Gregory Korte

USA TODAY

Chairman of House tax-writing committee offers first sweeping overhaul of tax rules since 1986

Top tax bracket would drop to 25%25 for all but the richest

Senate leaders had said Tuesday that tax reform would be difficult if not impossible this year

WASHINGTON — The chairman of Congress's chief tax-writing committee released a plan Wednesday for a sweeping overhaul of the tax code that would close tax loopholes and drop the top tax rate from 35% to 25% for all but the very wealthiest taxpayers.

The plan, which has met with tepid response from Democrats and Republicans on Capitol Hill, would be the biggest tax overhaul since 1986.

The current seven tax brackets would be collapsed into just three brackets of 10%, 25% and 35%. But 99% of households — those making less than $450,000 — would pay no more than the 25% rate.

The standard deduction would be increased from $12,200 to $22,000 for married couples filing jointly, allowing 95% of taxpayers to get the largest reduction without having to itemize.

But there are trade-offs: The $3,900 personal exemption for each dependent would be eliminated. Taxpayers would no longer be allowed to deduct state and local taxes. And only the first $500,000 of mortgage interest would be deductible.

The proposal by House Ways and Means Chairman Dave Camp, R-Mich., delivers on a promise to simplify tax laws: 228 sections would be eliminated entirely. The alternative minimum tax would be repealed for individuals. And 15 different tax incentives for education would be consolidated.

The response to the plan on Capitol Hill ranged from encouragement to indifference to defeatism.

House Speaker John Boehner, R-Ohio, said the plan was a way to start a discussion about tax reform, but when asked about the details, he responded, "Blah, blah, blah, blah."

House Democrats were about as enthusiastic. Camp's Democratic counterpart, Rep. Sander Levin of Michigan, said the draft "opens up a discussion that Democrats have wanted to engage in on a bipartisan basis."

And in the Senate, leaders of both parties said Tuesday that tax reform would be difficult if not impossible this year — mostly because they don't trust the other side to compromise.

But from all quarters, there was an acknowledgement that Camp had done something few members of Congress had ever even attempted. Camp's tenure as chairman of the tax-writing committee is all but certain to end after the election. "We need to have this debate. We need to move the country forward," Camp said.

Camp already won a key rhetorical victory: For the first time ever, the bipartisan Joint Committee on Taxation agreed to include the economic growth effects of a tax overhaul in their revenue estimates. The result: 1.8 million jobs, resulting in $700 billion in new revenue to the federal government over the next 10 years.

Under Camp's plan, the average middle-class family would pay $1,300 less than they do now, according to a JCT analysis.

The proposal also addresses corporate tax rates. Four tax brackets topping out at 35% would be flattened to a single 25% rate.

Camp's plan largely leaves the 2010 Affordable Care Act intact, except for two provisions: The 2.3% excise tax on medical devices would be repealed, and taxpayers would once again be able to buy over-the-counter drugs through health savings accounts.

Charitable deductions would also be overhauled. Contributions would have to exceed 2% of income to be deducted, but with no cap. Taxpayers could deduct charitable deductions made through April 15 of the next year. Camp estimates that these changes would result in another $2.2 billion for charities annually.

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