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Obama Says Congress ‘Must Act’ on Payroll Tax Cut Extension

President Barack Obama said keeping a temporary cut in the payroll tax through next year is crucial to sustaining the recovery and criticized Republicans for resisting Democratic proposals to extend it.

The U.S. economy still faces headwinds, including the debt crisis in Europe, Obama said at the White House.

“Although the unemployment rate went down last month our recovery is still fragile,” Obama said. “Now’s the time to step on the gas.”

Obama and congressional Democrats have been seeking a path to keeping the payroll tax cut in place for 2012. Republicans have opposed proposals by the administration to raise taxes for the wealthiest Americans to offset lost revenue.

Senate Majority Leader Harry Reid is proposing a revised plan to continue a cut in the payroll tax deduction for employees. Reid would drop an accompanying payroll-tax cut for employers and impose a surtax on millionaires that would expire in 10 years.

The plan would the payroll tax paid by employees to 3.1 percent from the current 4.2 percent. Eliminating the proposed tax cut for employers would shrink the cost of the package to about $180 billion over 10 years from $265 billion, according to a Democratic aide.

Reid is tweaking the Democratic measure in an attempt to win some Republican support and secure the 60 votes that would be needed to advance the legislation.

GDP Impact

Unless Congress acts, the current payroll tax cut -- which lowered the employee portion of the Social Security payroll tax from 6.2 percent to 4.2 percent for 2011 -- will expire on Dec. 31. Mark Zandi, the chief economist at Moody’s Analytics, has said failure to extend the payroll tax cut into 2012 could cause U.S. gross domestic product to shrink by at least 0.5 percentage point during 2012.

“This isn’t just a political fight,” Obama said. Without action by Congress, 160 million Americans would see their taxes rise at the start of the new year, he said.

The Labor Department said Dec. 2 that the nation’s jobless rate fell to 8.6 percent in November from 9 percent the month before after employers added 120,000 jobs and 315,000 Americans left the labor force. The rate was the lowest since March 2009.

Obama’s economic aides said last week that more needs to be done to accelerate the pace of hiring to make up for the more than 8 million jobs lost during the recession that started in December 2007 and ended more than a year later.

Obama will travel to Osawatomie, Kansas, tomorrow to give a speech on the economy. President Theodore Roosevelt, a Republican, visited Osawatomie calling for a “new nationalism” more than 100 years ago. Obama is seeking to capitalize on a connection with Roosevelt, who said then: “I stand for the square deal.”

The ideas that Roosevelt put forward “are very much at issue today and the president’s speech will encapsulate the debates we’ve been having this year,” White House press secretary Jay Carney said.

To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net; Margaret Talev in Washington at mtalev@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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