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Top House tax lawmaker trains sights on small businesses

House Ways and Means Committee Chair Dave Camp (R-MI) questions U.S. Secretary of the Treasury Timothy Geithner in Washington February 15, 2
House Ways and Means Committee Chair Dave Camp (R-MI) questions U.S. Secretary of the Treasury Timothy Geithner in Washington February 15, 2

By Kim Dixon

WASHINGTON (Reuters) - The top tax law writer in the House of Representatives will pitch a plan to revamp the taxation of many small businesses, and some large ones, on Tuesday in his latest bid to rewrite the tax code.

Dave Camp, chairman of the House Ways and Means Committee, has said he wants to pass tax reform legislation this year. But the Michigan Republican faces an uphill climb with his party and the Democrats deeply split on tax-and-spending policies.

Camp's plan, not yet released, will seek to overhaul small business taxes, but also cover businesses not organized as traditional corporations, often known as "pass-throughs."

These businesses include structures such as partnerships, in which profits are not retained by the business or distributed to corporate shareholders, but rather, are passed through to the partners, who are taxed on that income. The top income tax rate since the beginning of the year is 39.6 percent.

That is higher, by contrast, than the top corporate income tax rate of 35 percent, though many large corporations do not pay that rate thanks to tax breaks for selected industries.

Pass-throughs range from Mom-and-Pop storefronts to global hedge funds and law firms. About 53 percent of the $1.3 trillion in total business income in this category will be reported in 2013 on returns of taxpayers earning at least $200,000, according to the nonpartisan congressional Joint Committee on Taxation.

The two parties have sparred over small business taxes. Republicans steadfastly oppose higher rates on wealthier individuals, whom Republicans call job creators. Obama and most other Democrats repeatedly have proposed raising the top tax rates paid by the wealthy.

The Democrats won a key round in this fight in January with a deal ending the "fiscal cliff" stand-off that raised the top tax rate on individual income above $400,000.

Democrats want more new tax revenue, presenting a major hurdle to fundamental tax reform, given Republicans' opposition to this, as highlighted in comments by Camp's Republican counterpart in the Senate on Monday.

"It has become more and more common for my friends on the other side of the aisle to argue in favor of simply eliminating so-called tax loopholes in order to raise revenue, and then calling that process quote-unquote tax reform," Orrin Hatch, the top Republican on the Senate Finance Committee said on the Senate floor.

The top Democratic taxwriter, Senator Max Baucus, is also pitching tax reform, but has had disagreements with Senate leaders over the details.

Camp's draft is likely to include some non-controversial measures, like making permanent a tax break for writing down the cost of equipment for certain business.

The Obama administration has floated the idea of forcing large businesses now taxed as pass-throughs to file as corporations instead, something Republicans have resisted.

(This story corrects Camp's home state in paragraph 2)

(Reporting by Kim Dixon; Editing by Leslie Gevirtz)

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