The new proposal, sponsored by U.S. Sen. Bob Casey, D-Pa., would lower a proposed rate for the wealthiest Americans from 3.25 percent to 1.9 percent, and would sunset the rate after 10 years, CNN reported.
"It will be fully paid for with a mixture of spending cuts Republicans have already agreed to and a tiny, tiny surtax on the top two-tenths of 1 percent of American taxpayers," Senate Majority Leader Harry Reid, D-Nev., said, adding that Democrats "conceded significantly to cut the tax on income above a million dollars and make it temporary" to make the proposal more palatable to Republicans.
In a statement delivered from the White House, U.S. President Barack Obama called on Republicans to extend the payroll tax cut and unemployment insurance before they expire Dec. 31 because doing so was "the right thing to do."
Sen. Orrin Hatch, R-Utah, said the Democratic plan lacked two things: GOP input and a chance of passing.
"It's hard for the majority to call this a compromise when the other side hasn't been involved," Hatch said in a statement. "With the long list of things Congress has to get done by the end of the year and the clock ticking, it's pretty mystifying that the majority is pursuing more political show votes that won't go anywhere."
The Democratic plan also would cut the payroll tax paid by workers from the current rate of 4.2 percent to 3.1 percent, saving a family making $50,000 a year an average of $1,500, party leaders said.
If the tax holiday isn't extended, the rate would go up to 6.2 percent and cost that same family an additional $1,000 next year, Democrats say.
Besides the revenue the tax on the wealthy, the new proposal would be paid for by raising fees Fannie Mae and Freddie Mac charge mortgage lenders to guarantee repayment of new mortgage loans, Casey's statement said.
In his statement, Casey said the provision was discussed during negotiations by the congressional supercommittee that failed to reach a deficit reduction deal last month.
Also included was language from a Senate GOP measure that would bar millionaires from getting food stamps and unemployment aid, a Senate Democratic aide said.