Jay Khosla, the outgoing top policy aide to Senate Majority Leader Mitch McConnell, argues that the best defense of the 2017 GOP tax cuts that he helped shape is not what has happened since they were enacted. Instead, it’s what didn’t happen: The country didn’t see the exodus of businesses that many feared back when the U.S. corporate tax rate was the highest in the developed world.
“The [tax] rate reduction on the corporate side to me is the single biggest reason you don’t have U.S. companies now inverting and going overseas,’ Khosla told the Washington Examiner in a wide-ranging interview on his tenure in the Senate.
“There has not been a single major inversion since tax reform,” said Khosla.
An “inversion” is when an American corporation buys a company or just a mailbox in a low-tax country and then switches its official headquarters to the newly formed “company” in that jurisdiction to lower its tax bill.
Khosla, 40, worked on policy in the Senate for over a decade, including for Senate Finance Committee Chairman Orrin Hatch from Utah (the role in which Khosla worked with Republican legislators on the Trump tax cuts) and for former Majority Leader Bill Frist from Tennessee. Now, he is headed off Capitol Hill to work for health insurance company Humana as the senior vice president of government affairs.
A Virginia native, Khosla said that people often forget that the most significant driver for tax reform was “actually to make the U.S. competitive” in terms of the corporate tax rate.
The U.S. corporate tax rate, at 35%, caused American companies to move their headquarters overseas “at a very scary pace” to take advantage of tax havens, Khosla said, stripping the federal government of revenue. It was one of the reasons President Barack Obama tried to work with Republicans to lower the corporate tax rate from 35% to 28% in his second term, but they couldn’t strike a deal. The Republican tax bill in 2017 lowered the rate to 21% and included other measures meant to entice corporations to keep their headquarters in the United States rather than undergo inversions.
“It’s easy when things have already worked out, but people forget the panic that was happening when all of these big U.S. companies were leaving and going abroad,” said Khosla.
Democrats, though, have criticized the tax cuts’ effect on corporations, complaining that more businesses are paying zero taxes under the new regime and that more companies are wary of investing their gains from the tax cuts because of Trump’s trade wars.
Furthermore, there has been pushback from both sides of the aisle that the tax cuts are not on track to pay for themselves and that the tax bill has helped push the annual federal deficit toward $1 trillion, with no sign of that changing.
When asked about the conversations he had with corporate executives when preparing to craft the Tax Cuts and Jobs Act of 2017, Khosla said he was always conscious of doing his homework in advance and was wary not to get spun by corporate interests.
He said that if corporations noted that an action the federal government was considering was “going to kill them” but a look at their investor calls and their federal disclosure forms told a different story, he would disregard their “talking points.”
Khosla had initially planned on becoming a corporate lawyer, but after attending law school at the University of Richmond, he decided to follow the guidance of a university adviser and his mother to take a chance and try a nine-month policy fellowship in Washington.
Khosla’s parents are first-generation Indian Americans who were both small-business owners before they retired. Politics were never a big part of Khosla’s upbringing, but he said his parents are center-right politically and big believers in the free market.
He met his wife of 19 years, Lisa, who is Vietnamese American, while they were both getting their master’s degrees at Virginia Commonwealth University. They now have two young boys, aged five and eight, for whom Khosla says he is a “glorified chauffeur” on the weekends when he’s not working.
As he was getting ready to leave the Senate hallways last week, Khosla’s parting words for future staffers on Capitol Hill was something his grandmother often told him.
“If you’re honest with people, they’ll hate you then, but they’ll love you forever. If you lie to people, they’ll love you then, but they’ll hate you forever. So my thing has always been, I am who I am: I’m an honest, candid broker,” Khosla said.
