Don’t Get Mad at Forbes--Get Even

If Malcolm Forbes wants to spend $2 million entertaining a lot of people he thinks are his friends, that’s his business. If celebrities don’t mind being used as props for Forbes’ publicity machine, that’s their business. And if corporate executives--like Lee Iacocca, fresh from the latest layoffs at Chrysler--have nothing better to do with their time (and, in some cases, their corporate jets), that’s their shareholders’ problem.

But if you and I are helping to pay for it, that’s our problem.

Pressed on the point at his 70th birthday blowout in Tangier this week, Forbes conceded, “Some of it is a business expense.”

When Rep. Pete Stark (a California Democrat) made a fuss, Forbes backed off and announced that he would not be deducting any costs of the party from his taxes--but insisted he could if he wanted to. He’s probably right.

There are two theories under which Forbes could conceivably do that. Many of the guests were clients of his magazine--CEOs of companies that advertise in it. IRS regulations here are quite tough. They require a “substantial and bona fide business discussion” during, or at least immediately before or after, the entertainment. And in most circumstances they forbid any deduction if “the distractions were substantial.”

Maybe Forbes’ accountants can persuade the IRS that 600 Moroccan belly dancers were not a substantial distraction, but what about the 200 cavalry guards? According to the Washington Post, “Every few minutes or so, these horsemen would start at the far end of the field, gallop full-bore ahead, aim their rifles right above the main tent . . . and shoot off a deafening round of ammo.” Not exactly what the IRS is pleased to to call “a clear business setting.”

So, theory No. 2: It’s all justified as publicity for Forbes. There is a wonderful self-fulfilling quality to this argument. Because Malcolm Forbes is already rich and famous, his $2-million birthday party can be deducted from his taxes for its publicity value. Because you’re a nobody and can’t afford to spend $2 million, you have to foot the whole bill for your birthday party yourself.

But there is still a catch. The regulations forbid a deduction for entertainment “to the extent it is lavish or extravagant.” The lavish extravagance of Forbes’ party is exactly what generated all the publicity.

Maybe Forbes could have found his way through this conceptual thicket to save a few hundred-thou. If so, the rules surely ought to be changed. It would be nice if outrage at Forbes’ excess provided the occasion, since he is an extreme example of a multimillionaire who lives most of his life tax-free.

In his tax reform plan of 1985, President Reagan actually proposed forbidding the deduction of all entertainment expenses, on grounds of both fairness and economic efficiency. Fairness: “Lunches are deductible for a business person who eats with clients at an elegant restaurant, but not for a plumber who eats with other workers at the construction site.” Efficiency: “The treatment of ‘business-related’ entertainment . . . encourages excessive spending on entertainment” because--unlike, say, the purchase of a filing cabinet--the purchase of a fancy meal (or the charter of three airplanes to fly 700 people to Tangier for your birthday) is an act of personal consumption as well as business investment.

By the time tax reform got through Congress, however, Reagan’s tough proposal had been whittled down to merely limiting the entertainment deduction to 80 cents on the dollar.

Surely, it would make more sense to prejudice the tax code against investments in restaurant meals, opera and football tickets, belly dancers and fusillades by the Moroccan cavalry. Much of this alleged business expense is simply personal consumption in disguise. But even the part that can be justified in pure business terms would be no great loss to the economy if it melted away. Most of it is self-canceling anyway: Forbes’ commercial bribe of potential advertisers merely countering Business Week’s.

In its latest annual survey of potential deficit-reducing ideas, the Congressional Budget Office timidly suggests reducing the entertainment deduction limit from 80% to 50%. This would bring in about $3.5 billion a year in new revenue. Eliminating the deduction would bring in more than double that amount.

Everyone has a wish list for that kind of money. Mine this week would prominently feature aid to Poland. Solidarity wants $10 billion; we’ve offered $100 million, pleading a tight budget. How can anyone say with a straight face that Malcolm Forbes’ birthday party is a more worthwhile investment?

DR, PUNCH