Republican Candidates, Democrat Activists Hinder Debt Deal

As President Barack Obama works for a bipartisan deal to raise the government’s debt ceiling, both the Republicans wanting to replace him and Democrats seeking the best way to re-elect him have emerged as obstacles.

Republican presidential candidates and Democratic activists alike are using the debate to sharpen their political messages and appeal to core supporters, complicating efforts to reach a compromise to avert a possible government default on Aug. 2.

“Both parties are set in concrete on what they believe their base has to have, and that makes it very difficult to find any middle ground,” said former Representative Charles Stenholm, a Texas Democrat who focused on reining in the federal budget as a lawmaker.

Even as House Speaker John Boehner, an Ohio Republican, negotiated privately last week with Obama on a potential $4 trillion, decade-long deficit-reduction compromise to pave the way for raising the $14.3 trillion debt limit, Representative Michele Bachmann of Minnesota was drawing attention to her Republican presidential candidacy by declaring she would oppose any deal.

“I will not vote to increase the debt ceiling,” she said in her first television advertisement in Iowa, site of the first contest in the nominating battle.

Photographer: Andrew Harrer/Bloomberg

U.S. President Barack Obama. Close

U.S. President Barack Obama.

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Photographer: Andrew Harrer/Bloomberg

U.S. President Barack Obama.

Representative Ron Paul of Texas, another Republican White House contender, also is stressing his opposition to any debt ceiling increase, in line with his decades-long effort to shrink government’s size.

‘Debt Ceiling Betrayal’

The website for Paul’s presidential campaign asks in large letters on its homepage: “Will Speaker Boehner Cave on the Debt Ceiling? Or will you help Ron Paul fight to prevent Debt Ceiling Betrayal?” A campaign ad that starts airing today in Iowa and New Hampshire spotlights the issue and touts Paul as the “one candidate” who “has always been true” to cutting government spending. It also says: “No deals.”

Virtually all their rivals in the Republican race have said they would balk at approving a debt-ceiling increase, unless certain debt-reduction mandates are met.

On the other side of the political spectrum, Democratic political groups have been firm in opposing any agreement that would cut entitlement programs such as Social Security and Medicare. A few hours after Obama held a nationally televised news conference at the White House on July 11 to try to resurrect a longer-range agreement combining some tax increases with trims to entitlement programs, his own party’s activists swung into action in opposition.

Petition Effort

“Obama went there,” was the subject line of a July 11 e- mail circulated by Adam Green of the Washington-based Progressive Change Campaign Committee, which raises money for Democrats. The message included a petition asking like-minded activists to warn Obama with their signatures that if he backed a deal that cut entitlement benefits, “don’t ask for a penny of my money or an hour of my time in 2012.”

Green has also said such an agreement would “put all Democrats facing re-election in 2012 at risk.”

The group said today it has reached its goal of 200,000 signatures and intends to deliver the petitions tomorrow to Obama’s campaign headquarters in Chicago.

Obama and congressional leaders are now discussing a smaller accord that would shave $2.4 trillion or less from the debt. At least some of Bachmann’s and Paul’s House colleagues, though, share their opposition to a debt-ceiling increase under any circumstances.

‘Major Influence’

Stenholm said, “The far right has a major influence on Republican primary politics, and we are seeing that play out in the debt-ceiling debate.”

Democrats are also reacting to the most vocal elements of their party, he said. “It’s just amazing how my party continues to politicize Social Security when everybody would tell you privately that we need to do something” to bolster its finances, said Stenholm, a board member for the Washington-based Committee for a Responsible Federal Budget.

Adding more urgency to the debate, Standard & Poor’s Ratings Services announced yesterday that it may downgrade the U.S. top-level credit rating, saying there is an increasing risk of a substantial policy stalemate enduring beyond any near-term agreement to raise the debt ceiling.

‘More Entangled’

The deadlock on fiscal policy has “only become more entangled” since April 18, when S&P placed a negative outlook on the U.S. AAA long-term rating, the service said in a statement. Moody’s Investors Service placed the nation’s credit rating under review for a downgrade on July 13.

Treasury Secretary Tim Geithner yesterday reiterated that the U.S. borrowing authority will run out on Aug. 2, saying there is “no way to give Congress more time” on lifting the debt ceiling. Obama in an interview with CBS News earlier this week cautioned that Social Security checks and veterans’ benefits could be delayed if Congress doesn’t act.

Bachmann responded by accusing Obama of political blackmail. “President Obama is holding the full faith in credit of the United States hostage, so that he can continue his spending spree,” she said July 13 in Washington.

E-Mail Blast

Paul e-mailed his supporters blasting a last-ditch option proposed by Senate Republican leader Mitch McConnell of Kentucky that would essentially let Obama raise the debt ceiling unilaterally if no compromise is reached. Republican lawmakers could go on record against the move but couldn’t block it.

McConnell described his rationale in terms of 2012 politics, saying a default would be held against his party.

Paul said McConnell was “scheming to raise the debt ceiling with no real spending cuts.”

The day Obama hosted congressional leaders for a weekend session at the White House in search of a compromise, Republican presidential candidate and former Minnesota Governor Tim Pawlenty said there was no room for one that increased taxes.

“The United States federal government is not under-taxed; it spends too darn much,” Pawlenty said on ABC’s “This Week,” on July 10.

Former Massachusetts Governor Mitt Romney, the Republican presidential front-runner in fundraising and polls, has made limited public comment about the debt ceiling debate. At a town hall meeting yesterday in Derry, New Hampshire, he said, “For me to be willing to raise any debt ceiling would be dependent on cutting, capping and balancing the budget with a balanced budget amendment” to the Constitution.

Cut, Cap, Balance

He and seven of the party’s other presidential candidates have signed a pledge circulated by a coalition of fiscally conservative groups and Tea Party chapters known as “Cut, Cap and Balance,” in which they urge lawmakers to condition any increase in borrowing authority on those requirements.

One candidate who didn’t sign was former Utah Governor Jon Huntsman, who said politicians shouldn’t commit themselves to such pledges. His spokesman, Tim Miller, said Huntsman “believes we need real cuts that are equal or greater than any increase in the debt ceiling,” and “thinks any deal should include tangible steps toward” a balanced budget amendment.

A fundraising pitch Democrats sent out yesterday seeks to use the impasse on a debt deal to the party’s advantage. Guy Cecil, executive director of the Democratic Senatorial Campaign Committee, asked in an e-mail for contributions to help Obama “hold strong” against the Republican bargaining position.

“We’re protecting our ideology here,” Cecil wrote. “Democrats believe that a great nation protects those who can’t protect themselves. We believe in helping the elderly, the poor and the sick. Republicans will attack us for it and try to take it away.”

For all the political focus on the debate, investors haven’t shown many signs of reacting negatively. The yield on 10-year Treasuries was 2.93 percent as of 11:50 a.m. today in New York, according to Bloomberg Bond Trader, after falling to a low this year of 2.81 percent on July 12. That compares with 3.04 percent a year ago yesterday.

To contact the reporter on this story: Julie Hirschfeld Davis in Washington at jdavis159@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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