Freshman senator gives Obama debt-limit fits

U.S. Senator Pat Toomey (R-PA) speaks to the 38th annual Conservative Political Action Conference meeting at the Marriott Wardman Park Hotel in Washington, February 10, 2011.

WASHINGTON (Reuters) - As a freshman senator, Republican Pat Toomey punches above his weight in the high-stakes fight over increasing the U.S. debt limit.

To cheers and jeers, Toomey -- a Tea Party favorite and Wall Street veteran -- dismisses as an exaggeration worries about a short-term debt default and wants the Constitution changed to require a balanced federal budget.

Toomey's stance has won over enough Republicans -- some 20 in the Senate and more than 100 in the House of Representatives -- to create a potential bloc able to sway talks this weekend between President Barack Obama and leaders in Congress.

"Those numbers lurk like a black cloud over negotiations," Ethan Siegal of the Washington Exchange, a private firm that tracks Congress and the White House for investors, said of the bloc that includes many Tea Party movement-backed Republicans who have resisted compromise on the debt ceiling.

Obama and congressional leaders ordered staff to work through the weekend toward a possible agreement to trim the massive U.S. deficit, raise the U.S. debt limit and avoid default by an August 2 deadline.

With the White House warning of dire economic consequences of a default, the president and congressional leaders are to meet on Sunday to discuss progress.

Toomey will not be in the room, but his views will be.

"When Toomey speaks, people listen," a senior Republican aide said.

"He's a well-regarded member of the new class of freshmen senators," the aide added, citing his background as a bond trader and small businessman who served in the House and headed Club for Growth, an influential conservative group, before being elected to the Senate last year.

He's introduced legislation backed by 20 of his 46 fellow Senate Republicans that demands there be no increase in the debt limit unless Congress passes a long-shot amendment to the Constitution to require a balanced federal budget. To become law, it would have to be approved by two-thirds majority votes in the House and Senate, then ratified by three-quarters of the 50 states.

CREATED A STIR

Early this year, he created a stir by accusing Obama of trying to frighten Congress into raising the debt limit by overstating the threat of U.S. default.

Then, he went a step further by offering legislation -- denounced by critics as unworkable but backed by 22 Senate Republicans and 101 House Republicans -- aimed at shielding against default by ordering the Treasury Department to prioritize debt service over other payments if the debt limit is not raised.

"I'm just trying to shed some light on the situation that we face and engage everybody in an honest discussion," said Toomey, 49, a self-described "boring wonkish kind of guy."

While the two measures have helped shape the debate, neither has received the support of Republican leadership and both have drawn fire.

A simple majority is needed to pass most bills in the House, which is now controlled by Republicans, 240-192. Sixty votes are generally needed in the Senate, which is held by Democrats, 53-47.

Democratic Senator Chris Coons calls Toomey's suggestion that the U.S. avoid default by not paying other federal bills "ludicrous, irresponsible."

"The idea that we would only spend money on servicing our debt and then not pay other things -- well what is that we would suddenly stop doing, paying Social Security benefits, paying Medicare, paying our troops?" Coons said.

Federal Reserve Chairman Ben Bernanke says even delays in non-debt payments would rattle investors and undermine the economy.

Toomey brushes off such criticism and says his approach would calm edgy but savvy financial markets.

"As a former government bond trader and someone who stays in touch with the market, I can promise you the bond market knows the difference between some kind of payment obligations and defaulting on our debt," Toomey said.

With Democrats and Republicans voicing concerns about a possible deal, which could include cuts in entitlement programs and comprehensive tax reform, Toomey says lawmakers must get it right.

"The debt ceiling debate is our best chance, if not the only remaining one, for this Congress to show the American people that we will stop the overspending and skyrocketing debt," Toomey said. "We have high hurdles to clear."

(Additional reporting by Andy Sullivan and Tim Reid; editing by Vicki Allen)