U.S. Republican budget plan seeks to play up tax reform

Mon Mar 19, 2012 7:59pm EDT

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* Republicans propose two tax brackets - 10 pct, 25 pct

* No taxation of U.S. company overseas profits sought

* Plan seen contrasting with Obama, deflect Medicare criticism

WASHINGTON, March 19 (Reuters) - A much-anticipated budget plan due on Tuesday from Republicans in the U.S. House of Representatives includes sweeping tax reforms that cut rates and pare down individual income tax brackets from six to two - 10 percent and 25 percent.

The plan, which aims to deflect potential fallout from controversial Medicare reforms ahead of November elections, also would nearly eliminate U.S. taxes on overseas profits and reduce the domestic corporate tax rate to 25 percent.

Even though the plan has almost no chance of becoming law, Republican lawmakers believe that focusing on tax reform will draw a stark contrast with Democratic President Barack Obama's budget plan and be popular with voters.

"We wanted to put a very clear jobs message into the budget," House Ways and Means Committee Chairman D ave Camp told Reuters.

"This really sets a contrast between us and what the administration is trying to do. They want to raise taxes. We want to grow our economy, simplify our tax code and make it fairer," Camp said.

The plan also would end the Alternative Minimum Tax, which was originally aimed at the wealthy but increasingly threatens to ensnare more middle-class taxpayers because it was never indexed for inflation.

Camp and House Budget Committee Chairman Paul Ryan, who is to unveil the budget plan on Tuesday, first released the details of their tax plan in a Wall Street Journal interview published late on Monday.

They did not release details of how the budget plan will reform Medicare, the popular but increasingly expensive health care program for the elderly. Ryan last year proposed to change traditional fee-for-service Medicare into a voucher-like system that allowed beneficiaries to purchase private health insurance.

In a slick YouTube video previewing his budget, Ryan said only that "real, specific reform is needed to strengthen the health and retirement security of seniors."

"Our plan includes no changes for those in or near retirement and, instead of government bureaucrats, puts patients in control of their health care decisions," Ryan said.

SPENDING CAP DISPUTE

The lawmakers in the interview also did not include details on cuts to government agency budgets and other discretionary programs that House Republicans have been arguing over for the past week.

Conservative members wanted to go as much as $116 billion below a $1.047 trillion spending cap agreed with Democrats last August, but Republican aides said the budget contains a more modest $19 billion reduction. Some conservatives, including those supported by the Tea Party movement, may still balk at this figure.

Republican congressman Tom Cole, a member of the House Budget and Appropriations committees, said the Ryan budget has sufficient support for House approval if is not altered through amendments.

"If the budget that Ryan introduces is kept intact, it will pass the Committee and the House," Cole said. "This is a finely crafted compromise that all parts of the Republican conference need to support if they want to actually pass a budget."

But Democrats, who see the reduced discretionary spending levels as breaking the debt-limit deal, have warned that it could play havoc with spending bills and again threaten a government shutdown later this year. (Reporting By David Lawder, Donna Smith and Richard Cowan. Editing by Christopher Wilson)

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