Efforts to work out a deal for cutting government spending while at the same time raising the debt limit move into a new phase Monday with President Barack Obama meeting at the White House with Senate leaders.
Obama is set to meet Monday morning with the Democratic leader, Sen. Harry Reid, and then in the afternoon with the Republican leader, Sen. Mitch McConnell.
Talks broke down last week over Democrats' demands to include tax-revenue-raising steps alongside spending cuts in order to beat an August 2 deadline to lift the $14.3 trillion borrowing limit.
Democrats say they want to close loopholes and scale back tax breaks for big corporations and wealthy taxpayers. Republicans want to focus on cutting spending and have waved off tax increases.
McConnell told ABC's "This Week" on Sunday that proposals seeking more tax revenue won't pass Congress.
Failure to act risks a devastating U.S. debt default that could push the country back into recession. But Obama must also ease public concern over his handling of the deficit, which is likely to be a key topic as he seeks re-election next year.
The debt ceiling needs to be raised by around $2.4 trillion to ensure that the government has enough money to keep functioning through the November 2012 election.
Republicans say they want spending cuts to equal any increase in the limit, but the administration is pushing for a package that also includes revenues. Obama favors $3 in spending cuts for every extra dollar in revenue.
But the president spelled out in his weekly address on Saturday that the United States could not "cut our way to prosperity", and this message was repeated by senior Democratic lawmakers, who adamantly deny that raising revenue equals increasing taxes.
"We want to close those loopholes up. We do not want to raise anybody's tax rates. That's never been on the table," Democratic Representative Jim Clyburn said.
Corporate jets Democrats are aiming at tax subsidies for oil and gas companies, so-called carried interest tax break for hedge fund managers, and loopholes that favor private corporate jets.
But the president has also backed limiting tax deductions for wealthier Americans.
The White House says this targets millionaires and billionaires. But Republicans warn it would also hit hundreds of thousands of small business owners, and say the problem is too much government spending, not insufficient taxes.
The federal deficit stands at $1.4 trillion, among the highest levels relative to the economy since the Second World War.
The administration wants to frame the debate as Republicans protecting tax breaks for the rich at the expense of older Americans, while cuts in spending must also include the Defense Department budget that Republicans traditionally protect.
"Any package of any significance that passes is going to have to have significant spending reductions, including reductions in Pentagon spending. You are going to have some of these tax loopholes for the wealthy and special interests closed," a senior administration official told Reuters.
Democrats lost control of the House of Representatives to Republicans in congressional elections last year — in part because of voter anger over the deficit — but they still control the Senate.
"To get anything through the House you are probably going to need some Democratic votes, and to get it through the Senate you are going to need a lot of Democratic votes. So you need a package that can attract support from both parties in both chambers," the official added.