Obama Urges Republicans to Pass Payroll Tax Cut

Suggesting Republicans are hypocritical for saying they won't raise taxes but refuse to cooperate on a payroll tax holiday extension, President Obama warned Monday that 160 million people will see an increase in their taxes on Jan. 1 unless Republicans agree to a compromise.

"I know many Republicans have sworn an oath never to raise taxes as long as they live," the president said -- just as Senate Majority Leader Harry Reid was introducing in the Senate a new proposal to extend the tax holiday.

"How can it be the only time there's a catch is when it comes to raising taxes on middle-class families? How can you fight tooth and nail to protect high-end tax breaks for the wealthiest Americans and yet barely lift a finger for taxes going up for 160 million Americans who really need the help? It doesn't make sense," Obama said.

Noting that the jobless rate came down 0.4 percentage points last month -- to 8.6 percent, largely the result of Americans leaving the labor force -- the president said that some Republicans have come around to acknowledging that tax cuts will "put money in the back pockets of working Americans." But, he said, those same lawmakers still insist on paying for the cuts.

"I just point out that they haven't always felt that way. Over the last decade they didn't feel the need to pay for massive tax cuts for the wealthiest Americans, which is one of the reasons we face such large deficits," Obama said. "So forgive me a little bit of confusion when I hear folks insisting on tax cuts being paid for."

That said, the president continued, deficits do need to be brought in check so as not to exacerbate the recovery.

"Congress must act. Although the unemployment rate when down last month, our recovery is fragile," Obama said, adding, "We can not play games with unemployment insurance when there's an unemployment rate that is still way too high."

As Obama spoke, the Senate was convening for the week with Reid offering "compromise" legislation after a Democratic bill offered by Pennsylvania Sen. Bob Casey last week was rejected by the Senate. A Republican version was also cast out over who would pay for the deficit in the Social Security fund that the payroll tax cut will cause.

According to a Democratic aide familiar with the new bill, the Democrats' price tag for the bill goes from $265 billion to $180 billion and removes a tax break for employers that Obama had previously proposed.

The legislation would cut the 6.2 percent employee contribution to the Social Security fund to 3.1 percent, a greater rate than the 2011 payroll tax holiday that reduced the rate by 2 percentage points.

"We will insist on this because we believe $1,500 is needed for your average working family," the aide told Fox News.

Republicans, however, expressed skepticism about the plan, which they claimed they had not even seen before Reid announced it.

"Cherished Fourth Estate," wrote Don Stewart, a top aide to Senate Minority Leader Mitch McConnell, in an email to reporters just before Obama spoke, "If you get a copy of this new 'bipartisan compromise' that Sen. Reid and the president are about to speak about, would you mind forwarding to us? We still haven't been given a copy."

Sen. Orrin Hatch, R-Utah, ranking member of the Senate Finance Committee, also said it's hard for Democrats to call the legislation a "compromise" when Republicans were not consulted about the proposal.

"Frankly, the only thing bipartisan about this latest political gambit is opposition to the permanent tax hike on small businesses to pay for temporary one-year tax policy. With the long list of things Congress has to get done by the end of the year and the clock ticking, it's pretty mystifying that the majority is pursuing more political show votes that won't go anywhere," Hatch said

According to the senior Democratic aide, the legislation calls for a "significantly curtailed" millionaire surtax to pay for it rather than the 3.25 percent that was in last week's proposal. By doing this, Democrats are trying to further the proposal's appeal to Republicans like Sen. Susan Collins, who supported the Democratic version last week. The surtax would expire after 10 years in a nod to GOP concerns that the tax would be permanent.

Democrats also excluded the cost of war savings in its pay-for but did call for means-testing for jobless benefits and food stamps. Republicans had earlier proposed including Medicare in means-testing, but the Democratic plan does not do that.

Small businesses often file as individuals. According to IRS data in 2009, some 2,353 households that reported $1 million in income were able to collect $20.7 million in unemployment benefits. Another 716 households that reported making $2 million collected $6.67 million in income while 18 households reporting $10 million in income collected $222,000 in unemployment.

A House GOP leadership aide said the proposal "moves in the right direction, but the inclusion of the small business tax hike is a 'poison pill' that shows Senate Democrats are aiming to fail so President Obama can attack Republicans."

House Speaker John Boehner's spokesman said Republicans' No. 1 priority is increasing the number of jobs without increasing the deficit.

"If the president wants to make progress, he should insist that Senate Democrats remove the job-killing small business tax hike from their partisan proposal," said spokesman Michael Steel.

Fox News' Trish Turner contributed to this report.