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Budget battles threaten to limit Obama's second-term agenda

By John Whitesides

WASHINGTON (Reuters) - After a brutal "fiscal cliff" battle, President Barack Obama's looming budget confrontation with Congress threatens to sharply curtail his second-term agenda and limit his ambitions on priorities such as immigration reform and gun control.

Obama has vowed to push ahead with other legislative priorities during the fiscal fight, but faces the likelihood that they will be elbowed aside in a fierce struggle with Republicans over approaching deadlines to raise the limit on federal borrowing, cut spending and fund government operations.

Obama and Congress must agree by the end of March on increasing the $16.4 trillion debt ceiling, the fate of $85 billion in delayed automatic spending cuts and passage of a bill to fund the government after a temporary measure expires.

Those budget battles could be even more intense than the weeks-long "fiscal cliff" fight that ended on New Year's Day with an agreement to raise taxes on the wealthy, leaving divided Republicans itching for revenge and a fractured relationship between Obama and Republican House Speaker John Boehner.

"We always felt that a bipartisan and amicable conclusion to the fiscal cliff would lead to a very positive agenda for the next two years, and the opposite occurred. It bodes poorly for Obama's other major priorities," said Jim Kessler, senior vice president for policy at the centrist think tank Third Way.

"There is a high level of dysfunction. They haven't cracked the code yet on how to work with each other," Kessler said of Obama and congressional Republicans.

The fiscal cliff fight overwhelmed nearly everything else at the White House for two months. A similar result in the budget battle would be bad news for Obama, cutting into the narrow one-year to 18-month window when second-term presidents traditionally still have the political clout to achieve their most significant legislative victories.

"From a Republican standpoint, if you don't want Obama to get any oxygen on these other issues, focusing on the fiscal cliff and all these budget issues is a very good way to run out the clock on him," said Republican strategist John Feehery, a former Capitol Hill aide.

Obama has promised to pursue a broad second-term agenda focused on comprehensive immigration reform, bolstering domestic energy production, fighting climate change and gun control. After the "fiscal cliff" deal, he said he would not curtail his agenda because of the looming budget fights.

"We can settle this debate, or at the very least, not allow it to be so all-consuming all the time that it stops us from meeting a host of other challenges that we face," Obama said on New Year's Day before boarding a flight to Hawaii to resume a holiday interrupted by the fiscal cliff fight.

"It's not just possible to do these things; it's an obligation to ourselves and to future generations," he said.

PRIMED FOR A FIGHT

Republicans are primed for the coming fight, believing they have more leverage against Obama than during the fiscal cliff battle. Failure to close a deal on the debt ceiling could mean a default on U.S. debt or another downgrade in the U.S. credit rating like the one after a similar showdown in 2011.

A failure to reach agreement on a government funding bill could mean another federal shutdown like brief ones in 1995 and 1996.

Republicans say they will not back an increase in the federal debt ceiling without significant spending cuts opposed by many Democrats, particularly to popular "entitlement" programs such as the government-funded Medicare and Medicaid healthcare plans for the elderly and poor.

"When you look at what's coming down the pike, it will make the fiscal cliff look like a day in Sunday school," said Democratic strategist Chris Kofinis.

"You're talking about a battle that's going to last weeks or months. If they get a deal, it's going to be ugly, it's going to be brutal. Once you get past that, where do you find the will to address other issues? It's going to be very hard," he said.

Administration officials promise to move quickly in January in pursuit of new legislation on gun control and immigration. The gun control effort will be led by Vice President Joe Biden, who was appointed to develop a response to the deadly Connecticut school shootings in December.

But what seemed to be fresh momentum for new measures such as a ban on assault rifles after the mass killing in Connecticut could be stalled by a protracted focus on the seemingly never-ending budget showdowns.

Obama also plans to introduce comprehensive immigration legislation this month. Republicans will have fresh incentive on the issue after Hispanics soundly rejected Republican presidential contender Mitt Romney in the November election, giving Obama more than 70 percent of their vote.

But a Senate Republican leadership aide said economic issues would be the prime concern of Congress for months, pushing back consideration of gun control and immigration. The aide blamed Obama.

"The lack of leadership on spending and debt has put us behind on a number of other issues. That is not something that can be resolved quickly," the aide said.

When blocked in Congress, Obama has shown a willingness to use executive orders and agency rules to make policy changes. During last year's campaign, Obama ordered an end to deportations of young undocumented immigrants who came to the country as children and had never committed a crime.

This week, the Department of Homeland Security changed its rules to make it easier for undocumented immigrants to get a waiver allowing them to stay in the country as they seek permanent residency.

With Republicans motivated to improve their standing with Hispanics, there is a chance Congress will work with the White House to pass an immigration bill that both bolsters border security and offers a pathway to legal status for undocumented immigrants who pay their back taxes and fines.

Finding the rare sweet spot where Obama and Republicans actually agree on an issue could be the key to second-term legislative success.

"The only thing that gets done outside of the economy are things that Republicans decide they have to get done for their own political futures," Feehery said.

But Kessler said he was skeptical that Obama and Congress can find common ground on a comprehensive immigration measure that provides a long-term solution for the country's 12 million illegal immigrants.

"Will something get done on immigration? Probably. But a major deal that addresses all undocumented immigrants in a comprehensive way? We're much less confident than we were two weeks ago," Kessler said.

"The question now is, do they even know how to make deals with each other?" he said.

(Additional reporting by Jeff Mason and Thomas Ferraro; Editing by Claudia Parsons)

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