House Ways and Means Committee Chairman Charles Rangel (D-N.Y.) unveiled a sweeping tax overhaul on Thursday that he hailed as a fairer way to spread tax relief, but Republicans attacked the move as a blunder that could cost Democrats in the next election.

The legislation would rearrange the tax code, granting tax relief to 90 million Americans and cutting the corporate tax rate while shifting the burden onto higher earners, including managers of private equity and hedge funds. It would also permanently shield taxpayers from the Alternative Minimum Tax (AMT).

Republicans pounced, denouncing the plan as the biggest tax increase on Americans in history.

“Very seldom in politics do your opponents give you this kind of gift,” Rep. Roy Blunt (Mo.), the second-ranking House Republican, said.

The business lobby also criticized the plan. “I can’t think how this is going to be well-received by the business community,” said Bruce Josten, the executive vice president of government affairs at the U.S. Chamber of Commerce.

The long-awaited legislation is an attempt to follow through on the Democrats’ vow to fix the AMT, a parallel tax system that was intended to ensure the wealthy pay enough in taxes but that is increasingly ensnaring the middle class.

But Rangel’s plan goes further by overhauling the corporate code, increasing the standard tax deduction and expanding, the refundable child tax credit and the earned income tax credit. 

To pay for the tax relief, Rangel has proposed more than $1.3 trillion in tax increases, including a 4 percent surcharge on individuals and families on income above $150,000 and $200,000, respectively. That surcharge rises to 4.6 percent on individual and family income above $200,000 and $500,000.

It also assumes the expiration of the Bush tax cuts of 2001 and 2003.

Even though it would slash the corporate tax rate from 35 percent to 30.5 percent, the plan would do away with some widely-used business provisions that reduce companies’ tax bills, such as the lease-in, sale-out accounting method. “Very few” corporations pay the 35 percent rate, Josten said.  

It would also more than double the tax rates on the so-called carried interest earned by investment managers in the private equity, hedge fund and real estate industries.

Rangel plans to wait until next year to push his tax overhaul. But he will extract provisions from the legislation in the coming weeks to patch the AMT for one year and extend a package of popular business tax breaks.

That narrower bill could set up a confrontation with Senate Democrats, because Rangel said it will be offset by the tax increase on carried interest and a provision preventing hedge fund managers and other wealthy individuals from deferring income in offshore tax havens.

Senate Democrats have long been wary about a tax increase to pay for the repeal of the AMT, and on Thursday, Senate Majority Leader Harry Reid (Nev.) and Sen. Charles Schumer (N.Y.), the third-ranking Senate Democrat, said they wouldn’t divulge their views on Rangel’s legislation. Reid previously has indicated that he isn’t planning on moving carried interest this year.

Rangel’s proposal puts them in a tough position: back an increase in taxes or forgo pay-go rules that they have touted as a hallmark of their fiscal discipline.

Reid said he had yet to review Rangel’s plan, but suggested he would follow the lead of the Finance Committee chairman, Sen. Max Baucus (D-Mont.), who has signaled that he is leaning against offsetting a one-year AMT patch. “I’m very dependent on our Finance Committee,” Reid said.

Schumer acknowledged the problem Democrats face. “We have stood for pay-go, we believe in pay-go. The AMT is a big-one. . . it’s a difficult one to figure out,” he said.

Asked whether she would stand by Rangel on insisting the one-year patch be offset, House Speaker Nancy Pelosi (D-Calif.) said, “Absolutely, pay-go is a defining principle of the House Democrats.”

Republicans denounced Rangel’s legislation as a recipe for wrecking the economy. They said the proposed surcharge on individuals would hurt small businesses owners who pay taxes under the personal code and crimp consumer spending at a delicate moment in the business cycle.

“Frankly, you have to wonder, you have to wonder whether his plan is even going to be taken seriously by his own members,” Rep. Adam Putnam (Fla.), a member of the Republican leadership, said.

Rep. Jim McCrery (La.), the top Republican on the Ways and Means Committee, praised Rangel for putting forth a plan, but said it was flawed because the chairman is “constrained by the straitjacket that the Democratic rules have put him in.”