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UPDATE 1-U.S. Republican offers ambitious, but stillborn, tax overhaul

WASHINGTON, Feb 26 (Reuters) - The U.S. House of Representatives' top tax writer released a comprehensive tax code overhaul on Wednesday, but it was widely seen as dead-on-arrival in a Congress still deeply divided over fiscal policy.

Michigan's Dave Camp, the Republican chairman of the House Ways and Means Committee, called for simplifying the tax code by sharply reducing both tax rates and many widely used provisions that reduce taxable income.

Reaction was mixed, with analysts saying that the practical short-term impact of the Camp plan would likely be negligible, although it could serve as a model for further debate.

"We're not naive - there won't be tax reform this year," Greg Valliere, chief political strategist at Potomac Research Group, said in a client note.

"Republicans already are scrambling to distance themselves from Rep. Dave Camp's proposal ... since it hikes taxes on the rich and banks, eliminates the carried interest tax dodge and would kill scores of popular tax breaks," Valliere said.

Asked about Camp's plan, Speaker of the House John Boehner of Ohio said it was only the start of a long "conversation ... It's just an outline, a discussion draft."

Camp's plan was extremely detailed and called for a number of bold steps, including:

- Reducing the number of tax brackets to three from seven, with tax rates of 10, 25 and 35 percent;

- Increasing most taxpayers' standard deductions and child tax credits, but eliminating personal exemptions;

- Taxing long-term capital gains and dividends as ordinary income, but exempting 40 percent of that income from any tax;

- Repealing the alternative minimum tax for individuals and businesses; and

- Cutting the top corporate income tax rate to 25 percent from 35 percent.

'CARRIED INTEREST' TARGETED

Camp said his plan would "clean up" the carried interest provision that lets private equity partners and other financial interests pay lower taxes on large portions of their incomes.

He also said his plan would end a depreciation provision in the tax code that favors private jet owners. That provision and the carried interest loophole have both been targeted in the past by President Barack Obama.

The Camp plan also includes a tax on banks resembling one that Obama once proposed for financial institutions with assets exceeding $50 billion.

White House spokesman Josh Earnest told reporters aboard Air Force One that Camp's proposal was a "positive development." Earnest said the White House was encouraged by proposals to close the corporate jet and carried interest loopholes.

Adding that the White House also had concerns about the plan, Earnest said: "Congressman Camp's proposal appears to actually add to the long-run deficit."

Reflecting the response of a wide range of special interest groups, the Bond Dealers of America said it was "concerned" about Camp's idea for a 10-percent surtax on high incomes that "could negatively impact municipal bonds."

The tax code has not been thoroughly overhauled in 27 years despite complaints about its complexity and its many loopholes.

There is little prospect of reform in 2014, U.S. Senate Republican leader Mitch McConnell of Kentucky said on Tuesday.

"I have no hope for that happening this year," he told reporters at the U.S. Capitol, blaming lawmakers' stubborn fiscal gridlock on Democrats seeking tax increases.

INTEREST GROUP OPPOSITION

One of the main obstacles to reform is the abundance of tax breaks in the code that benefit corporations and individuals, lowering the effective tax rates of both and giving them ample reason to resist tax changes that would harm their interests.

Many of the most profitable U.S. corporations paid little or no federal income tax from 2008 to 2012, according to a five-year study issued on Tuesday by a tax activist group.

Citizens for Tax Justice looked at 288 profitable Fortune 500 companies and said 26 of them paid no federal income tax in the period, while 111 of the 288 paid no federal income tax in at least one of the five years measured.

"Corporate lobbyists incessantly claim that our corporate tax rate is too high, and that it's not 'competitive' with the rest of the world," said Robert McIntyre, director of Citizens for Tax Justice and the study's lead author.

"Our new report shows that both of these claims are false," he said. McIntyre said most large corporations pay nowhere near the statutory 35 percent U.S. corporate income tax rate.