WASHINGTON (Reuters) ? A pay freeze for federal workers would be extended for another three years as part of a Senate Republican plan offered on Wednesday to cover the cost of President Barack Obama's call to extend a popular payroll tax cut.
The Republican proposal, deemed unacceptable by Democrats who control the Senate, would also achieve savings by reducing the size of the federal workforce and tightening eligibility requirements for jobless benefits, food stamps and the Medicare healthcare program for the elderly.
Senator Dean Heller proposed the funding mechanism, which was embraced by Republican leadership.
"This bill will provide some relief to struggling workers who continue to need it but without raising taxes on job creators, which is what the Democrats' proposal would do," said Senate Republican Leader Mitch McConnell.
The Republican plan would help workers by extending a payroll tax cut, but hurt those in the federal workforce by extending for another three years a two-year pay freeze approved by Congress at the request of Obama in December 2010.
Senate Democrats have an alternative proposal to renew and expand the payroll tax cut and cover the cost with a new tax on annual income of more than $1 million.
Republicans oppose any additional tax on the wealthy, saying it would undermine job creation and the fragile U.S. economy.
Until earlier this week, Republicans had been lukewarm, at best, to extending the payroll tax cut. But they have come under political pressure to do so in advance of next year's presidential and congressional elections.
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.
Adam Jentleson, a spokesman for Senate Majority Leader Harry Reid, said the Democratic plan "would put more money in the pockets of middle-class families and create more jobs."
Jentleson added that now that Republicans "have seen the light" and are backing a payroll tax cut extension, "We look forward to working with them to negotiate a consensus solution."
(Reporting by Thomas Ferraro and Richard Cowan; Editing by Eric Walsh)
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