www.southwestfoodservice.com | December 2022 - January 2023

Inflation Reduction Act

The Inflation Reduction Act of 2022 Will Not Help Restaurants

For two and a half years, the restaurant industry has taken blow after blow, knocking it down, but not out. Every month, increasingly powerful blows in the form of higher costs push more and more owners to consider closing their doors.

For this reason, the National Restaurant Association cannot support the Inflation Reduction Act of 2022 in its current form. This bill provides no relief for restaurants. Instead, it will likely raise prices for our supply chain partners, costs that will eventually pass down to local restaurants.

“The Inflation Reduction Act has laudable goals, but the current version is a net negative for local restaurants,” said Sean Kennedy, executive vice president for Public Affairs at the National Restaurant Association. “Passage of this bill will likely lead to higher supply costs for restaurants already struggling to weather the economic storms. For restaurants hoping for a pandemic lifeline from Washington, this bill falls very short.”

Amid the current economic environment, the Inflation Reduction Act of 2022 creates a new $313 billion Corporate Alternative Minimum Tax (CAMT). According to the Joint Committee on Taxation (Opens in a new window), manufacturers and wholesalers will be responsible for paying 59% of the $313 billion. This will likely impact manufacturers and producers of poultry, meat, frozen food, soft drinks, and alcohol, as well as their distribution partners, all of whom directly or indirectly provide products to the nation’s restaurants. These partners will likely have to pass on many of these costs to restaurant owners.

The National Restaurant Association believes lawmakers can still make changes that will directly ease inflationary pressures:

  1. Address rising supply chain prices: Wholesale food costs have risen 13.4%(Opens in a new window)in the last 12 months, with skyrocketing prices for eggs (+156%), butter (+61%), and flour (+39%). Menu prices increased just 7.7% during this period, and the average restaurant pre-tax margins have fallen to around 1%.
    • How lawmakers can help: The Association urges the Administration to remove all tariffs that continue to harm America’s restaurants and the customers they serve. Specifically, the Section 301 tariffs on imports from China and the Section 232 tariffs on steel and aluminum imports.
  2. Prioritize the processing of COVID-19 Relief for Small Businesses: Some restaurant operators have waited more than a year for the Internal Revenue Service (IRS) to process COVID-19 Employee Retention Tax Credit (ERTC) paper filings. The delay means many restaurants lost tax deductions for ERTC-eligible expenses in 2021, without yet receiving ERTC payroll tax rebates.
    • How lawmakers can help: Restaurants applaud the $33.26 billion reserved in the Inflation Reduction Act for IRS customer service modernization. The Association continues to request(Opens in a new window)that Congress and the Administration encourage the IRS to resolve the ERTC processing backlog before it deepens economic uncertainty for small businesses across the country.
  3. Advance policy to bolster the economy and increase investment: According to Association research, 43% of restaurant operators(Opens in a new window)say economic conditions will worsen in six months. This is the highest level of economic pessimism since 2008.
    • How lawmakers can help: As the Federal Reserve raises interest rates, the Association urges Congress to consider bipartisan legislation (H.R. 5371/S. 1077) to restore depreciation and amortization to the calculation of the Interest Expense Deduction. This will help with encourage investments in U.S. businesses and restaurant growth.

In addition to these changes, it is essential that Congress and the Administration provide support and direction to the Small Business Administration to ensure that the $180 million of remaining Restaurant Revitalization Fund(Opens in a new window) money is distributed quickly and fairly to pending applicants.

“We overcame the legislative odds to get RRF passed into law, so it’s very disappointing to hear that some of that money is sitting in SBA’s accounts. The Association supports SBA’s efforts to be good stewards of taxpayer dollars, but Congress set aside $28.6 billion to support the industry and restaurants should receive that full amount,” said Kennedy.

The restaurant industry is still struggling to rebuild from the impacts of the pandemic. It has still not recovered 728,000 jobs(Opens in a new window) lost in the initial government shutdowns. Added to the stress of wholesale food costs and falling consumer economic confidence, operators are growing more pessimistic about the economic outlook. Learn more about the state of the restaurant industry in the Economist’s Notebook(Opens in a new window).

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