January 3, 2013 6:30 pm

Backlash pushes Republicans to seek cuts

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A conservative backlash against Republicans over their deal with Barack Obama to lift taxes has hardened the party leadership’s resolve to demand huge spending cuts as the price for increasing the country’s borrowing limit.

Mitch McConnell, the Republican Senate minority leader, rejecting Mr Obama’s statement that he would not negotiate over the issue, said the debt ceiling debate in coming months was the ideal time to force the administration to cut outlays.

“The President may not want to have a fight about government spending over the next few months, but it’s the fight he is going to have, because it’s a debate the country needs,” Mr McConnell said in an opinion article on Yahoo.

Republican brinkmanship over lifting the debt ceiling bought the US to edge of sovereign default in 2011, prompting a ratings downgrade on the US’s debt.

Tim Geithner, the US Treasury Secretary, announced last week that the US had hit its borrowing limit of $16.4tn but that the Treasury was taking “extraordinary measures” to keep its debts serviced.

The “extraordinary measures” are expected to run out some time in late February, although the exact date depends on the state of the government’s finances.

Congressional approval for lifting the debt ceiling to pay for government expenditures already authorised by Congress had been for decades routine, under Democratic and Republican presidents.

But the new Republican majority in the House of Representatives since 2010 has taken the requirement for congressional approval to lift the country’s borrowing limit as leverage to force cuts.

“The upcoming debate on the debt limit is the perfect time to have that discussion – we simply cannot increase the nation’s borrowing limit without committing to long overdue reforms to spending programmes that are the very cause of our debt,” said Mr McConnell.

Mr McConnell, who is up for election in 2014, and his Republican colleagues in the Senate, have been stung by criticism on the right for their role in brokering a deal with the White House over the fiscal cliff.

The final deal, negotiated between Mr McConnell and Joe Biden, the vice-president, was passed overwhelmingly in the Senate, marking the first time Republicans in Washington have voted for income tax increases in more than two decades.

One prominent conservative blogger, Erick Erickson, or RedState.com, called the rises, the “Mitch McConnell tax increase”.

Mr Obama, in his original set of demands over the fiscal cliff, wanted Republicans to guarantee lifting the debt ceiling for one to two years but to the disappointment of Democrats, this provision was not in the final deal.

The administration had also wanted to adopt a proposal first advanced by Mr McConnell, which would have curtailed the ability of Congress to refuse to limit the debt ceiling.

But Mr McConnell no longer seems to support this plan and also says that the fiscal cliff agreement is the last time Republicans will support tax increases.

“The moment he [Obama] and virtually every elected Democrat in Washington signed off on the terms of the current arrangement, it was the last word on taxes. That debate is over,” he said.

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The FT’s overview of key American economic data, including GDP, inflation, unemployment, consumer indicators, interest rates and mortgage rates


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