Republicans signal support for Obama's tax cut extension

Republicans in Congress signalled Thursday that they will back Barack Obama's plan to extend tax cuts for another year for about 160 million Americans. But a major obstacle remains, with Republicans and Democrats divided over how to pay for it. The tax cuts are central to the president's drive to stimulate the economy and help reduce unemployment. They are due to end on 31 December unless Congress acts. Congress has been effectively deadlocked all year on a host of issues, with the two sides polarised by ideological differences, a divide exacerbated by intense Republican dislike of Obama and by outside pressures such as the Tea Party movement. But the Republicans do not want to be seen, in the run-up to Christmas, as imposing tax increases on Americans, especially as they pride themselves on being the party of tax cuts. House Speaker John Boehner, at an early afternoon press conference Thursday, said: "The Republicans are ready to work with the president to extend the payroll tax cuts … but they must be offset by spending cuts elsewhere." Sounding more conciliatory than Republicans were last week, Boehner added: "I think there is enough common ground to move this legislation and do so quickly." Obama cut payroll tax last year from 6.2% to 4.2% for the first $106,800 of income to help boost consumer spending. The extension will cost an estimated $120bn. The tax break is worth about $1,000 a year to those earning $50,000. Although the Republican leadership is coming around, many rank-and-file members remain opposed to approving the extension without it being matched by deep spending cuts, and have so far resisted appeals from senior members in the House and Senate. The Democrats want to pay for the cuts through higher taxes on those earning $1m or more, a move the Republicans will defeat. In contrast, Republicans in the Senate Thursday proposed a three-year freeze on federal civilian pay and a reduction in the size of the federal civilian workforce by 10%. In a strange, additional measure, they also propose banning millionaires from receiving unemployment benefit or claiming food stamps. The Democrats are certain to block this proposal, but negotiations are underway on a compromise. Obama, at a campaign fund-raising event in Scranton, Pennsylvania, on Wednesday night said extension of the payroll tax cuts were necessary to avoid a "massive blow" to the economy. He said there had been progress in negotiations with the Republicans.