Democrats weigh dropping millionaire tax proposal (Reuters)

WASHINGTON (Reuters) ? President Barack Obama and fellow Democrats are considering dropping a surtax on millionaires to pay for a payroll tax cut for U.S. workers, a move that would remove a major stumbling block to a compromise deal with Republicans.

Obama discussed the possibility of abandoning the millionaire tax, which Republicans strongly oppose, at a White House meeting with Senate Majority Leader Harry Reid and fellow Democrats, a Senate Democratic leadership aide told Reuters.

If Democrats drop the plan to impose a 1.9 percent surtax on income above $1 million a year, it would clear the way for negotiations with Republicans on a deal before the payroll tax cut, which affects 160 million Americans, expires on December 31.

The tax proposal was seen by some congressional aides as the Democrats' main bargaining chip, one they might be willing to give up if Republicans abandoned an effort to speed up a decision by Obama on the Keystone XL oil pipeline project between the United States and Canada.

Without an extension, the payroll tax would revert to 6.2 percent from the current 4.2 percent, resulting in an average increase of $1,000 per family. Independent economists have warned that could hurt the country's fragile economic recovery.

Any setback for the economy would hurt Obama's re-election chances at a time when he is already struggling in the polls because of voter frustration with high unemployment.

"It remains to be seen if we will drop it," a senior Democratic aide said. "But we want to strike a deal and get this done."

There was no immediate response from the Republican congressional leadership.

The Republican-controlled House passed its version of a payroll tax cut bill on Tuesday. It included a provision on the Keystone pipeline. Senate Democrats said they would kill the bill when it came up for a vote.

(Additional reporting by Matt Spetalnick, Rachelle Younglai and Caren Bohan; Writing by Ross Colvin)

Source: http://us.rd.yahoo.com/dailynews/rss/obama/*http%3A//news.yahoo.com/s/nm/20111214/ts_nm/us_usa_taxes

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