WASHINGTON, Oct 26 (Reuters) - The Obama administration is considering a possible tax cut that would increase workers' take-home salaries and replace the payroll tax reduction set to expire at the end of the year, The Washington Post reported on Friday.
Citing sources familiar with the administration's thinking, the newspaper said the new tax reduction could add hundreds of dollars to employees' annual pay and show up in every paycheck.
The Post said the administration believed the economy could use further stimulus despite signs of improvement.
Obama is locked in a tight re-election battle with Republican challenger Mitt Romney in which the struggling economy is the main issue. Obama has proposed letting Bush-era tax cuts expire for the wealthy, but Romney has said tax increases would damage the economy.
The payroll tax first implemented in 2011 at Obama's request was designed to help provide people an economic cushion, but critics have questioned relying on a measure that cuts funds from the Social Security retirement system.
The Post said the Obama administration wanted to match the benefits of the payroll tax reduction without tapping into Social Security revenues.
Regardless of the election outcome, the country faces a ``fiscal cliff'' of automatic across-the-board spending cuts and tax increases for the end of the year unless the White House and Congress can strike a deficit reduction deal.
Obama told the Des Monies Register on Tuesday that he was confident that if re-elected, he would secure within six months a deficit-reduction deal with Republicans equivalent to the ``grand bargain'' he failed to achieve last year.
The goal of such a deal would be to achieve $4 trillion in deficit reduction over 10 years.