WASHINGTON — A top House Republican unveiled an ambitious plan to overhaul the tax code Wednesday, taking aim at long-protected loopholes for mortgage interest deductions, corporate jets and Wall Street pay.
The plan would also lower top rates to 25% for most individuals and corporations from 39.6% and 35%, respectively. The wealthiest households, those earning more than $450,000 a year, would have a 35% tax rate.
But it has little chance of becoming law. The White House cautiously welcomed the effort, but top Republican leaders in Congress — including House Speaker John A. Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) — showed little interest in putting GOP lawmakers in the potentially uncomfortable position of compromising with President Obama as the midterm election approaches.
Even without a foreseeable path to approval, the proposal was quickly criticized by organizations representing the long list of industries that would lose special tax treatment. Banks, investment houses and others all warned against unfairly targeting one section of the economy over another.
Still, the proposal from Rep. Dave Camp (R-Mich.), chairman of the House Ways and Means Committee, won praise from budget hawks for its bold approach to an issue that has perplexed Congress. Since the last major overhaul in 1986, the tax code has grown increasingly complicated. Some lawmakers say it gives preferential treatment to Americans who are able to hire accountants and benefit from deductions.
"The truth is, people want a simpler, fairer and flatter tax code," said Camp, who is expected to step down from the chairman's post next year because of term limits imposed by Republicans in the House.
The proposal meets the longtime Republican goal of reducing the top tax rate to 25% for both individuals and corporations.
Camp wants to shift individual income tax filers away from itemizing their deductions, and instead have them take an enhanced standard deduction — which would almost double to $11,000 for singles and $22,000 for married couples. Child tax credits would also increase.
But the proposed elimination of long-standing tax loopholes ensures the proposal will be a political lightning rod for lawmakers in both parties.
Gone would be the special treatment for hedge fund managers and Wall Street's private equity firms, which would no longer be able to count their compensation, called carried interest, as capital gains, which has a lower top tax rate of 20%. Instead, those earnings would be taxed as ordinary income, something Republican and Democratic lawmakers have resisted.
The $1-million cap on home loans eligible for the mortgage interest deduction would be slashed to $500,000 by 2018, with the phase-out starting in 2015 — a particular concern for lawmakers from areas with high housing costs.
The depreciation deduction on corporate jets, long in lawmakers' sights as a symbol of special treatment, would be eliminated.