Industry gears up for another FICA fight in '93 - foodservice industry, Federal Insurance Contributions Act - Column

I had hoped to bring you a different message this month. I had hoped to fill this column with the news that the FICA tax on tips, that financial albatross that hung around our necks for five years, had been lifted. I cannot yet report such a legislative victory, but I can report success of a different kind.

The struggle by America's foodservice operators to abolish that unfair tax has been unprecedented in participation and enthusiasm. Never before has the foodservice industry rallied around one issue with such intensity. Our five-year battle has strengthened our industry's commitment to grass-roots politics and magnified our presence on Capitol Hill.

By the end of 1992, there wasn't a single senator or representative who hadn't heard from at least one of their constituents on this issue. Thousands of you helped to educate an entire Congress about the unfair assessment of taxes on tips, a transaction over which the employer has no control.

That is why we came closer in 1992 than ever before to pulling ourself out of FICA's grip. Twice this year Congress passed legislation that included relief for restaurateurs smarting from the effect of the 1987 law. And twice President Bush vetoed it.

The relief would have come in the form of a dollar-for-dollar reduction in income taxes for FICA taxes paid on tip income above the tip credit. Although we pushed for outright repeal of the law, the 1990 budget agreement made it nearly impossible for Congress to pass a measure reducing Social Security revenues. Political realities and election-year politics forced us to settle for the tax credit as the next best thing. In addition, each of the tax bills would have extended the life of the Targeted Jobs Tax Credit, TJTC, used by many restaurateurs to hire disadvantaged workers.

President Bush vetoed the bill containing the FICA tax credit and TJTC extension on Nov. 4, aboard Air Force One, while he was returning to Washington, D.C., the day after failing to win re-election. Known as the 1992 urban-aid bill, that legislation contained numerous items the president himself had endorsed -- enterprise zones and tax breaks for home buyers. But Bush said the bill "includes numerous tax increases [and] violates fiscal discipline." The so-called tax increases were revenue offsets that Bush had defined as "tax increases" during the campaign.

The president's veto had nothing to do with the merits of our FICA tax relief provision. Instead, our small amendment got caught up in the storm of election-year posturing and President Bush's adamant objection to sign anything resembling a tax increase.

By including FICA relief in both 1992 tax bills, members of Congress essentially admitted that the 1987 FICA law was a mistake. Of course, they did not come upon that realization overnight. Your onslaught of letters, faxes, visits and phone calls -- coupled with the daily urgings of our lobbyists -- enlightened Congress to its error.

Your communications put a human face on a subject that, on the surface, could seem technical and irrelevant to some legislators. You hammered home the point that this law has cost jobs and benefits for tipped workers in our industry.

The FICA tax on tips has been a thorn in our sides since 1987. President Reagan inserted the item into his 1988 budget to raise $200 million a year and #1.6 billion over five years. The idea was to shrink the deficit. But the revenue generated does not reduce the deficit since FICA taxes are credited toward the Social Security trust fund, which already contains a large surplus.

Regan's budget was met with thunderous objections from the restaurant industry. Michael Grisanti, president and chief executive officer of Louisville's Grisanti Inc. and then association vice president, told a congressional subcommittee in 1987 that "the tax increase boils down to an accounting |sleight-of-hand' that purports to bring down the federal debt but only hurts the restaurant industry." The folly of that proposal should be clear to even a foodservice industry. Reagan's budget was passed on Dec. 22, 1987. Nine days later we began paying FICA taxes on all tips.

America's foodservice operators responded to the huge tax increase in a variety of ways. One association survey showed that 63 percent of restaurants were forced to reduce employee hours, 56 percent had to reduce benefits and 50 percent said they had reduced the number of employees. Other operators added a mandatory service charge to keep their businesses afloat.

Even before the bill took effect, the national Restaurant Association had begun a campaign to overturn the law. In January 1988 Rep. Hank Brown, R-Colo., introduced the first bill to repeal the law. The bill gained 50 co-sponsors but died in Congress. Undaunted, Brown reintroduced the bill when the 101st Congress convened in 1989. By year's end 175 House members and 22 senators had agreed to co-sponsor this second repeal bill. But growing awareness of the budget deficit doomed the second FICA repeal effort.

Our grass-roots lobbying effort kicked into over-drive as a new Congress convened in March 1991. Two congressmen -- Rep. Byron Dorgan, D-N.D., and Sen. John Breaux, D-La. -- agreed to champion the fight. Throughout 1991 and 1992 co-sponsor lists for FICA-repeal bills grew as restaurateurs informed Congress of the devastation that FICA has wrought. By the end of summer 1992, a record 273 House members and 50 senators -- more than half of Congress -- had signed on to co-sponsor a FICA repeal.

A new Congress convenes on Jan. 5 with 11 new senators and 110 new members of the House. The National Restaurant Association's first priority is to present a new version of the FICA-relief bill in the opening days of the session. To gather support for the bill, we will again be collecting co-sponsors. And that's where we need your help the most.

With so many rookie legislators roaming the halls of the Capitol, a lot of education needs to be done. Your letters and phone calls will be crucial in making these freshmen and legislators aware of the inequity of the FICA tax on tips. Freshman members are very responsive to their voters, ad they must learn that FICA relief is not a slick special interest tax break but the correcting of an unfortunate act of Congress that more than half of their peers agree was a mistake.

Next year we again need to crank up the grassroots machine that made this industry proud. Thanks for your great work in 1992, and let's make '93 the year we all put the FICA law to rest.

COPYRIGHT 1992 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.
COPYRIGHT 2004 Gale Group