A Republican tax reformer in Congress has proposed sweeping new levies on Wall Street as part of an unexpectedly radical plan for overhauling the US tax code that could divide both parties.

Under draft legislation unveiled on Tuesday by Dave Camp, a Michigan Republican who chairs the House ways and means committee, larger banks would have to pay a penalty for receiving government bailouts, and would face a new tax on their worldwide assets.

Wall Street’s private equity barons would also be hit hard by a proposal to end the controversial ‘carried interest’ rule which lets them avoid income tax by paying themselves through profits treated as capital gains and taxed under lower rates than those to which income is typically subject.

Together with new taxes on insurers, Camp said the increased revenue from Wall Street would help pay for a cut in US corporate tax rates, from 35% to 25%, and would ensure that the overall package of personal and business taxes he announced was revenue neutral.

His explicit attack on bailed-out banks has more in common with recent criticism of the Dodd-Frank bank reforms levelled by left-wing Democrats such as senator Elizabeth Warren than traditional thinking by either Republican or Democratic leadership, which have both shied away from confronting Wall Street in such ways.

“By declaring Systemically Important Financial Institutions to be ‘too big to fail’, Dodd-Frank allows these big banks and financial institutions to pay lower borrowing costs, with the difference left to be made up by the American taxpayer,” said an explanatory report by Camp’s committee staff.

“While tax reform cannot undo Dodd-Frank, it can and should ensure that Wall Street reimburses the American taxpayer for a portion of the subsidy it receives.”

The proposal has alarmed Washington business lobbyists, which may complicate the already difficult task of moving the legislation through Congress.

House speaker John Boehner and Senate minority leader Mitch McConnell, both Republicans, have indicated that their party may wish to wait until after November’s mid-term elections before attempting tax reform, while many Democrats are big recipients of campaign contributions from Wall Street. Camp’s aides pointed out, however, that the White House has in the past supported the idea of reforming corporate taxes.

If passed, Camp’s package of proposals would be the first major simplification of the tax code since 1986.

Under Camp’s plan, the number of personal income tax brackets would be slashed from the current seven to just two, 10% and 25%, though there would also be a 10% surtax on most people with incomes over about $450,000. Two-hundred and twenty-eight tax breaks would also be repealed.



Camp said the changes would not change the overall distribution of personal tax burdens, and claimed that the overall boost to the economy from the simplification measures would eventually total $3.4tn and create 2 million new jobs over the next decade.

Despite the lack of high-profile Democratic support following the departure of Camp’s Senate partner Max Baucus, who left office to become ambassador to China, Camp insisted in a press conference that his plan retained bipartisan backing.

“This legislation does not reflect ideas solely advanced by Democrats or by Republicans, nor is it limited to the halls of Congress,” he said.

“Instead this is a comprehensive plan that reflects input and ideas championed by Congress, the administration and most importantly the American people.”

Privately, Republican opponents of the bill said it stood little chance of making progress through the House given that many of its measures would give Democrats a chance to make political attacks on the GOP.

“Why would we give Democrats a list of pay-fors to use against us over the next 10 months?” asked one House staffer.