[Congressional Record Volume 153, Number 1 (Thursday, January 4, 2007)]
[Senate]
[Pages S76-S78]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REID (for Mr. Inouye):
  S. 58. A bill to amend the Internal Revenue Code of 1986 to repeal 
the reduction in the deductible portion of expenses for business meals 
and entertainment; to the Committee on Finance.
  Mr. INOUYE. Mr. President, I rise to introduce legislation to repeal 
the current 50 percent tax deduction for business meals and 
entertainment expenses, and to restore the tax deduction to 80 percent 
gradually over a five-year period. Restoration of this deduction is 
essential to the livelihood of small and independent businesses as well 
as food service, travel, tourism, and entertainment industries 
throughout the United States. These industries are being economically 
harmed as a result of the 50 percent tax deduction.
  Small businesses rely heavily on the business meal to conduct 
business, even more so than larger corporations. In releasing its study 
in May 2004, entitled he Impact of Tax Expenditure Policies on 
Incorporated Small Business, the Small Business Administration, SBA, 
Office of Advocacy, found that small incorporated businesses benefit 
more than their larger counterparts from the meal and entertainment tax 
deduction. According to the study, small firms that take advantage of 
the business-meal deduction reduce their effective tax rate by 0.75 
percent on average, while larger firms only receive a 0.11 percent 
reduction in the effective tax rate. More importantly, the study 
strongly suggests that full reinstatement of the business meal and 
entertainment deduction should be a major policy priority for small 
businesses.
  Small companies often use restaurants as onference space to conduct 
meetings or close deals. Meals are their best and sometimes only 
marketing tool. Certainly, an increase in the meal and entertainment 
deduction would have a significant impact on a small business bottom 
line. In addition, the effects on the overall economy would be 
significant.
  Accompanying my statement is the National Restaurant Association 
(NRA), State-by-State chart reflecting the estimated economic impact of 
increasing the business meal deductibility from 50 to 80 percent. The 
NRA estimates that an increase to 80 percent would increase business 
meal sales by $8 billion and create a $26 billion increase to the 
overall economy.
  I urge my colleagues to join me in cosponsoring this important 
legislation. I ask unanimous consent that the NRA State by State chart 
and the text of my bill be printed in the Record.
  There being no objection, the text of the material was ordered to be 
printed in the Record, as follows:

[[Page S77]]


                   ESTIMATED IMPACT OF INCREASING BUSINESS MEAL DEDUCTIBILITY FROM 50% TO 80%
----------------------------------------------------------------------------------------------------------------
                                                        Increase in Business Meal
                                                           Spending 50% to 80%      Total Economic Impact in the
                        State                             Deductibility  ($ in         State  ($ in millions)
                                                                millions)
----------------------------------------------------------------------------------------------------------------
Alabama.............................................                            99                           203
Alaska..............................................                            21                            35
Arizona.............................................                           150                           297
Arkansas............................................                            57                           114
California..........................................                         1,022                         2,265
Colorado............................................                           152                           327
Connecticut.........................................                            95                           177
Delaware............................................                            25                            44
District of Columbia................................                            41                            54
Florida.............................................                           485                           991
Georgia.............................................                           252                           565
Hawaii..............................................                            56                           108
Idaho...............................................                            29                            57
Illinois............................................                           335                           785
Indiana.............................................                           156                           320
Iowa................................................                            59                           126
Kansas..............................................                            63                           129
Kentucky............................................                           100                           200
Louisiana...........................................                            95                           185
Maine...............................................                            33                            63
Maryland............................................                           153                           319
Massachusetts.......................................                           221                           440
Michigan............................................                           242                           471
Minnesota...........................................                           139                           314
Mississippi.........................................                            54                           103
Missouri............................................                           153                           348
Montana.............................................                            22                            40
Nebraska............................................                            40                            83
Nevada..............................................                            76                           134
New Hampshire.......................................                            39                            72
New Jersey..........................................                           225                           467
New Mexico..........................................                            49                            92
New York............................................                           508                           993
North Carolina......................................                           224                           469
North Dakota........................................                            13                            24
Ohio................................................                           303                           663
Oklahoma............................................                            83                           177
Oregon..............................................                           100                           206
Pennsylvania........................................                           287                           638
Rhode Island........................................                            34                            62
South Carolina......................................                           110                           220
South Dakota........................................                            18                            36
Tennessee...........................................                           153                           337
Texas...............................................                           604                         1,411
Utah................................................                            54                           118
Vermont.............................................                            15                            28
Virginia............................................                           203                           428
Washington..........................................                           166                           337
West Virginia.......................................                            36                            62
Wisconsin...........................................                           123                           266
Wyoming.............................................                            13                            21
----------------------------------------------------------------------------------------------------------------
Source: National Restaurant Association estimates, 2006.


                                  ____
                                 S. 58

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. REPEAL OF REDUCTION IN BUSINESS MEALS AND 
                   ENTERTAINMENT TAX DEDUCTION.

       (a) In General.--Section 274(n)(1) of the Internal Revenue 
     Code of 1986 (relating to only 50 percent of meal and 
     entertainment expenses allowed as deduction) is amended by 
     striking ``50 percent'' and inserting ``the applicable 
     percentage''.
       (b) Applicable Percentage.--Section 274(n) of the Internal 
     Revenue Code of 1986 is amended by striking paragraph (3) and 
     inserting the following:
       ``(3) Applicable percentage.--For purposes of paragraph 
     (1), the term `applicable percentage' means the percentage 
     determined under the following table:

``For taxable years beginning in calendarThe applicable percentage is--
  2007..........................................................75 ....

  2008 or thereafter.........................................80.''.....

