WASHINGTON (Reuters) - In a bid to end a worsening standoff over extending a tax break for Americans, President Barack Obama called on Republican House of Representatives Speaker John Boehner on Wednesday to pass a short-term extension and return to talks on a year-long deal in the New Year.

While Boehner showed no immediate signs of backing down on his demand that Congress tackle the long-term deal to extend a payroll tax cut before it expires at year's end, calls for compromise in his own party grew. With 2012 elections looming, some Republicans fear they will be blamed for letting the tax bill rise on January 1 for 160 million Americans.

Obama telephoned Boehner and Senate Majority Leader Harry Reid, a Democrat, to stress his willingness to work with Congress to get an agreement on the expiring payroll tax cut, White House spokesman Jay Carney said.

Obama asked Boehner and House Republicans to drop their opposition to a short-term measure that the Senate passed overwhelmingly at the weekend and signaled an unwillingness to reopen negotiations now, as Republicans are demanding.

Obama and many economists say the payroll tax cut is crucial to the country's fragile economic recovery.

"The president reiterated the need and his commitment to work with Congress to extend the payroll tax cuts for the entire year," Carney said, adding that the two-month extension negotiated by the Senate was "the only option to ensure that middle class families are not hit with a tax hike in 10 days." Scenarios: How tax fight could play out.

While Obama is not reopening talks, his gesture on Wednesday might be seen as a nod to Republican demands. It came just hours after Republican House Majority Leader Eric Cantor called for the president to get directly involved to resolve the dispute.

Meanwhile, House Republicans have been coming under heavy fire from fellow Senate Republicans and conservatives over their refusal to consider the two-month deal eked out by the Senate leadership on Friday night. Senate negotiators had been unable to agree on how to pay for a longer-term extension.


"The smartest thing for (House Republicans) to do would be to pass this (bipartisan Senate bill), live to fight another day and then push for a full-year extension," a senior Senate Republican aide said.

"If and when paychecks get smaller, people are going to ask, 'Why?'" the aide said. "We (Republicans) get the blame, Washington gets the blame and it won't be great for Senate Democrats either," the aide said.

Congressional aides on both sides said it was difficult to predict the next moves. But a Republican aide who hoped his party would do a deal said House Republicans could make minor changes to the Senate bill, pass it and then send the measure back to the Senate for final congressional approval.

The standoff caps a tumultuous year in U.S. politics that has raised serious concerns among both voters and investors about Washington's ability to make sound economic policy and slow the growth of its trillion dollar-plus deficit.

In the final days of the payroll tax cut debate, Republicans

are in unfamiliar territory after a year of largely winning the battle on taxes and budgets. They are now struggling to live up to their reputation as the party of lower taxes, while hardball tactics that had served them well before might now backfire.

Boehner's control over his caucus, which includes many Tea Party movement-aligned fiscal conservatives, has also come under increased scrutiny after House members revolted against the Senate deal.

Senate Democrats, sensing they have a political advantage on an issue that has sharply divided Republicans in the Senate and the House, are refusing to reopen negotiations. Most have already left Washington for the holidays.

The showdown has the potential to deliver a political lift to Obama and his Democrats at the expense of Republicans who want to make 2012 a referendum on Obama's handling of the economy.

"Obama doesn't have to offer that much right now," said Julian Zelizer, a political historian at Princeton University. The Republicans are the ones that have come out looking bad. Obama isn't putting much on the table beyond saying 'think twice about this and let's reach an agreement.'"

Obama seemed to agree. After the calls to Boehner and Reid, he went Christmas shopping with the family dog Bo while his wife and daughters waited for him to join them in Hawaii.


The day started off with mounting pressure on Boehner and House Republicans to end the standoff, from Reid to fellow Republicans to the opinion page of the Wall Street Journal.

As the war of messages escalated, Boehner called reporters, photographers and TV crews to a room on Capitol Hill where he sat at a high-glossed wooden table flanked by Cantor and eight House Republican negotiators.

"We are here ready to do our work," Boehner said. Across the table were the empty chairs reserved for the Democratic negotiators.

An editorial in the Wall Street Journal, which has often disagreed vehemently with Obama's economic policies, gave Republicans a scathing critique of their handling of the payroll tax cut issue, saying they "achieved the small miracle of letting Mr. Obama position himself as an election-year tax cutter."

The editorial urged Republicans "to cut their losses and find a way to extend the payroll holiday quickly."

The Wall Street Journal editorial page often gives insight into the thinking of leading conservatives in U.S. business and politics. Wednesday's editorial, headlined "The GOP's Payroll Tax Fiasco" suggests widespread anxiety among conservatives over the House Republican tactics. The Republican Party is often called the GOP (Grand Old Party).

If the Congress cannot reach a deal by December 31, the payroll tax American workers pay to fund the Social Security federal retirement program will rise immediately to 6.2 percent, from 4.2 percent.

Many economists and the White House warn that U.S. economic growth will suffer in 2012 as most workers would be hit with an effective $1,000-a-year tax hike.

One sector of the economy - the payroll servicers that do the payment plumbing for other businesses - is already suffering.

The uncertainty in Washington "is really wreaking havoc as far as processing payrolls," said Valerie Bennett McLaughlin, CEO of Qual-i-Tax Inc. in Annapolis, Maryland.

(Writing by Ross Colvin and Mary Milliken, additional reporting by Caren Bohan, Laura MacInnis, Kim Dixon and Paul Eckert; Editing by Vicki Allen and Paul Simao)

Source: Reuters US Online Report Top News

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