WASHINGTON—Aides to President Barack Obama are proposing a one-year reduction in the payroll tax as part of negotiations with Congress on a broader package to stave off income-tax increases due to take effect next year. Under the White House plan, the Social Security tax paid by workers would drop temporarily by 2 percentage points, to 4.2% from 6.2%, a person familiar with the proposal said. For a worker earning $40,000, the tax savings would be $800.
The proposal has not won the approval of congressional Democrats or Republicans. Its emergence in the broader tax negotiations is a sign that the White House is trying to break the logjam on those talks before the end of the year, when tax cuts signed into law by former President George W. Bush are due to expire.
White House officials proposed the cut as a way to stimulate the economy, said the person familiar with the talks. The proposal would take the place of an earlier White House push to extend Mr. Obama's signature Making Work Pay tax cut, which reduced income taxes for middle-income individuals by $400 a year.
Republicans had adamantly opposed extending Making Work Pay, and House Democrats were cool to it, as well. But Mr. Obama and Democrats are likely to accept a Republican demand that the Bush-era tax cuts be extended even for wealthy taxpayers, and the White House is looking for more in return for agreeing to extend the cuts for higher earners.
Write to Jonathan Weisman at jonathan.weisman@wsj.com and John D. McKinnon at john.mckinnon@wsj.com