       (c) Conforming Amendment.--The heading for section 274(n) 
     of the Internal Revenue Code of 1986 is amended by striking 
     ``Only 50 Percent'' and inserting ``Portion''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2006.
                                  ____


                 Statement by Senator Daniel K. Inouye


  Re: The Tax Treatment of Certain Hospital Support Organizations as 
    Qualified Organizations for Purposes of Determining Acquisition 
                              Indebtedness

       Mr. President: The legislation I have introduced will 
     extend to qualified teaching hospital support organizations 
     the existing debt-financed safe harbor rule. Congress enacted 
     that rule to support the public service activities of tax-
     exempt schools, universities, pension funds, and consortia of 
     such institutions. Our teaching hospitals require similar 
     support.
       A New York Times article on June 21, 2002, described the 
     financial problems which nonprofit hospitals are facing to 
     modernize their facilities and meet the growing demand for 
     charitable medical care. The problems have grown more urgent 
     since that article appeared.
       On November 22, 2006, the Wall Street Journal noted the 
     rising numbers of uninsured patients who fill hospital 
     emergency rooms without paying their bills. In 2005, 46.6 
     million Americans had no health insurance. Compounding the 
     growing demand for charitable care, new safety and infection-
     prevention standards require hospitals to undertake massive 
     improvements.
       As a result, the article stated, for-profit hospitals are 
     moving from older areas to affiuent locations where residents 
     can afford to pay for treatment. These private hospitals, the 
     reporter pointed out, typically have no mandate for community 
     service. In contrast, nonprofit hospitals must fulfill a 
     community service requirement. They must stretch their 
     resources to provide increased charitable care, update their 
     facilities, and maintain skilled staffing. Both the Wall 
     Street Journal and the New York Times noted the resulting 
     closures of non-profit hospitals due to this financial 
     strain.
       The problem is particularly severe for teaching hospitals. 
     As the Times article said, nonprofit hospitals provide nearly 
     all the postgraduate medical education in the United States. 
     Post-graduate medical instruction is by nature not 
     profitable. Instruction in the treatment of mental disorders 
     and trauma is especially costly.
       Despite their financial problem the Nation's nonprofit 
     hospitals strive to deliver a very high level of service. A 
     study in the December 2006 issue of Archives of Internal 
     Medicine had surveyed hospitals' quality of care in four 
     areas of treatment.
       It found that nonprofit hospitals consistently outperformed 
     for-profit hospitals. It also found that teaching hospitals 
     had a higher level of performance in treatment and diagnosis. 
     It said that investment in technology and staffing leads to 
     better care. And it recommended that alternative payments and 
     sources of payments be considered to finance these 
     improvements.
       The success and financial constraints of non-profit 
     teaching hospitals is evident in the work of the Queen's 
     Health Systems in my State. This 146-year-old organization 
     maintains the largest, private, nonprofit hospital in Hawaii. 
     It serves as the primary clinical teaching facility for the 
     University of Hawaii's medical residency programs in 
     medicine, general surgery, orthopedic surgery, obstetrics-
     gynecology, pathology, and psychiatry. It conducts 
     educational and training programs for nurses and allied 
     health personnel. It operates the only trauma unit as well as 
     the chief behavioral

[[Page S78]]

     health program in the State. It maintains clinics throughout 
     Hawaii, health programs for Native Hawaiians, and a small 
     hospital on a rural, economically depressed island. Its 
     medical reference library is the largest in the State. Not 
     the least, it annually provides millions of dollars in 
     uncompensated health services. To help pay for these 
     community benefits, the Queen's Health Systems, as other non-
     profit teaching hospitals, relies significantly on income 
     from its endowment.
       In the past, the Congress has allowed tax-exempt schools, 
     colleges, universities, and pension funds to invest their 
     endowment in real estate so as to better meet their financial 
     needs. Under the tax code these organizations can incur debt 
     for real estate investments without triggering the tax on 
     unrelated business activities.
       If the Queen's Health Systems were part of a university, it 
     could borrow without incurring an unrelated business income 
     tax. Not being part of a university, however, a teaching 
     hospital and its support organization run into the tax code's 
     debt financing prohibition. Nonprofit teaching hospitals have 
     the same if not more pressing needs as universities, school, 
     and pension trusts. The same safe harbor rule should be 
     extended to teaching hospitals.
       My bill would allow the support organizations for qualified 
     teaching hospitals to engage in limited borrowing to enhance 
     their endowment income. The proposal for teaching hospitals 
     is actually more restricted than current law for schools, 
     universities, and pension trusts. Under safeguards developed 
     by the Joint Committee on Taxation staff, a support 
     organization for a teaching hospital can not buy and develop 
     land on a commercial basis. The proposal is tied directly to 
     the organization endowment. The staff's revenue estimate show 
     that the provision with its general application will help a 
     number of teaching hospitals.
       The U.S. Senate several times has acted favorably on this 
     proposal. The Senate adopted a similar provision in H.R. 1836 
     the Economic Growth and Tax Relief Act of 2001. The House 
     conferees on that bill, however, objected that the provision 
     was unrelated to the bill's focus on individual tax relief 
     and the conference deleted the provision from the final 
     legislation. Subsequently, the Finance Committee included the 
     provision in H.R. 7 the CARE Act of 2002 and in S. 476 the 
     CARE Act of 2003 which the Senate passed. In the last 
     Congress S. 6 the Marriage, Opportunity, Relief, and 
     Empowerment Act of 2005, which the Senate leadership 
     introduced, also included the proposal.
       As the Senate Finance Committee's recent hearings show, 
     substantial health needs would go unmet if not for our 
     charitable hospitals. It is time for the Congress to assist 
     the Nation's teaching hospitals in their charitable, 
     educational service.
       Mr. President, I ask unanimous consent that the text of my 
     bill be printed in the Record.
                                 ______