Republicans are wrestling over whether their party will be damaged if Congress fails to meet the Aug. 2 deadline for raising the debt ceiling.

With no certain agreement in sight, Republicans have begun to ponder whether Senate GOP Leader Mitch McConnell’s (Ky.) warning that the party’s brand could be damaged by a failure to raise the debt ceiling might be fulfilled.

“If legislation doesn’t pass and there’s a severe market reaction, the GOP will bear the brunt of it. I think the leadership understands this,” said Tony Fratto, who served as a deputy press secretary for President George W. Bush.

Fratto said the debate over raising the debt ceiling doesn’t hurt the GOP brand, but a negative outcome in which interest rates rise and voters face higher costs on home and car loans and credit card payments, could risk “real and lasting damage to Republicans.”

{mosads}GOP fears have increased in the last 24 hours as House Republican leaders have struggled to come up with a proposal to raise the debt ceiling that passes muster with their conference, which includes 87 freshmen propelled to election last year by the Tea Party movement.

Conservative House lawmakers rejected an initial version of Speaker John Boehner’s (R-Ohio) debt plan, forcing Republicans to re-write the measure to link a debt ceiling increase to congressional approval of a balanced budget amendment.

Veteran GOP lawmakers saw this as costing the party leverage in talks with the White House and Senate Democrats because the GOP measure with the balanced-budget amendment provision is unlikely to become law. Some saw Boehner’s original measure as having at least a chance of becoming the basis of a final bill.

“The fact of the matter is, because of the dust-up yesterday, we’ve lost some leverage,” Rep. Steve LaTourette (R-Ohio) said after Friday’s conference meeting. “You could say it’s remote, but there was a chance that the package yesterday, if it had been successfully voted out, would have been adopted by the Senate and signed by the president. I think everybody acknowledges that’s not going to happen with this piece of legislation.”

Given that Boehner had to change his own bill to win over members, some veteran Republicans worry their party could be seen as intransigent.

“A lot of the stuff these representatives are talking about is good in their districts,” said former Sen. George Voinovich (R-Ohio). “But it’s like manure on the rug in Ohio.”

He said the tough line won’t help Republicans in the Buckeye State, a key swing state in the 2012 elections.

Current members of the Senate have also expressed frustration with the GOP’s rightward flank, warning that their insistence on ideological purity could mean the undoing of the party brand as a whole.

Sen. John McCain (R-Ariz.), the standard-bearer for his party in 2008, griped this week about GOP opposition to Boehner’s original plan.

“This is the kind of crack political thinking that turned Sharron Angle and Christine O’Donnell into GOP Senate nominees,” McCain said, referring to the 2010 Senate nominees in Nevada and Delaware. Some Republicans blame those weak candidates, elected as Tea Party favorites in GOP primaries, helped the party lose a chance at winning control of the Senate.

To be sure, not all Republicans think their party will be on the losing end of the blame game if the debt ceiling isn’t raised.

“President Obama has the most to lose here because he’s presiding over the chaos,” said Kevin Madden, a former adviser to Boehner and former Massachusetts Gov. Mitt Romney’s (R) 2008 presidential campaign.

“I think that the voters aren’t judging it minute by minute the way that many of the folks in Washington are agonizing over it. They’re looking at it as institutions — Congress and the presidency, unable to come to a solution.”

Democrats and the White House, however, think they have an advantage and are trying to drive a wedge between establishment-minded GOP leaders and the more conservative rank and file.

President Obama played up those divisions Friday in a statement meant to keep the heat on Republican leaders.

“What’s clear now is that any solution to avoid default must be bipartisan. It must have the support of both parties that were sent here to represent the American people -– not just one faction,” Obama said in remarks Friday morning at the White House.

“It will have to have the support of both the House and the Senate. And there are multiple ways to resolve this problem.”

Some Republicans say the internal fighting can’t help but her their party.

“To the public it just likes one huge circular firing squad,” said Mark McKinnon, a former political adviser to President George W. Bush, of the GOP’s squabbling.