Democrats mull dropping millionaire surtax (Reuters)

WASHINGTON (Reuters) ? President Barack Obama and fellow Democrats on Wednesday considered dropping their proposed surtax on millionaires in a bid to reach a deal with Republicans to extend a payroll tax cut for 160 million Americans set to expire at year's end.

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 other top Senate Democrats, a senior Senate Democratic aide told Reuters.

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

The action comes amid an end-of-year rush in Congress to find deals on several major initiatives beyond the payroll tax cut extension.

The two political parties are still fighting over a nearly $1 trillion spending bill to keep several government agencies operating through the end of the fiscal year on September 30. Without action by Friday at midnight, these agencies would have to close, further eroding sagging public confidence in elected leaders.

Congress also is trying to extend jobless benefits for the long-term unemployed so that those payments do not start phasing out early next year, as well as passing legislation to avoid a cut in government payments to doctors participating in the Medicare healthcare program.

Democrats will not consider making any offer on the millionaire surtax, however, until Republicans agree to negotiate, another Democratic aide said.

"Let's talk in a bipartisan way. Let's see what happens," the aide said. "They have to be willing to talk to get any deal."

Possible tradeoffs for dropping the millionaire surtax could be Republicans backing off their demands to reduce jobless benefits and tighten Medicare eligibility.

The Democrats' proposed 1.9 percent surtax on income above $1 million a year has long been a major stumbling block to a bipartisan deal, and one that many suspected would be dropped.

"They know they have to drop it if they want to get something to pass," a senior Republican aide said.

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.

But there still could be other sticking points between the two parties that would have to be worked out.

Without an extension by the end of this month, 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 next November, as he is already struggling in the polls because of voter frustration with high unemployment.

House of Representatives Speaker John Boehner did not respond directly when asked by a reporter about Democrats possibly abandoning the surtax on the rich.

The Republican-controlled House passed its version of a payroll tax cut bill on Tuesday. It included a provision, opposed by the White House, aimed at accelerating approval of the Keystone XL pipeline project between the United States and Canada.

Senate Democrats have been trying to stage a vote on the House measure - so it can be defeated and thus clear the way for a new round of negotiations - but Republican leaders have so far blocked that move.

Lawmakers had hoped to wrap up their 2011 work session by week's end, but they might have to stay in town until at least early next week.

If a deal cannot quickly be reached on the massive government funding bill, Congress could be forced to pass a very short-term measure to avoid any interruption of government services and give more time to cut a deal.

The stalled spending bill would fund health, education, defense, homeland security and other programs.

Political jockeying over these bills is the latest example of the gridlock in Washington that has driven public confidence in Congress to record lows.

"That is the kind of stuff that is driving the American people bat crazy right now and we have to stop it," Democratic Senator Claire McCaskill, told reporters.

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

Source: http://us.rd.yahoo.com/dailynews/rss/obama/*http%3A//news.yahoo.com/s/nm/20111215/ts_nm/us_usa_taxes

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