Senate Republican leader Mitch McConnell will vote against increasing the debt limit unless President Obama agrees to spending cuts and long term reforms that satisfy the bond market, as well as foreign investors, and “astonish the American people.”

McConnell’s hard line position is a blow to the president’s fading hopes of winning a debt limit increase without making serious concessions. And it’s a signal to Republicans on Capitol Hill that the debt limit vote is their best chance to win deep spending cuts and significant entitlement reforms.

McConnell has enormous influence on this issue since all or nearly all of the 47 Senate Republicans are likely to follow his lead. So are House Republicans.

“As McConnell goes, so go Senate Republicans,” a Republican official said. “And as Senate Republicans go, so go Boehner and House Republicans.” At least on this issue.

On Monday, House speaker John Boehner said “trillions” in spending reductions must be attached to any debt hike. He and McConnell have a close relationship and are said to be in sync on the debt limit.

“There is going to be a big package [of cuts] or we’ll still be arguing about the debt ceiling this fall,” McConnell said in an interview on Tuesday. In negotiations, “the only thing we’ll be discussing is cutting spending. Taxes are not going to be a part of this.”

But entitlements, including Medicare, must be part of any agreement, McConnell said. “You can’t have a credible proposal without entitlements. It needs to pass the smell test of credibility.”

McConnell believes Republicans have far more leverage on the debt limit issue than Obama does. “On this issue he’s not in a powerful position,” according to the Republican leader. It's the point of maximum leverage for Republicans.

Fears of a default on government debt are “nonsense,” McConnell said. “They’re not going to default. No Treasury secretary is going to do that.” Treasury Secretary Timothy Geithner has said the government will no longer be able to pay its debt sometime in August—without an increase in the debt limit that would allow further borrowing. The administration is expected to seek authority to borrow $2 trillion.

McConnell said spending reductions must come in three categories: short, medium, and long term. In 2012 and 2013—the short term—the trajectory of spending must “bend down significantly,” McConnell said. Those cuts would hit the discretionary part of the budget.

Cuts in the medium term would be inside the “budget window,” which means they would be imposed in the next five or 10 years. Some entitlement reforms would be included.

The long term—beyond 10 years—would mainly involve entitlements. Cuts in discretionary spending scheduled for years from now aren’t believable, McConnell said. But entitlement changes are credible because entitlements aren’t voted on every year, he said.

McConnell didn’t mention any specific cuts or reforms. That’s the job of Senate Republican whip Jon Kyl of Arizona, who is representing Senate Republicans in negotiations headed by Vice President Biden.

Republican leverage comes partly from the dread members of Congress feel toward voting to raise the debt limit. Polls show the public opposes boosting the limit even when told of dire consequences.

The unpopularity of raising the debt limit, thus raising the national debt, makes it unlikely Obama will lead a campaign on the issue. That would bring attention to how much the national debt has increased since he became president.

In contrast, McConnell was happy to spell out the areas where spending does need to be cut. “I’m not voting for a debt ceiling that doesn’t,” he said.

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