Obama pushes payroll tax cut extension in Pennsylvania

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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.

Correspondents saw Mr Obama's trip on Wednesday to the city of Scranton, his first since he took office, 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 may 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."

Republicans had not warmed to the idea of extending the tax break until earlier this week.

With nearly a year until the 2012 elections, correspondents say both parties are scrambling for the political high ground before any deal can be agreed.

The 2% payroll tax cut introduced last year saved around $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 the payroll tax on employers.

The payroll tax, which is separate from federal and state income taxes, helps 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%.