owner Amanda Cohen said her 12-year-old Dirt Candy eatery in Lower Manhattan barely hangs out.

Revenues at Dirt Candy, known for innovative vegetarian dishes like carrot sliders and a table-top flambé eggplant dessert, have dropped from a whopping $ 12,000 a night before the pandemic to just $ 300 a night now.

“I’m not sure we’ll make it,” Cohen said. “Every day we just try to make the decisions to move on to the next day.”

The National Restaurant Association (NRA) believes that 17% of all American restaurants – about 110,000 – have already been closed permanently or for long periods. According to data from the U.S. Bureau of Labor, more than 2 million jobs have been lost since February.

GRAPH: US jobs in restaurants and bars have not recovered –

PPP AND TAX WITHDRAWALS

The coronavirus law does include loans and tax breaks that the restaurant industry could tap into, but not the dedicated grants that trade groups had lobbied for months, arguing that the restaurant industry earned similar subsidies from airlines and farms.

The Paycheck Protection Program (PPP), offered in the spring, will receive $ 284 billion in new funding. The loans, which can be forgiven under certain conditions, are available to any industry and have more flexible conditions according to the new bill.

The bill also allows any company to fully deduct operating expenses paid with PPP loans, even if the loans are forgiven by the government.

“Without it, restaurants would face a major tax liability towards 2021,” said Sean Kennedy, a spokesman for the NRA. The bill also improves certain tax breaks, including for employee retention, that are widely used by restaurants, he said.

Kennedy said the company meal deductions will help in the medium term, when employees return to offices.

The Independent Restaurant Coalition said the new PPP funding “will take time,” but warns that without billions in cash, more restaurants will close.

Dirt Candy’s Cohen said she’s unsure how she would repay another PPP loan, let alone the $ 275,000 she took out earlier this year.

“I am quite disappointed,” she said. “The last thing I need is one more round of PPP.”