The Obama administration is reviewing a compromise tax proposal by Mark Warner, the centrist Democratic senator, that would drop tax cuts for the wealthiest Americans but introduce tax breaks for business.

Mr Warner’s proposal, outlined in an article for Friday’s FT, comes as the White House struggles to find a tax plan acceptable to Republicans in Congress, who want to extend a raft of tax cuts introduced by President George W. Bush that are due to expire at the end of the year.

“In collaboration with business leaders, we might consider a more generous R&D [research and development] tax credit, which clearly helps to fuel innovation, as well as more generous tax allowances for the expensing of business investment and some fine-tuning of depreciation allowances,” writes Mr Warner.

“Finally other short-term incentives that promote additional hiring, such as a temporary reduction in the payroll taxes paid by employers who hire new workers, could be part of any package,” he adds.

Barack Obama has argued that tax cuts for “millionaires and billionaires” should be allowed to expire while those on households earning up to $250,000 should continue, but the president has met resistance from Republicans and some Democrats.

David Axelrod, the president’s advisor, suggested on Wednesday the administration might have to accept temporary extension of all the tax cuts, an admission that angered some Democrats.

Adam Green, co-founder of the Progressive Change Campaign Committee,said: “The White House and congressional leaders need to say we are scheduling one vote, one vote only, and that vote is on renewing the middle class tax cuts – and if Republicans want to oppose tax cuts for 98 per cent of Americans, we dare them to and will pummel them politically if they do. That’s how you fight and put Republicans on defence.”

Officials said the Warner proposal had the benefit of encouraging investment and might be a way through the impasse. But with only weeks left to reach a deal most observers believe a temporary extension of all the cuts is the most likely outcome.

John Podesta, president of the Center for American Progress and former chief of staff to President Bill Clinton, backed dropping the tax cuts for the wealthiest while directing new tax breaks to business.

“That would actually have a potentially major boost on job creation in the short term.” He argued it was a much “better way to use” the tax code but thought “the most likely scenario is probably a one-year extension of everything”.

John Castellani, head of Phrma, the drug industry trade group, endorsed Mr Warner’s business tax breaks but said policymakers had to look into the effect of raising the top tax rate on small businesses that were registered as individuals for tax purposes. “The issue of how it would effect small business is a real one and that needs to be better understood.”

Mr Warner said the issue of how demand would be affected by dropping the top rate tax cuts had “some validity . . . but if we’re talking about $65bn in tax relief then the question is what’s the maximum bang for the buck on $65bn? The idea had better not be dreamt up by policymakers but on active engagement by the business community.”