Will Patina and other chic eateries turn into ghost towns? Will Michael Ovitz and his Creative Artists Agency minions take to dining at their desks? Will anyone do lunch in Los Angeles again?
Such questions are at the heart of a closed-door food fight between a powerful U.S. senator and the Clinton White House. Senate Finance Committee Chairman Daniel Patrick Moynihan (D-N.Y.), whose panel recently completed work on President Clinton's tax bill, is privately warning that a provision in the bill will devastate the restaurant business in Los Angeles and Manhattan, eliminating thousands of service jobs for new immigrants while impinging on the quality of life of the elite who dine almost daily on expense accounts.
The origin of the controversy, as with most things in Washington these days, can be traced to the federal deficit. As part of its effort to reduce the budget shortfall, the Administration has proposed slashing the federal tax deduction that corporations can claim for business meals from 80% of the tab to just 50%. The change would raise more than $15 billion in new revenue over five years, the government estimates, allowing the nation's upscale expense account restaurants and large corporations to respond to Clinton's call for "shared sacrifice."
But shared sacrifice is in the eye of the beholder. Faced with tough lobbying and political pressure, the White House has agreed to a wide range of exemptions from its proposed taxes and spending cuts. And the restaurant industry now is complaining that it has been unfairly shut out at Clinton's deal-making window.
Moynihan, through key staff members, argued that the proposal will sharply depress the restaurant business in major cities where restaurateurs rely heavily on expense account lunches and dinners. Above all, that means Manhattan and Los Angeles.
And, Moynihan's staff noted, California will be hit harder than any other state, largely because of the impact on Los Angeles--a city with a tradition of expensive expense account lunching. In fact, a study by the National Restaurant Assn. said the tax will cost 22,711 restaurant jobs statewide, including more than 10,000 in Southern California.
The Treasury Department disputed Moynihan's claims and the industry study, arguing that it is impossible to determine the impact of the provision on an individual city. Treasury officials also noted that the restaurant industry issued similar warnings when the deductibility was reduced from 100% to 80% in 1986 but ultimately enjoyed a boom in the late 1980s.
"In 1987 and 1988, business went way up," countered Les Samuels, assistant Treasury secretary for tax policy. "I think you could argue that there will be no effect from this."
Moynihan went along with the proposal during Senate deliberations. As the Administration's point man on the tax plan in the Senate, he had little choice. But during private meetings with farm-state lawmakers who were complaining about the effect on rural residents of Clinton's proposed energy tax, Moynihan claimed that his constituents in Manhattan were about to suffer far more as a result of the change in business meal tax law.
Chief among the victims, the senator claimed, would be the low-wage restaurant employees.
"Here are all these senators carping about their farmers, who all own 1,800 acres of land, taking an extra $10 hit and we're talking about a hit on the poorest people in the country," a Moynihan aide complained.
Senate Finance staff members also expressed frustration with Sens. Dianne Feinstein and Barbara Boxer, who, despite prodding, have been silent on the issue. A Senate source said, however, that Moynihan made it clear in private meetings that he never intended to fight the Administration on the issue and never asked either Feinstein or Boxer to fight it either.
Restaurant owners in Southern California agree that the tax law change could severely depress their expense account trade. In fact, several said they believe the change could accelerate the new trend among movie studio executives to eat and meet on the lot at studio commissaries, rather than at expensive restaurants.
"I think it will have a very negative influence on our business, definitely," said Joachim Splichal, owner of Patina, an expensive contemporary French restaurant in Los Angeles, where 60% of his volume comes from expense accounts.
"We're right near Paramount and we get a good crowd. . . . But people are going out less, and there is less promotional money. This bill is definitely going to make things worse and affect a lot of restaurants."
Added Jimmy Murphy, owner of Jimmy's in Beverly Hills: "A lot of the studio people have already gone back to eating in the commissary again, and this is only going to hurt more. . . ."