Taxes and the Three Martini Lunch

I was having a beer the other day and thought of Jimmy Carter and taxes--certainly a sign to give up beer.  Here is what Jimmy did for taxes and martinis when he made the Three Martini Lunch part of the lexicon because of this quote in a debate in 1976.  So get in the Wayback Machine and set the dial for 1976.

"Another one that is very important is the business deductions. Jet airplanes, first-class travel, the $50 martini lunch--the average working person can't take advantage of that, but the wealthier people can."

(I don't know if younger readers are familar with Professor Peabody, Sherman and the Wayback Machine but for those who are not, they are part of the 'Rocky and Bullwinkle Show.'  The original, not that lame movie a few years ago.  Every episode Sherman and the professor would travel back in time and visit some historical event like Shakepeare writing 'Romeo and Zelda' which Sherman, of course, changed to 'Romeo and Juliet.'  Don't know about anybody else but I think I became a history major primarily because of the Wayback Machine.)

Back to the debate.  First, Jimmy's grammar wasn't very good and, two, the $50 martini lunch somehow morphed itself into the "three martini lunch."  And $50 for lunch was a lot of money back then. 

But what Jimmy was really saying was 1976 speak for 'tax breaks for the wealthy' with every Democrat channelling Jimmy ever since.  Not necessarily bad because Jimmy was right, the tax system was a mess.  The highest marginal tax rate was 50% for individuals offset by tons of dubious 'loopholes for the wealthy' like land deals, cattle deals and futures, oil deals and deals in general.  Deals were being done for tax purposes only which is the stupidest reason to do a deal.

The little guy got some breaks as well but they were also misdirected.  To offset the high marginal rate just about every kind of tax and interest charge was deductible.  Deductible items included auto loan interest, credit card interest, student loan interest, and sales tax.  The obvious reaction to this was that everybody loaded up on debt because they got a deduction.  Told you it was screwed up.   

But tax talk makes you thirsty, and bored.  So let's take a break and look into the martini as a drink since I've never had one.  Let alone three at a lunch.   

The basic martini recipe is

6 oz. of gin

5 drops of dry vermouth

2 small twists of lemon rind

2 olives

Wow.  Three of those at lunch and you wake up in a month.  Assuming you wake up.  Three drinks times 6 ounces of gin.  That's over a pound of gin.  I think.  And leads to situations as put down in verse by Dorothy Parker. 

"I like to have a martini,
Two at the very most.
After three I'm under the table,
after four I'm under my host."

For those that don't know Dorothy Parker she was a 1930's writer and columnist that is famous for the saying, "Men don't make passes at girls that wear glasses."  Sexist but kind of funny.

Back to taxes.  And Jimmy won the election.  Not because of tax reform but because Gerald Ford pardoned Nixon.  And then Jimmy really screwed things up resulting in double digit inflation and double digit interest rates and a really upset population.

And along came the Three Martini Lunch.  Resurrected by none other than Ronald Reagan.  Dutch, as he was known at our house because my dad went to college with him, knew even better than Jimmy that the tax system was screwed up and he set about to fix it.  Well, first, he had to have a recession to get rid of inflation and high interest rates but after that he rolled out the Big Martini to take the hit for the tax changes. 

And here is what he did, along with some help from some powerful Democrats.  (Try that today.) 

He chopped the top tax rate from 50% to 28% and reduced tax brackets from 14 to 2.  He eliminated most deductions. 

And he whacked the Three Martin Lunch which is why when you go to Schedule C you will see Line 24B--Meals and Entertainment and the Line 24C--Enter nondeductible amount included on line 24B (see instructions).  The nondeductible part is the martinis.

What Dutch knew instinctivly was that there had to be a shared sense of sacrifice and if some people thought giving up martinis at lunch was a sacrifice, it was good enough for him. 

And he won.  And the economy went on a twenty- year tear, thanks to sacrifice of some gin and a few olives.

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