Reporting from Washington — Vice President Joe Biden met Thursday with congressional negotiators as an impasse over federal debt and spending draws growing unease from U.S. financial markets and a deteriorating economic outlook shifts the debate.
Both Democrats and Republicans argued that the outcome would have a major effect on job growth, a key issue following last week's increase in unemployment, to 9.1%.
Yet both sides are dug in over their views about the best course of action. Democrats believe cutting jobs in a weak economy may be unwise; Republicans argue spending cuts and deficit control are the key to economic growth.
The government hit its $14.3-trillion debt limit last month and risks an unprecedented default if an agreement is not reached to permit new borrowing by Aug. 2, when the Treasury Department says it will have exhausted its payment options.
Fitch Ratings this week became the third major Wall Street financial rating agency to warn that U.S. bonds could be downgraded if the stalemate is not resolved this summer.
Republicans want steep spending reductions in exchange for their votes to raise the debt limit, though their spending plan would also require raising that ceiling. But Democrats insisted during Thursday's closed-door meeting in the Capitol that new taxes must be part of any deficit-reduction deal, a position Republicans have rejected.
Democrats are primarily focusing on steps such as closing tax loopholes and not on the politically divisive issue of ending tax cuts approved under former President George W. Bush. Action on that issue is more likely to take place after the 2012 election.
Fears of further economic decline have bolstered Democratic arguments that spending cuts alone cannot solve the debt problem and, in fact, could harm the recovery by eliminating needed jobs.
"With unemployment at 9.1%, deficit reduction simply isn't the country's most important mandate right now," Jared Bernstein wrote on his economics blog this week. "That would be jobs."
The White House echoed that sentiment Thursday. "Deficit reduction is not a grand goal in and of itself," White House spokesman Jay Carney said.
House Majority Leader Eric Cantor (R-Va.) agreed that jobs were a concern, but said GOP priorities would help bolster employment.
"We believe that many of the problems surrounding the lack of job creation and growth in this country have to do with the fact that there isn't a credible plan to manage down the debt and deficit in this country," Cantor said.