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COVID-19 Relief Bill Leaves Struggling Restaurants To Twist in the Wind

The bill contains a tax loophole through which businesses can deduct business dining expenses through 2022, but it will do little to boost the bludgeoned restaurant industry.

By Hilary Russ

NEW YORK (Reuters) – The $900 billion coronavirus relief package passed by the U.S. Congress here on Monday contains a high-profile tax loophole for business meals, but not the one thing most requested by independent U.S. restaurants which have been devastated by the pandemic: cash.

The Republican-backed “three-martini lunch deduction” doubles an existing tax break, allowing companies to write off 100% of business dining expenses through 2022. The loophole’s defenders say it supports the hard-hit restaurant industry.

This is “a pro-worker, pro-restaurant, and pro-small business bill,” said U.S. Senator Tim Scott of South Carolina.

However, it has been derided by economists, Democrats, and even the staunchly conservative Wall Street Journal op-ed page as politically tone deaf, given the millions of sick and out-of-work Americans. The tax break will cost taxpayers $6.3 billion through 2023, analysis by a congressional committee shows here.

It will also fail to boost the restaurant industry in a big way, at least initially.

“When less than 10% of workers have returned to their offices in Midtown and Lower Manhattan, and indoor dining is closed and it’s freezing outside, this deduction doesn’t do much,” said Andrew Rigie, director of the New York City Hospitality Alliance.

The coronavirus pandemic, and related restrictions on dining out, have split the fortunes of the U.S. restaurant industry, which racked up $860 billion in sales in 2019 and employed 12.3 million before the pandemic hit.

Sales are up and expansions under way at some of the biggest restaurant brands, mostly chains with drive-thru and delivery, 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 have been bludgeoned.

Chef and owner Amanda Cohen said her 12-year-old eatery Dirt Candy in Lower Manhattan is barely hanging on.

Revenue at Dirt Candy, known for innovative vegetarian fare like carrot sliders and an eggplant dessert flambeed at the table, has plummeted from as much as $12,000 a night before the pandemic to as little as $300 a night now.

“I’m not sure we’re going to make it through,” Cohen said. “Every day we’re just trying to make the decisions to get to the next day.”

The National Restaurant Association (NRA) believes 17% of all U.S. restaurants – about 110,000 – have already closed permanently or long-term. The industry has lost over 2 million jobs since February, according to U.S. Bureau of Labor data.


The coronavirus relief bill does include loans and tax breaks the restaurant industry could tap, but not the dedicated grants trade groups had spent months lobbying for, arguing that the restaurant industry deserved similar subsidies to 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 under the new bill have more lenient terms.

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

“Without this, restaurants were going to be facing a major tax liability moving into 2021,” said Sean Kennedy, a spokesman for the NRA. The bill also enhances certain tax credits, including for employee retention, heavily used by restaurants, he said.

Kennedy said the business meal deductions will help in the medium term, when workers start returning to offices.

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

Dirt Candy’s Cohen said she is not sure how she would repay a new PPP loan, let alone the $275,000 one she took out earlier this year.

“I’m pretty disappointed,” she said. “The last thing I need is another round of PPP.”

Reporting by Hilary Russ in New York; Editing by Heather Timmons, Cynthia Osterman and Matthew Lewis.


Source: Reuters