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Analysis: Debt negotiators eye 2012

By Patricia Zengerle

WASHINGTON (Reuters) - U.S. lawmakers bogged down in talks on the debt limit need to reach a deal by an August 2 deadline but the politicians also have one eye another big date: Election Day on November 6, 2012.

Many of the obstacles in the way of a debt agreement are due to both parties positioning themselves for presidential and congressional races next year, in which the U.S. economy is going to be the main issue.

Democrats are using the debt talks to argue that they are the party that cares most about working class Americans.

In campaign-style rhetoric, they have labeled Republicans as extremists who want to cut social spending programs like healthcare for the elderly in order to protect perks and tax breaks for the rich.

Republicans, in turn, have accused Democrats of being too beholden to labor unions and other interest groups.

Obama has canceled a series of campaign fundraisers this month to stay in Washington for the tense debt negotiations that have worried financial markets.

Lawmakers and Obama need to reach a deal by August 2 or the United States will face an unprecedented default on its debt.

Republican House Speaker John Boehner wants to raise the U.S. debt limit in stages, which would force Congress to confront the politically painful issue again before the elections in 2012.

That could tie up Obama in further negotiations next year, instead of campaigning for a second term.

"I see an absolute political calculus in it," said Norman Ornstein, a political scholar at the American Enterprise Institute.

Having the deficit debate come up again next year, with an even greater risk of default and a lower U.S. credit rating, would help Republicans push Democrats harder for spending cuts, Ornstein said.

Most opinion polls show Obama favored to beat any Republican challenger at the polls, although his lead is slipping as the high unemployment rate stays stuck.

Republicans have a decent chance of winning control of the Senate in the 2012 elections.

SOUNDS LIKE CAMPAIGN

The debt talk argument is already sounding like a full-blown election campaign.

"They'd rather cut Social Security benefits than end taxpayer-funded giveaways for these billionaires and millionaires who have their corporate jets," Senate Majority Leader Harry Reid said of Republicans on Monday.

Obama is to address the nation at 9 p.m. EDT on Monday/0100 GMT on Tuesday.

"The president continues to put politics over people. His only concern when you listen to him is to bring up the election," said Kevin McCarthy, the third-ranking Republican in the House.

Both sides risk alienating supporters during the campaign season if they give in too much or appear more interested in scoring points than forging a compromise, given the economic risks at a time of 9.2-percent unemployment.

"The pitfall is, while this debate is going on, the debate over and the ideas for how to create jobs are still struggling for oxygen," said Brandon Davis, political director of the 2.1-million member Service Employees International Union.

Obama is risking anger from Democrats on the left, who fear he will agree to too many cuts in government programs without insisting that Republicans agree to tax increases.

Republican congressional leaders, in turn, must placate conservatives fiercely opposed to any increase in taxes if they refuse to consider any increase in revenue to lower debt.

"There is a sense that Democrats don't realize just how much Republicans oppose tax increases in these negotiations," said Jonathan Collegio, communications director at the GOP-linked American Crossroads political action committee.

He said that Obama, for example, has not offered to repeal his healthcare law as a concession to Republicans on taxes. "He's asking Republicans to slice into their sacred cow while he's not offering a slice into his," Collegio said.

But a hard line could alienate moderates and independents, whose support will be essential to election victory.

Recent polls have shown that Americans are angry with both parties, but blame Republicans more.

"The broader issue for the Republicans is ... if they look like they're the obstructionists then that's a drag on them going into 2012," said Herb Asher, a political scientist at The Ohio State University, in Boehner's home state.

(Editing by Alistair Bell and Sandra Maler)

(This story corrects date to November 6 in first paragraph.)

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