Mnuchin: GOP tax reform would give small business owners the lowest rates 'since the 1930s'

Key Points
  • Treasury Secretary Steven Mnuchin makes a pitch to owners of small and medium-sized businesses to support the Republican tax cut efforts.
  • Ninety-eight percent of business owners subject to the so-called pass-through tax rate "will get substantial reductions," Mnuchin says.
  • Mnuchin predicts a GOP tax bill on President Trump's desk by Christmas.
Secretary of the Treasury Steven Mnuchin
Cheriss May | NurPhoto | Getty Images

Treasury Secretary Steven Mnuchin made a pitch to small and medium-sized business owners on Friday, saying they could expect the lowest tax rates in decades from the Republican tax reform bills winding their way through the House and Senate.

In a CNBC interview, Mnuchin looked to clarify the direction of the so-called pass-through rate, in which the profits and losses of sole proprietorships, partnerships and S-corporations "pass through" to their owners who are then taxed at individual income-tax rates, currently as high as 39.6 percent.

"We're going to have the lowest pass-through rates we've had since the 1930s," Mnuchin told "Squawk Box," one day after the House passed its version of the GOP 's vision to cut rates and simply taxes for companies and working Americans.

"The large number of pass-through returns, [98 percent], are all $500,000 or less. Those people will get substantial reductions — small and medium-size businesses," he said.

"These are about businesses that are going to reinvest in the business. That'll be good for the economy; good for growth," said Mnuchin, who came to the Trump administration from the business world, including a stint working at Goldman Sachs.

The House plan calls for a drop in the pass-through rate to 25 percent. But in an op-ed in the Los Angeles Times, University of Southern California tax law professor Edward Kleinbard said: "The discounts aren't really aimed at small businesses. They go to any business, large or small, that happens to be organized as a partnership or an S corporation, as long as it isn't a service business."

Formerly chief of staff for the Joint Committee on Taxation during the Bush 43 and Obama administrations, Kleinbard also writes, "The House bill allows completely passive investors in eligible businesses to get the discounted tax rate on all their pass-through income."

Mnuchin also said the House tax bill will place a higher burden on those who earn more than $1 million per year but provide a break to everyone else. Opponents say that measure is a stealth tax hike on the middle class.

On Thursday, Sen. Ron Johnson, a former small business owner who's concerned about pass throughs, said on CNBC that President Donald Trump personally promised to "'work my tail off'" to win the Wisconsin Republican's vote on the Senate's tax overhaul plan.

While saying he would oppose the Senate plan in its current form, Johnson told "Squawk Box" that he wants to fix the bill so he can support it. The senator, however, said he didn't have enough information about the measure to even propose an amendment to change what he doesn't like.

Republicans can't really afford to lose votes. They hold only a two-seat majority in the Senate.

Despite the razor-thin Senate majority, Mnuchin predicted on Friday that the Senate will be able to join the House and pass its version of tax reform; he predicted that congressmen and senators will be able to make compromises to craft a single bill that will pass both chambers; and he predicted that the measure will be on the president's desk for approval by Christmas.

The Senate Finance Committee voted to approve its tax bill late Thursday. But in what may be a complicating factor, a new analysis from the Joint Committee on Taxation showed average taxes for all income groups would go up by 2027 after initially dropping under the Senate approach.

WATCH: Mnuchin sees a GOP tax bill on Trump's desk by Christmas

Treasury's Steve Mnuchin: Expect tax bill on President Trump's desk before Christmas
Treasury's Steve Mnuchin: Expect tax bill on President Trump's desk before Christmas