Capitol Hill gives White House tip tax proposal the cold shoulder

Capitol Hill gives White House tip tax proposal the cold shoulder

Ken Rankin

Capitol Hill gives White House tip tax proposal the cold shoulder

President Reagan’s plan to require restaurateurs to pay Social Security taxes on employee tips is drawing a chilly reception on Capitol Hill.

The White House tip proposal has already been thumbed down by the House Budget Committee, which described it as “overly selective in light of the need for a meaningful contribution to permanent deficit reduction from the tax system.”

Actually, that’s a kind characterization of the administration’s plan. In reality, forcing employers to pay “FICA” (Social Security) tax on tip income won’t make any contribution to reducing the federal budget deficit–by law those funds must go into a separate account to underwrite Social Security benefits and may not be used to replace general revenues.

Despite the budget committe’s vote, the president’s plan is still alive. Three other congressional committees must now review the administration’s budget proposal, including the Senate Finance Committee–a group that has shown little sympathy for food-service industry concerns in the past.

But even so, it now appears likely that Congress will reject White House efforts to broaden the tax on employee tips.

The U.S. Supreme Court rejected an appeal by a Philadelphia fast-food franchisee challenging Popeyes’ decision to grant Marriott exclusive rights to all new chicken franchises in that market.

The case was brought by Philadelphia Fast Foods (PFF), a single-unit Popeyes franchisee that claimed it was offered the opportunity to open additional outlets in the area. According to the franchisee, the chain reneged on the deal when Marriott–which was negotiating for Popeyes outlets in the Philadelphia area–demanded exclusive rights to operate all of the chain’s future franchises there.

PFF filed suit in federal district court, charging that Popeyes conspired with Marriott to attempt to monopolize the “spicey fried chicken market” in greater Philadelphia. Both the trial court and the appeals panel found no wrongdoing on the part of the two chains, and the franchisee appealed those decisions to the Supreme Court.

Attorneys for Popeyes successfully urged the high court to allow those rulings to stand, arguing that the chain “did not have to conspire with anyone in order to prefer Marriott to PFF as a developer of franchised restaurants in the Philadelphia territory. The objective attractiveness of Marriott as a franchisee, Popeyes’ unilateral policy of preferring exclusive territorial development arrangements, and PFF’s inadequacies both as an operator and a developer of Popeyes units” were more than enough to tip the scales, the attorneys said.

How much would pending legislation to raise the federal minimum wage rate cost the food-service industry? Plenty! For instance, the proposal, recently introduced by Sen. Kennedy (D-Mass.), to boost the national hourly wage floor by 40 percent over the next two and a half years would almost certainly spell the difference between profit and loss for many small restaurateurs.

Take the example of a single-unit operator with the equivalent of 40 full-time employees whose wages would be affected by Kennedy’s proposed $1.30 hike in the hourly minimum.

When fully implemented, Kennedy’s minimum wage increase would boost that operator’s annual payroll costs by more than $100,000, without any corresponding rise in worker productivity or sales. How many small food-service operations will be able to stay afloat if expenses rise that much?

Supporters of rising minimum-wage rates, of course, argue that, at least indirectly, such legislation will expand the economy and that those higher wages will eventually “trickle” back to employers through increased consumer demand.

The problem is that while the workers positively affected by a minimum-wage hike will have a little extra disposable income, others affected negatively by such legislation will have a lot less to spend on restaurant meals or anything else.

According to Labor Secretary William Brock, as many as 200,000 jobs are wiped out whenever the fedreral minimum wage rises 10 percent. Kennedy’s bill boosting the hourly pay floor by 40 percent would eliminate employment opportunities for as many as 800,000 Americans, he contends.

Although the U.S. Immigration and Naturalization Service plans to begin enforcing the new federal ban on hiring illegal aliens on June 1, we still have no word from the agency on how restaurants will be expected to verify the immigration status of teenagers.

Proposed INS rules issued this spring cited documents (passports, driver’s licenses, etc.) acceptable to the agency for purposes of establishing a job applicant’s identity and employability, but such types of ID are generally not available to young teenagers.

The INS is aware of the problem. It was brought to the agency’s attention earlier this year by the National Restaurant Association. However, the service has yet to suggest alternative forms of identification for young workers.

In urging the agency to resolve the problem, NRA officials called on the INS to allow employment applicants under 16 to establish their employability via School ID cards or work permits.

COPYRIGHT 1987 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.

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