Up Front With Martin B. Deutsch
TAXATION WITHOUT REASON
BY MARTIN B. DEUTSCH
August 1, 1981 -- One of the most unreasonable and punitive laws to come out of Congress in the mid-1970s was the one that restricted U.S. citizens from attending more than two conventions a year at foreign sites under traditional tax write-off rules for legitimate business travel. And those two tax-deductible trips were mined with cumbersome reporting requirements and low per-diem allowances.
The legislation was punitive by design: It’s sponsors wanted to curb the abuses committed by a few, those who camouflaged vacations and junkets with convention travel tie-ins, by also penalizing the vast majority with genuine reasons for quitting U.S. borders to attend business conferences. The U.S. corporate and professional communities were being punished for the sins, real and perceived, of a few. The innocent were zapped to head off the guilty. Hardly an American concept.
The measure was unreasonable on several grounds, particularly these: (1) Arguments by proponents that the new law would raise appreciable tax revenues were laughable — the most optimistic estimate was that some $4 million a year would be collected; (2) There were existing provisions in IRS and other regulations that could curb the junketeers, and that these could be endowed with enforceable teeth; and (3) The program was difficult and expensive to police — those already inclined to test the law would continue to do so. (There was also the fear that other countries would retaliate.)
There was another, more subtle issue, an issue that I found particularly worrisome, and I concentrated my testimony against the proposal along the following lines before a subcommittee of the House Ways and Means Committee: In two hundred years of existence (at that time), this nation, except during wars, had never infringed on the rights of U.S. citizens to travel abroad, without hindrance or penalty. I thought the precedent, this foot in the door, was potentially dangerous and could lead to other strictures, such as a crippling head tax for outbound tourists and businessmen. There was no question that the law would impose a penalty: no tax deductions after a second yearly trip; and the bill’s previsions would certainly hinder the businessman by shrinking the parameters under which he could operate at a convention abroad.
But these considerations did not prevail. Nor was the cause helped by the usual weak and uncertain front fielded by the travel industry. The measure became law.
As predicted, the legislation achieved very little, and various segments of the travel fraternity began to chip away at the structure. Those affected were far more vociferous after the bill had passed than during the debate. Not an unusual phenomenon.
Toward the end of the Carter Administration, the president and Congress finally got the message, and a more liberal piece of legislation was signed into law. It differs from its predecessor on several significant points. The convention tax breaks are extended beyond the U.S. and its territories to Canada, Mexico and Bermuda; meetings aboard cruise ships are specifically denied any tax deductions; and conventions held outside the North American zone must pass specific standards of “reasonableness” to qualify for tax relief. (At presstime the Senate was debating a treaty that would declare Jamaica within the North American zone.)
The new law, while a perceptible improvement over the old — except for the paranoia about the cruise conferences — is still unacceptable and unnecessary. The so-called “reasonableness” standards are vague and possibly subject to arbitrary interpretation.
Paraphrasing from the law, the rules hold that no deductions may be allowed for expenses incurred at a convention held outside the North American zone unless the taxpayer establishes that the meeting is directly related to the active conduct of his trade or business, and that it is as reasonable for the meeting to be held outside of North America as within. Uncle Sam also wants taken into account the purpose of such a meeting and its activities, the purposes and activities of the sponsoring organizations and the places at which other meetings of the sponsor have been or will be held, as well as other factors considered relevant by the taxpayers. The measure also has a grandfather clause that protects conventions already scheduled under the old law, at least through December 31 of this year.
Maybe with President Regan and a more pragmatic Congress, the travel industry can pull its act together and get the entire bill scrapped. There’s certainly plenty of motivation to do just that for foreign governments, the cruise lines, and airlines and hotels with routes and properties overseas.
It would certainly be a boon to the frequent business traveler to have this law removed from the books — not only for those who travel to conventions abroad, but for everyone who senses even a remote threat to unrestricted travel of U.S. citizens in it.
Why not drop your senator or congressman a letter to tell him how you feel about this law?
This column originally appeared in Frequent Flyer magazine.
Copyright © 1980–2007 by Martin B. Deutsch. All rights reserved.