US & Canada

Obama pushes payroll tax cut extension in Pennsylvania

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Media captionPresident Obama said Republicans were protecting the wealthiest Americans at the expense of the middle class

US President Barack Obama has warned of a "massive blow" to the economy should Republicans oppose his calls to extend a payroll tax cut for workers.

Speaking in Pennsylvania, a key swing state, Mr Obama said Congress could vote on the measure on Friday.

Congressional Republicans dropped their resistance to the proposal this week, but said they want the cost offset.

They oppose President Obama and fellow Democrats' proposal of financing the measure with taxes on the wealthiest.

Mr Obama's trip on Wednesday to the city of Scranton, his first since he took office, was seen as an attempt to woo white working-class voters, whom pollsters say he has struggled to win over.

Political high ground

Failing to extend the payroll tax cut would "be a massive blow for the economy, because we're not fully out of the recession yet", he said.

The president echoed a message he delivered last week in Manchester, New Hampshire, another crucial swing state: Republicans must not protect the wealthiest Americans at the expense of the middle class.

"Are you going to cut taxes for the middle class and those who are trying to get into the middle class or are you going to protect massive tax breaks for millionaires and billionaires?" he told a crowd of about 2,000 people at a high-school gym.

"Don't be a Grinch," he said. "Don't raise taxes on Americans during the holidays."

Democrats could vote in the Senate this week on their plan to pay for the extension by levying a 3.25% surtax on those earning $1m or more, even though such a measure could not pass.

Republicans say such a plan would slow the economy and harm small businesses. They are reportedly working on a counter-proposal to offset the cost by extending a pay freeze for federal workers.

Speaking on the floor of the Senate on Wednesday, Republican Minority Leader Mitch McConnell said: "This is not an argument about whether or not we ought to extend the payroll tax cut.

"The issue is how do you pay for that. And we have differences of opinion about that."

Until this week, Republicans had not shown much willingness to support extending the tax break.

Pennsylvanian problem

Before any deal can be agreed, correspondents say both parties are scrambling for the political high ground, with an eye on the 2012 elections nearly a year away.

The 2% payroll tax cut introduced last year saved about $1,000 for most families, but is due to expire at the end of this year, affecting 160 million Americans.

Under the American Jobs Act unveiled in September, President Obama would further cut the payroll tax and half it for employers.

Separate from federal and state income taxes, The payroll tax helps to finance retirement and medical insurance for the elderly.

Pennsylvania has voted Democratic in the last five presidential elections, but support for Mr Obama has waned.

Unemployment in the state stands at 8.1% - below the national average of 9% - but in the coal mining country around Scranton joblessness is as high as 9.7%.