An election-year plan by House Republicans to simplify the tax code would cut income tax rates but impose a new surtax on some high-income families.
The plan, which is to be unveiled Wednesday, would lower the top income tax rate from 39.6 percent to 25 percent, said a GOP aide who spoke on condition of anonymity. However, the plan would impose a new 10 percent surtax on some earned income above about $450,000.
The aide was not authorized to speak publicly about the plan before its release.
The new surtax would not apply to capital gains or dividends, sparing many of the super rich who make the bulk of their money from investments.
House Ways and Means Committee Chairman Dave Camp, R-Mich., is set to release the proposal Wednesday .
Instead of seven tax brackets there would be just two: 10 percent and 25 percent. The income tax rate for top earners would fall from 39.6 percent to 25 percent.
Well-paid salaried professionals would be hit by the surcharge but farmers, manufacturers, and those who are super rich, deriving their income chiefly from interest and investments, will come away unscathed, the Washington Post reported.
Details of the plan's arithmetic – which tax breaks will fall by the wayside, how it will be possible to cut the corporate tax rate and lower taxes to 25 percent for the rich, while not harming the middle class – will probably become clearer when the overhaul is made public, according to the Post.
Camp has long been campaigning for a simpler code. The legislation to be unveiled culminates some three years of effort by Camp and GOP members of the committee. House Budget Committee Chairman Paul Ryan, R-Wis., also contributed ideas.
The plan's political prospects are unclear. Camp's ally on the Senate Finance Committee, Max Baucus — appointed ambassador to China — has been replaced by a new chairman, Sen. Ron Wyden, D-Ore., who favors less comprehensive reforms.
Camp's fellow Republicans running for re-election in November may also not be keen to push legislation that takes away popular tax breaks like deductions for home mortgage interest.
The White House, though favoring a corporate tax rate cut, says a massive overhaul of the code cannot mathematically achieve its goals while raising fresh cash to reduce the budget deficit – which Democrats want to do.
The Wall Street Journal reported that the plan could achieve up to $700 billion in extra revenue if it produces higher economic growth as a Joint Committee on Taxation analysis projects. Capital gains would be taxed like ordinary wage income in a way that would effectively result in a tax cut.
The plan has no chance of becoming law without Democratic support. Instead, it could become a political document for House Republicans to show what they stand for, and for Democrats to attack, as the midterm elections approach in November.
Republicans have touted the upcoming plan as a major overhaul of the tax code that would dramatically lower tax rates for individuals and corporations, but recoup the revenue by eliminating or reducing popular tax breaks. Overall, the plan is designed to raise about the same amount of tax revenue as the current system, though the system would be much simpler.
It is an important political point for Republicans that the plan is not seen as a big giveaway to the rich. The new surtax on high-paid workers would help ensure that wealthy taxpayers as a group continue to pay about the same amount as they pay today, said the GOP aide.
The issue of whether to increase overall tax revenue is a major sticking point among Republicans and Democrats. Most Republicans in Congress adamantly oppose anything that looks like a tax increase, while Democratic leaders insist that any attempt to overhaul the tax code raise additional revenue. President Barack Obama and Senate Majority Leader Harry Reid, D-Nev., have said they want to target tax breaks enjoyed by some corporations and the wealthy.
Obama has said he supports corporate tax reform, but he has shown little interest in overhauling the tax code for individuals.
Democrats and tax experts question whether Camp can reduce the top income tax rate to 25 percent without touching some of the most popular tax breaks. Among the largest tax breaks for individuals: exemptions for retirement income and employer-sponsored health plans, and deductions for owning a home and paying a mortgage.
Under Camp's plan, a 10 percent tax rate would apply to taxable income up to about $75,000 for a married couple filing jointly, the GOP aide said. The 25 percent tax rate would apply to taxable income above $75,000, with the new 10 percent surtax kicking in at roughly $450,000.
Camp has worked with dozens of House Republicans to build support for his plan, though it is unclear if it will ever come before the full House for a vote. Camp wanted to unveil the plan last year and hold a committee vote. But House GOP leaders put on the brakes, not wanting to distract voters from the disastrous rollout of the president's healthcare law.
Camp spent much of last summer touring the country, holding campaign-style events with Democratic Sen. Max Baucus of Montana, to drum up support for tax reform.
Corporate America has been a big backer of tax reform, arguing that the 35 percent tax rate on most corporate income is the highest in the industrialized world. However, few corporations pay the top rate because the tax code is filled with tax breaks that many businesses are gearing up to defend.
© 2014 Newsmax. All rights reserved.