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Senate Republican leader pronounces tax overhaul dead a day before House GOP unveils plan

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WASHINGTON - House Republicans haven't even officially unveiled their massive plan to overhaul the tax code and the top Republican in the Senate is already pronouncing it dead.

Senate Minority Leader Mitch McConnell, R-Ky., said Tuesday he sees no hope for enacting tax overhaul legislation this year. He blamed Democrats for trying to use the issue to raise revenue by $1 trillion. McConnell said the object of overhauling the tax code should be making the nation more competitive, not raising more money for the government.

McConnell's remarks came a day before the Republican chairman of the tax-writing House Ways and Means Committee, Rep. Dave Camp of Michigan, was to unveil a massive tax plan three years in the making.

Camp's plan would cut income tax rates but impose a new surtax on some high-income families, said a GOP aide who wasn't authorized to discuss the plan by name and spoke on condition of anonymity. The top income tax rate for most families would be lowered from 39.6 per cent to 25 per cent. However, the plan would impose a new 10 per cent surtax on some earned income above about $450,000.

The new surtax would not apply to capital gains or dividends, sparing many of the superrich who make the bulk of their money from investments.

The plan had little chance of becoming law in this year even before McConnell's remarks. But 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.

House 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 partially offset the massive rate cut. But the plan would have to raise other taxes on the rich to avoid shifting more of the tax burden to middle- and low-income families.

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.

On Tuesday, White House spokesman Jay Carney said, "We haven't seen the proposal."

Camp has been working to overhaul the entire tax code for about three years, ever since he became chairman of the powerful tax-writing committee. Camp has steadfastly refused to say which tax breaks he would eliminate to pay for lower overall rates.

But Camp is expected to answer those tough questions Wednesday, when he unveils his plan. He is betting that the promise of lower rates and a simpler tax system will shield House Republicans from attacks for proposing to cut popular deductions, credits and exemptions.

Democrats and tax experts question whether Camp can reduce the top income tax rate to 25 per cent without touching some of the most popular tax breaks. Among the largest tax breaks for individuals: exemptions for retirement contributions and employer-sponsored health plans, and deductions for owning a home and paying a mortgage.

Camp's plan would reduce the number of income tax brackets from seven to two. A 10 per cent tax rate would apply to taxable income up to about $75,000 for a married couple filing jointly, the GOP aide said. The 25 per cent tax rate would apply to taxable income above $75,000, with the new 10 per cent 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 health 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.

Camp, however, recently lost his Senate partner when Baucus was confirmed as ambassador to China.

Corporate America has been a big backer of tax reform, arguing that the 35 per cent 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.

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Associated Press writer David Espo contributed to this report.

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Follow Stephen Ohlemacher on Twitter: http://twitter.com/stephenatap

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