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No-Martini Lunches

In pre-pandemic times, I often invited my employees out to lunch, either individually or in small groups. They almost always accepted.

I was not deluded into believing my charm and wit are irresistible attractions that drew them to my company. I did not think my willingness to pick up the tab, which I invariably did, was the major draw, either. My staff can afford to feed themselves. Some prefer to bring lunch from home anyway.

They came because when your boss asks you to a business lunch, it is a good idea to say yes if you can – and you should expect to talk mainly about business.

That is what we did. Sometimes I wanted to hear about whatever my colleague was working on, or to learn about any problems where I might be able to help. Often it was to share my own ideas, or to generate new ones. Many times the conversation went in both directions.

I recently came across the receipt from the last such lunch I attended. On March 3, I went out for sushi with Shomari Hearn, our firm’s managing vice president. We discussed several pending projects and the status of a couple of prospective entertainment clients who were considering us to be their tax adviser or business manager. We also reviewed the emerging news about the new coronavirus and the growing threat of a pandemic (a label which the World Health Organization was then about a week away from applying). By the end of the meal, I had decided to have most of our staff begin working from home, effective the next day. Thus, we became part of the first wave of U.S. companies to adjust our operations to 2020’s new reality.

One thing none of us ever did at these lunches was drink a martini, or any other alcoholic beverage. Nobody at our firm, or at most others I have encountered in the 21st century, engages in company-sanctioned drinking during the business day. A beer, some wine or a cocktail at dinner is fine, but the era of the “three-martini lunch” is long gone.

Our work as financial and tax advisers requires intense concentration, close attention to detail, mature judgment and effective communication. Alcohol is not exactly compatible with these demands. These considerations alone would rule it out at our business, and many others. But beyond that, in a world where every employee should expect a respectful, safe, professional and nondiscriminatory workplace, any manager would be foolish to encourage on-the-job drinking. Even social events like holiday parties and corporate outings require a certain amount of discretion to ensure that neither employees nor the business end up in harm's way.

The three-martini lunch is back in the news, thanks to a provision in the pandemic relief bill that Congress sent to President Trump last week. The legislation, which the president criticized for other reasons but ultimately signed, allows companies to fully deduct the cost of bona fide business meals the same as most other “ordinary and necessary” expenses, as provided under Section 162 of the Internal Revenue Code. Currently, businesses can deduct only 50% of the cost of most such meals.

It never made economic sense to treat business meals differently than other normal business expenses such as office rent, utilities or employee salaries. Taxpaying businesses exist to make a profit. Their owners and managers pick up the tab for business meals because they believe it will make the business more profitable in the long run. They are right more often than they are wrong – that’s how companies stay in business. More profits ultimately means more tax revenue for the government.

Denying a deduction for a legitimate business expense is just a backdoor tax increase. Why create an incentive for the business to, say, spend more money on periodical subscriptions and less on restaurants? (Come to think of it, some would argue this is a great idea. It might explain why editorial writers at The Wall Street Journal, who ought to know better, recently criticized the restoration of the deduction.)

The inconsistent treatment of business meals makes no economic sense, but it makes political sense. The law only restores full deductibility for 2021 and 2022, on the grounds that restaurants, which suffered so heavily in the pandemic, need all the help the government can give them.

The pandemic has brought the conversation full circle. Until the mid-1970s, business meals were treated like other expenses. Businesses were (and are) required to keep records of who was present and the business purpose of the meal to support the deduction. But in his 1976 presidential campaign, Jimmy Carter – a teetotaling Baptist deacon, as well as Georgia’s Democratic governor – assailed the “$50 martini lunch” supposedly enjoyed by fat cats on expense accounts, with the alleged blessing of Republicans. The press adapted and latched onto the “three-martini” moniker.

It was an exaggeration even then, although not one without foundation. When I left journalism and entered corporate life in the 1980s, there were a few partners at my accounting firm who imbibed at long, time-wasting lunches. There were celebratory meals after April 15 that preceded afternoons where nothing of value to anybody was accomplished. I have to assume there are still some workplaces where this goes on, but they can’t be common in this country. Most people are too concerned with balancing the time demands of work and their personal lives to waste their days this way – and then there are the risks to the business from seeming to tolerate harassment, or worse, that may follow.

The full-deductibility provision was promoted as a pandemic relief measure by President Donald Trump, who happens to be a teetotaler too. It makes far more sense to encourage greater private sector spending at these venues, which at most costs the government just pennies of tax revenue per dollar spent, than to give direct subsidies from taxpayers’ pockets.

You might wonder why I think a business lunch is “ordinary and necessary” when I have perfectly good offices and conference rooms in which to conduct conversations sans sushi or salad. This is true. Those venues work well for more structured meetings, which can be scheduled in advance and have a set agenda to efficiently use everyone’s time.

Our lunchtime conversations are different. I may have some news to share, or employees may have things they want to discuss with me, but there is no formal agenda. The conversation can flow in more directions, and good ideas – like shutting down in-office work ahead of a potential pandemic – are more apt to surface.

Lunch is also the one time in the workday when everyone is going to have a planned break in their workflow, which might otherwise have them immersed in studying investment portfolios or reviewing tax returns. Our offices normally have the atmosphere of a college library during final exams. Lunch provides an opportunity for spontaneous, but commercially valuable, dialogue.

So I welcome the return (albeit perhaps just temporarily) of normal tax treatment for business meals – even if I won’t drink to it.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s most recent book, The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book, Looking Ahead: Life, Family, Wealth and Business After 55.

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