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Tax on rich will pay for Obama jobs plan: Democrats

By Richard Cowan and Thomas Ferraro

WASHINGTON (Reuters) - Senate Democrats want to hit millionaires with a 5 percent surcharge on their taxes to pay for President Barack Obama's $447 billion jobs program, but the plan seems to be going nowhere in the divided Congress.

Obama's fellow Democrats in the Senate proposed the funding Wednesday as they tried to rally support within their own ranks for Obama's uphill bid to revitalize the economy.

Senate Democratic leader Harry Reid said he aims to hold votes within days on the president's proposal.

Republicans have denounced it as a political gimmick that they seem ready to block.

Repeated attempts to raise taxes on millionaires have come up short in the Senate in the past couple of years.

"The definition of insanity is doing the same thing over and over again expecting different results," said Republican Senator Orrin Hatch.

The anticipated gridlock would underscore the inability of Congress to reduce the stubbornly high U.S. unemployment rate, now at 9.1 percent. It is certain to be a key issue in 2012 congressional and presidential elections.

Obama and Democratic lawmakers hope their efforts will help energize their liberal support base, which is disappointed in Washington for focusing on spending cuts after the U.S. sovereign credit rating was downgraded for the first time.

As Reid outlined the funding plan, a couple of hundred demonstrators rallied outside the Capitol in support of Obama's bid to cut unemployment.

"This is where it all starts," said Rich Altenburger, a 67-year-old retiree from Pennsylvania. "After a while we might get something done."

Under the Senate Democratic proposal, the surtax would apply to all income over $1 million, including capital gains and dividends, and cover the entire cost of the $447 billion jobs program, lawmakers said.

It would take effect on January 1, 2012, if enacted.

About 240,000 Americans or 0.17 per cent of taxpayers, earn upward of $1 million a year.

While Republicans have denounced tax increases, saying they would stunt economic growth, Reid cited studies that show Obama's plan would create jobs with a mixture of stimulus spending and tax cuts largely for the middle class and small businesses.

Reid said polls also show that most Americans -- Democrats, Republicans, independents -- favor increasing taxes on the rich.

"Democrats have listened to the American people, and they have been very clear: It is time for millionaires and billionaires to pay their fair share to help this country thrive," Reid said.

Obama's jobs plan has drawn broad support among fellow Democrats in Congress. But a number of them, along with most Republicans, have opposed his proposed tax increases on corporations and the wealthy to pay for it.

While the new Senate Democratic plan would raise taxes for only those earning $1 million or more a year, some of Obama's proposed tax increases would hit those earning far less, $200,000 to $250,000, drawing stiff and bipartisan opposition.

The White House welcomed the new funding measure.

"If Congress has a better idea that ensures that everyone pays their fair share, we're open to it," said spokesman Dan Pfeiffer.

Reid said his plan had strong support among the 53 members of the Senate Democratic caucus. But he admitted it did not have unanimous support. There are 47 Senate Republicans.

Republicans are expected to have enough votes in the Senate to block the measure, preventing it from even being sent to the Republican-led House of Representatives for consideration.

(Additional reporting by Alister Bull and Lilly Kuo; editing by Doina Chiacu and Jackie Frank)

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