Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, April 4, 1993 TAG: 9304020127
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: RON WOLF KNIGHT-RIDDER/TRIBUNE
DATELINE: SAN JOSE, CALIF. LENGTH: Medium
BUSINESS AS USUAL IS EXPECTED
President Clinton's proposal to curtail tax deductions for business entertainment may have broad populist appeal, but few people who provide such services expect tough new tax rules, if enacted, to change spending patterns essential to their livelihood.The days of the fabled three-martini lunch are long gone, said Raymond Kann, managing partner of Hewitt Associates in San Francisco. Companies and business people who entertain clients these days do so primarily for solid business reasons that won't be affected by new tax provisions, said Kann, a specialist in benefits and compensation.
Clinton proposed in February that the deductible portion of expenses for business entertainment and meals be reduced to 50 percent from the current level of 80 percent - a move projected to increase tax revenues by $16 billion over the next five year.
The president also proposed elimination of deductions for club memberships and dues - a move projected to raise revenues an additional $1.2 billion.
And he asked for a $1 million limit on the amount a company may deduct for compensation to an individual executive - a provision that could generate $650 million more in taxes.
Such proposals "are largely symbolic," Kann said. They have more to do with the administration's attitude toward wealth than actual business practice, he said.
Frivolous spending on entertainment largely had been eliminated during the 1980s as a result of intense competitive pressure, corporate downsizing and reorganization, said Matt Levine, executive vice president of the San Jose Sharks hockey team.
Although many people believe business entertainment to be excessive, abusive practices "were all wrung out years ago" by cost-conscious managers, Levine said. Companies imposed tough internal controls on their entertaining long before they turned to more drastic forms of cost-cutting such as the elimination of jobs, he said.
When tax reformers reduced deductibility of entertainment expenses to 80 percent from 100 percent a few years ago, professional sports teams experienced no drop in their vital corporate sales, Levine said.
In industries that depend heavily upon personal relationships, entertaining is an essential way of conducting business, he said. Despite the unfavorable economic environment, the Sharks already have sold out all available luxury boxes in their still unfinished arena.
There is little outward difference among products or services in many intensely competitive fields, such as law, banking, accounting, advertising, construction or real estate, Levine said. Executives in those fields entertain clients to differentiate themselves from competitors, nourish old relationships and prospect for new business. Revisions in the tax code won't change the necessity of doing that, he said.
Managers of private clubs are concerned about Clinton's plan, even if they don't foresee significant impact on their operations. Companies already have cut back drastically on memberships provided to executives, said Scott Gilreath, general manager of the Decathlon Club in Santa Clara.
Corporations "have gotten much more frugal" during the last few years, reviewed benefits provided to their people and restricted memberships to key executives who really need them, Gilreath said.
Despite public outrage over soaring executive compensation, specialists in the field said Clinton's proposed $1 million cap on deductibility would do little to trim those enormous paychecks, said specialists in the field. It appears that the plan would not affect incentive-based pay, according to Graef S. Crystal, author of a book on pay abuses. "That's a loophole 900 miles wide," he said.