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Analysis: Obama, Republicans gear up for bruising U.S. budget fight

U.S. President Barack Obama speaks about the U.S. economy inside the main warehouse at the Jacksonville Port in Florida, July 25, 2013. REUT
U.S. President Barack Obama speaks about the U.S. economy inside the main warehouse at the Jacksonville Port in Florida, July 25, 2013. REUT

By David Lawder and Caren Bohan

WASHINGTON (Reuters) - Another dramatic showdown between Republicans and the White House over federal spending looks inevitable this fall, with scary talk of government shutdowns and default on government debt.

While Capitol Hill analysts are not predicting catastrophe, they have several reasons to worry that the conflict just weeks away could be even worse than usual.

The timing is particularly bad, they say, because the political climate in Washington is unusually frayed by a host of tangential issues not present in previous battles.

Obama and Congress face two fiscal deadlines in quick succession. They must agree by October 1 on a stop-gap measure to keep the government funded or face a shutdown.

And in early November, Congress must raise the legal limit on the country's borrowing authority or risk an unprecedented default on the government's debt, a much more consequential event than a shutdown because of its potential to cause chaos in financial markets and harm the economy.

This time around, the Republicans, who control the U.S. House of Representatives, are expected to use the deadlines as they have in the past as leverage to extract spending reductions from President Barack Obama.

With the two dates so close, some members of Congress, including some Republican leaders, think they could influence each other, and not for the better.

There's a chance, for example, that conservatives, particularly on the eve of the 2014 midterm election campaign, may be willing to hold out for a shutdown in order to show they mean business in advance of the debt limit fight.

Analysts also fear that if conservatives lose the battle over government funding - and get no concessions from Democrats - they will be all the more determined to take a hard line on the debt ceiling.

Conservative anger at Obama has risen in the last few months, thanks in part to the controversy surrounding the Internal Revenue Service's targeting of conservative groups seeking tax-exempt status and the implementation of Obamacare, the president's signature health care reform law, which starts officially on October 1, just as the fiscal battles intensify.

Washington is gearing up for another showdown over the budget even though two prior confrontations resulted in political damage for both Obama and congressional Republicans.

The most recent fight, which played out in late 2012 and was resolved late in the evening on New Year's Day, left Republicans frustrated because it resulted in tax increases on the wealthy.

The standoff over the debt limit in July and August of 2011 was more unsettling to financial markets because of the risk of a default. The impasse triggered a downgrade of the country's credit rating.

OBAMACARE FACTOR

Some Republicans, including conservative Senators Mike Lee of Utah and Marco Rubio of Florida want to link the fiscal deadlines with Obamacare, demanding the withholding of funding for the health care law as part of any deal to avoid a shutdown.

Texas Republican Representative Pete Sessions expressed concern about House members splintering their demands, with various factions focusing on different issues.

"I'm not so worried about a hard line. I'm worried about members drawing different lines," he said, staking out positions on tax policy, Obamacare, or approval of the controversial Keystone XL pipeline.

Meanwhile, with Congress set to leave town August 2 for a five-week recess, there are few signs of any substantive negotiations.

Obama and Republican House Speaker John Boehner rarely have direct conversations. At the staff level, White House aides and House Republican leadership staff "are in regular but not terribly substantive communication," said a senior Republican aide.

The one avenue for communication are budget talks between the White House and a handful of Republican senators, most of whom have a reputations as dealmakers, including Johnny Isakson of Georgia, Rob Portman of Ohio, Lindsey Graham of South Carolina and John McCain of Arizona.

TALKS GOING NOWHERE

By all accounts, there has been scant progress in these talks, which have not even included proposals for specific cuts.

The battle started taking shape this week.

Obama began touring the country, punctuating his comments about the economy with warnings to Republicans not to "manufacture another crisis."

Congressional Republican and Democratic leaders ramped up their rhetoric as well, accusing each other in exchanges on the House floor of spoiling for a fight.

Further exchanges are likely this weekend, with Treasury Secretary Jack Lew scheduled for a round of appearances on Sunday interview shows.

The last government shutdowns forced by House Republicans in late 1995 and early 1996 under then-Speaker Newt Gingrich backfired badly for them, helping to seal Bill Clinton's re-election as president later that year.

Some Republican moderates remember those days well and caution against risking a shutdown or a default.

"Those are the kinds of things that would put the Republican majority in the House in jeopardy and make it essentially impossible to win the majority in the Senate," said Representative Tom Cole, a Republican moderate from Oklahoma.

Others are unafraid.

"A lot of folks see this as a crisis. It's an opportunity," said Representative Tim Huelskamp, a Kansas Republican.

(Reporting by David Lawder and Caren Bohan; Additional reporting by Richard Cowan and Roberta Rampton; Editing by Fred Barbash and Lisa Shumaker)

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