(Adds Temer's press office and source comments)
SAO PAULO, June 12 (Reuters) - Brazilian President Michel Temer's administration is considering cutting the highest income tax threshold for individuals to shore up support among the middle class for his beleaguered government, O Estado de S. Paulo newspaper said on Monday.
Temer's main political advisory group backs the idea, which would reduce the highest income tax bracket to as low as 18 percent from 27.5 percent, Estado reported, without saying how it got the information.
Temer's press office said in an emailed response that the government had not yet made a decision on the matter.
A member of Temer's cabinet, who spoke on condition of anonymity due to the sensitivity of the issue, told Reuters the economic team was unlikely to back a lower tax threshold due to its fiscal cost.
The government would tax dividends in order to fund eventual revenue losses stemming from the income tax reduction, the report said. Those eligible for Brazil's top social assistance program Bolsa Familia would get a 4.5 percent hike in stipends - above annual inflation readings.
The report adds to growing concerns that Temer may ease budget spending controls to assert himself in power after corruption allegations against him by members of a billionaire business family.
Based on testimony from a member of Brazil's Batista family, prosecutors said Temer worked to obstruct justice by condoning efforts to pay for the silence of a potential witness.
Temer's political advisors remain undecided whether the tax income proposal will be presented to Congress in an executive decree or through an allied lawmaker, Estado said. (Reporting by Guillermo Parra-Berna and Alonso Soto; Editing by Bernadette Baum and Andrew Hay)