NEW YORK (Reuters) ? President Barack Obama struck an optimistic note on Wednesday night that lawmakers in Congress could reach agreement to extend payroll tax cuts he said earlier were needed to avoid a "massive blow" to the economy.
At a fundraiser at a New York restaurant, the Democrat said Republican congressional leaders John Boehner and Mitch McConnell had indicated in the past few days they were open to the one-year extension that Obama wants to bolster the economy.
"It is possible that we see some additional progress over the next couple of weeks that can continue to help strengthen the economy and get us through what has been a very difficult period, not just for the United States but obviously for the world economy," Obama told the campaign event.
But he warned the U.S. economy faced "a lot of headwinds" and that "Europe is probably the biggest one."
"I spend an awful lot of time making transatlantic calls because if you look at what is happening in Europe, both to the banks and for countries like Italy that need to refinance their debt, that can have a profound impact on what happens here," he told the crowd of about 45, who paid $35,800 each to attend.
"I am cautiously hopeful that they end up recognizing that they do need to do the right thing and we are providing them as much assistance as we can to make sure that the situation is stabilized because it will have impact all around the world," he said.
Obama's upbeat tone on payroll taxes marked a pivot from his campaign-style rally earlier in the day in Scranton, Pennsylvania, a battleground state considered crucial to his re-election chances in the 2012 presidential election.
He told nearly 2,000 students and voters there he wanted to finance the payroll tax proposal by raising taxes on wealthier Americans, challenging Republicans to make a choice in a congressional vote he said could come as early as Friday.
"Are you going to cut taxes for 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 asked, striking a populist tone on a visit to the blue-collar town.
REPUBLICANS UNVEIL OWN PLAN
Republicans, who are seeking to blunt Democratic charges of favoring the rich over the middle class before next year's vote, rolled out their own plan to cover the cost of extending the payroll tax cuts.
Under the Republican plan unveiled on Wednesday, the tax cut extension would be funded mainly by reducing the number of federal workers and extending a pay freeze for them for three more years. The plan would achieve smaller savings by tightening some eligibility requirements on unemployment and food stamp benefits.
A summary of the Republican plan said millionaires and billionaires would be forced to pay higher premiums for the government-backed Medicare insurance program for the elderly.
Without congressional action by December 31, the payroll tax that workers pay would revert to 6.2 percent, up from the current, temporary 4.2 percent tax. On average, it would cost American families about $1,000.
Senate Democrats will press as early as this week for a bill that would cut the payroll tax further, to 3.1 percent and also drop it to that level for employers. It would make up for the lost revenue with a new 3.25 percent tax on income over $1 million a year, an idea Republicans strongly oppose.
Some economists have estimated that allowing the payroll tax cut to die would shave anywhere from 0.75 percentage point to 1.5 percentage points from economic growth.
Obama said in Pennsylvania that if Congress did not extend the payroll tax cuts, middle-class taxes would go up "at the worst possible time."
"It would be tough for you," he said. "It would also be a massive blow to the economy because we're not fully out of the recession yet." His re-election is expected to hinge on whether he can spur the economy and curb 9 percent unemployment.
Congressional approval could help avert an end-of-year battle following months of bitter partisan disputes that have fed public perceptions of political dysfunction in Washington.
(Additional reporting by Thomas Ferraro and Richard Cowan; Writing by Matt Spetalnick and Laura MacInnis; Editing by Peter Cooney)
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