Kokomo, USA: US President Barack Obama said on Tuesday the United States must extend tax cuts for the middle class but could not afford to do so for the wealthy, laying out his position before next week's meeting on the issue with Republicans.

Obama, who also told hard-hit Americans the US economy was on the mend, said extending the middle-class tax cuts was critical to keeping the economic recovery on track.

"If we allow these taxes to go up, the result would be that a lot of people most likely would spend less. That means that the economy will grow less," he told workers at an auto plant.

House hurdle

Republicans, who won control of the House of Representatives in November 2 elections, want to make the tax cuts permanent for all Americans. Touting the success of his government's rescue of the US auto industry in a campaign-style rally, Obama welcomed news that US economic growth was picking up.

He warned it had a way to go before it was out of the woods and said that meant government must not take money away from households likely to spend it. "Next year, taxes are set to go up for middle-class families unless Congress acts," he said. "If we don't act by the end of the year, a typical middle-class family will wake up on January 1 to a tax increase of $3,000 [Dh11,016] per year."

Data released earlier on Tuesday showed that US output grew at a 2.5 per cent annual pace in the third quarter, up from a previously estimated 2 per cent.

Obama is to meet Republican and Democratic congressional leaders to work out what to do about the Bush-era tax cuts and other pressing legislation to complete before a new Congress begins in January. He says taxes should rise for families making more than $250,000 a year, but he has made extending cuts for middle-class families a top policy priority.

"This is actually an area where Democrats and Republicans agree," he said. "The only place where we disagree is whether we can afford to also borrow $700 billion to pay for an extra tax cut for the wealthiest Americans — millionaires and billionaires. I don't think we can afford [that] right now."