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Updated Tuesday, December 6, 2011 1:59 pm TWN, By Thomas Ferraro and Donna Smith, Reuters

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Obama, fellow Democrats push tax cut extension

WASHINGTON-- President Barack Obama prodded congressional Republicans on Monday to extend a payroll tax cut, and his fellow Democrats proposed to fund it with spending cuts and a "tiny surtax" on the rich.

Republicans will likely reject the Democratic move, which appears aimed at cranking up pressure on them to compromise and find a way to renew the popular tax break in advance of next year's congressional and presidential elections.

Speaking at the White House, Obama said the tax cut needs to be acted upon before they expire at the end of this month for the sake of millions of Americans and the weak U.S. economy.

"The majority of economists believe it's important to extend the payroll tax cut and ... would lower their growth estimates for our economy if it doesn't happen," Obama said.

Republicans argue that the tax cut, which went into effect last year, failed to stimulate the economy and undermined the Social Security retirement program that it funds.

Senate Republican Whip Jon Kyl said, "There's some very important reasons not to do this again. It doesn't produce a good result and can produce some bad results."

But Kyl noted that he backed the tax break last year because the legislation also extended income tax cuts enacted during the administration of President George W. Bush.

"If we do that again, obviously it would be something I would be supportive of," Kyl said.

Democrats have opposed an extension of the Bush-era tax cuts, contending they swell the record U.S. debt and provide unneeded aid to the very rich.

Without congressional action, the payroll tax that workers pay to help fund the Social Security retirement program would revert to 6.2 percent, up from the current 4.2 percent tax.

Democrats want to temporarily reduce it to 3.1 percent, but have abandoned efforts to extend the tax break to employers.

TINY SURTAX ON THE WEALTHY

As Obama spoke at the White House, Senate Majority Leader Harry Reid took the floor of his chamber and announced a modified proposal to cover the cost of an extension with a "mixture of spending cuts" and a "tiny, tiny surtax" on the wealthiest Americans.

The proposed Democratic extension and expansion of the payroll tax cut would cost about US$185 billion, and save the average American family about US$1,500 next year, aides said.

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