Nov. 6 (Bloomberg) -- A government report that the U.S. unemployment rate hit a 26-year high of 10.2 percent last month sparked political clashes between Democrats who supported government spending to stimulate the economy and Republicans who want tax cuts.

President Barack Obama signed legislation today to extend unemployment insurance benefits and tax credits for first-time homebuyers, and provide tax refunds to money-losing companies. He said his administration was looking at more spending on roads and bridges and on making buildings more energy efficient, among other measures, to try to reduce joblessness.

A top House Democrat, Caucus Chairman John Larson of Connecticut suggested funding public works projects through a tax on stock and derivative trades.

Republicans said rising unemployment proved that a $787 billion economic stimulus, which was opposed by all of the party’s members in the House when it cleared Congress in February, wasn’t working and that Congress should cut taxes instead.

“Offering government bailouts, and massive new health- care spending programs, makes for great rhetoric and great politics, but it isn’t responsible policy,” said Republican Senator Mike Enzi of Wyoming.

The Labor Department said 190,000 jobs were lost in October. The jobless rate rose from 9.8 percent in September, and exceeded 10 percent for the first time since 1983. The U.S. has lost 7.3 million jobs since the recession started in December 2007, including almost 3.5 million since Obama took office in January. Unemployment has jumped from 7.6 percent at the beginning of the year.

Stop Free Fall

“Our immediate goal was to stop the free fall that caused our economy to shrink at an alarming rate,” Obama said today. “We have succeeded in achieving that goal, as our economy grew last quarter for the first time in a year. But history tells us that job growth always lags behind economic growth.”

The underemployment rate -- including part-time workers who want full-time jobs and those who are no longer looking for employment even though they want to work -- reached a record 17.5 percent, from 17 percent in September. For those still looking, it took an average of 26.9 weeks to find a new job.

The new figures will “lead to a ‘doubling-down’ effect,” with leaders in each party pushing harder to promote their policy approaches, said David Primo, a professor of political science at the University of Rochester in New York.

“Democrats will point to these numbers as evidence that government needs to do more,” he said. “Republicans will point to these numbers as evidence that government should get out of the way.”

‘Bigger Kick’

House Appropriations Committee Chairman David Obey, a Wisconsin Democrat, said the unemployment numbers show “we need to give the economy a bigger kick” because the earlier stimulus package was “not big enough by itself to do everything we need it to do to get workers back to work.”

A push for additional stimulus may run into concern about the government’s $1.4 trillion deficit.

October’s unemployment report was released as the House nears a vote on a health-care proposal that would require all Americans to get insurance, provide subsidies to help pay for coverage and establish a public insurance plan.

House Republican leader John Boehner of Ohio seized on the numbers as proof the health-care legislation should be shelved. “This job-killing bill needs to be defeated,” Boehner said.

Terry Madonna, director of the Center for Politics and Public Affairs at Franklin & Marshall College in Lancaster, Pennsylvania, said Obama shouldn’t have taken up other issues such as health care until the economy was back on track.

Owning Recession

“I would have focused exclusively on getting the economy back,” he said. “Obama and the Democrats now own this recession.”

Senator Russell Feingold, a Wisconsin Democrat, said he would introduce legislation offering tax credits to companies that add jobs. “Job creation must be a top priority for Congress,” he said in a statement.

Larson said jobs could be created by taxing stock and derivative trades and using the money for roads, bridges and other public works projects.

“We desperately need a transportation plan that provides a vision for the future of American infrastructure and puts the American people back to work realizing that vision,” he said.

In Nov. 3 elections, exit polls showed the economy was the chief concern of voters who elected Republicans to replace Democratic governors in New Jersey and Virginia.

Biggest Issue

A CNN poll released today showed that 47 percent of adults cited the economy as the country’s most important issue, more than double the number citing any other topic. That is a 6 percentage point increase from a similar poll in August, though below the 63 percent who said in a March survey cited the economy as the chief issue.

“It’s heartbreaking -- really, really sad -- because I’ve been here my whole life and never ever seen it this bad here,” said Beth Rubin, 41, who recently lost her job as a receptionist for a Southfield, Michigan, law firm.

“It’s just going to be slow,” said Jason McKinnon, 34, of San Francisco, who lost his job as a video-game software analyst. “The situation we’ve gotten ourselves into is not going to change overnight.”

House Speaker Nancy Pelosi, a California Democrat, said the unemployment figures are “difficult news” and “remind us that more work must be done.”

Hopeful Signs

Christina Romer, chairwoman of the White House Council of Economic Advisers, said the job figures contained some “signs of hope” that the economy may be turning around, such as increased employment in temporary help services and the auto industry.

Democratic Representative Carolyn Maloney of New York, chairwoman of the Joint Economic Committee, said unemployment takes time to reduce.

“While the economy has shown signs of life in recent weeks -- durable goods orders are rising and initial unemployment claims are at their lowest point in nearly a year -- the problem of joblessness is still pervasive and it will not be solved overnight,” Maloney said.

Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York, told clients that Congress may consider a new stimulus package.

Stimulus Tricks

“The Obama administration may have to dig deeper into their bag of fiscal stimulus tricks if they are going to get companies to start rehiring again,” he said in an e-mail.

Republicans pressed their case that the numbers proved the stimulus had failed. The National Republican Congressional Committee began criticizing potentially vulnerable House Democrats who had supported the spending plan.

“In the real world, Americans are still hurting and reminded daily that government spending does not create economic growth,” said Representative Tom Price of Georgia, chairman of the Republican Study Committee.

For Related News and Information: Stories on the U.S. economy: TNI US ECO <GO> Bloomberg news on the U.S. labor market: TNI US LABOR BN <GO> Manufacturing and job cuts: TNI MAC JOBCUTS <GO> Top news on consumer spending: TOP CONS <GO> U.S. Economic Statistics: ECO US <GO>

Last Updated: November 6, 2009 16:13 EST