US president refuses to rule out tax rises for wealthiest Americans as he signs debt limit bill into law

Barack Obama came out fighting in an attempt to undo the damage to his reputation caused by the long-running debt standoff, and pacify Democrats who feel betrayed by the deal that will result in spending cuts totalling trillions of dollars.

The president, who turns 50 on Thursday, faces a tough re-election fight next year. He needs not only to win back such disaffected Democrats, but also to get them out to campaign for him and vote in their droves, as they did in 2008.

Speaking minutes after the Senate joined the House in approving the deal to prevent the US going into default, Obama offered an olive branch by putting tax rises back on the table.

Republicans have insisted repeatedly over the last few days that the deal does not include tax rises. But Obama, in a short statement in the Rose Garden, said the country's huge national debt could only be reduced through a combination of spending cuts and tax rises, particularly for the wealthy and big corporations such as those in the oil industry.

"Everyone is going to have to chip in," he said. "That is only fair. That's the principle I'll be fighting for during the next phase of this process."

He then attempted to turn the debate away from the debt ceiling towards jobs and pay, the issues that Democrats regard as the key to the 2012 election.

But despite hints at ending tax breaks introduced by George Bush, Obama may decide such a strategy would be too risky so close to a presidential election.

He signed the debt bill after the Senate vote on Tuesday, just hours before the midnight treasury deadline, which if not met could have caused the US to default on its debts, a national humiliation likely to have had a huge impact on the markets and the global economy.

Although the US has avoided default, the row left hanging the question of whether the US's AAA credit rating would be downgraded. Moody's Investors Service said Tuesday the US will retain its rating after the debt deal. Standard & Poor's, which last month warned Congress of a possible downgrade, is still to announce it decision.

Democrats, from members of Congress to grassroots activists, lined up to criticise the president for giving in to what they view as extortion tactics by Republicans aligned to the Tea Party movement.

The Republican leader in the Senate, Mitch McConnell, added to the view that this was a Republican victory. Speaking minutes before the vote, McConnell told Republicans who had wanted even deeper spending cuts: "Although you may not see it this way, you've actually won this debate."

The ebullient mood among Republicans was reflected in an article yesterday in the New York Post by the conservative John Podhoretz, speechwriter to two Republican presidents: "If Barack Obama loses next November, we'll look back on Sunday – July 31, 2011 – as the day he became a one-termer. He demonstrated the one key quality common to all unsuccessful leaders: haplessness."

He described Obama as looking powerless and compared Obama's negotiating strategy to "Daffy Duck, who once ended a rapid-fire exchange at gunpoint with Bugs Bunny by turning the rifle on himself and pulling the trigger".

The Senate, following the House vote, passed the deal on Tuesday to raise the $14.3 trillion debt ceiling. It was passed by 74 votes to 26.

Gabrielle Giffords, the Arizona politician who was shot in the head in January, returned to Congress on Monday to participate in the vote. She said she had been "deeply disappointed" by the political wrangling that had taken the US to the brink.

At the end of a period in which the debt row left Washington all but paralysed, Congress broke up for the summer. Obama will return to the campaign trail on Wednesday. The row forced him to cancel several fundraising opportunities over the past week, but he is scheduled to travel on Wednesday to his hometown of Chicago, where he celebrated on election night 2008, for a number of events.

The Obama-led events are reported by the Chicago Sun-Times to cost up to $35,800 for those wishing to attend.

But his support for tax rises will resurrect the ideological battle when Congress returns next month. As part of the deal, a bipartisan committee has been set up to look in detail at where the cuts are to be made, reporting at the end of November.

Polls show voters increasingly frustrated and dismayed, not only with the president's performance over the crisis but also with members of Congress from both sides. A CNN/Orc poll published on Tuesday found only 17% said politicians in Washington had behaved as responsible adults, while 77% believed they had behaved like spoiled children.

Obama's popularity dropped by 5% in the polls during the past week, with most putting him around 45%; but a Gallup poll at the end of last week had support for him at just 40%.

Michael McDonald, a specialist in polling and politics at George Mason University, said: "Everyone took a hit in the polls on this one. No one came out smelling of roses after this debacle."

But he added that Obama's approval ratings of 40% were problematic going into an election year.

"That is dangerous territory," he added. "I would not want to be down to 40%. We have to see whether it is short term or long term. I would say it is likely to be long term because of the state of the economy, and if people are crystallising their opinions of Obama's handling of the economy, he is in danger."

Obama received a boost in the polls in May when Osama bin Laden was killed but this quickly faded after the following month. One positive he may take from the debt row is that it offers a campaign strategy for next year, portraying the Republicans as extremists at the mercy of the Tea Party movement.