New political goodwill, same old fiscal debates

FORTUNE -- Will the killing of Osama bin Laden have a transformative impact on the political landscape? Beltway insiders are already trying to make sense of what it means for President Barack Obama's 2012 reelection prospects and the future of the war on terror.

Polling suggests it's difficult to predict with any certainty how big a boost Obama will enjoy for ordering Sunday's dramatic raid by US special forces. Or how long it will last.

One thing, however, seems clear: at least in the short term, Obama can expect to see his approval ratings rocket out of the mid-40-percent range where they've been languishing. And that will mean a significantly strengthened hand in the administration's fights with the Republicans over deficit reduction, gas prices and unemployment.

The President could use the help. The defining skirmishes of the year so far have played out on Republican turf. Democrats lost big in the midterms by failing to convince Americans that their stimulus spending averted an economic meltdown.

Since then, the debate hasn't been about whether to invest more to boost the recovery or cut spending to start trimming the deficit. Rather the conversation, now about how deeply to cut, could easily be confused for an intra-GOP squabble, even though Democrats still control the Senate and the White House. In the process, Democrats have allowed Republicans to seize the mantle of fiscal responsibility after spending the better part of the last decade creating a sizable chunk of the debt pile we now confront.

"Redefining the narrative should be an imperative, and he's got an opportunity that he didn't have before," Norm Ornstein, a Congressional scholar at the American Enterprise Institute, says of Obama.

Whether the President chooses to use it is a separate question. In accommodating Republicans, Ornstein says, "there's a political motivation, which is demonstrating to independents that they're trying to compromise. He's got some new leeway, and maybe he becomes a little more proactive and aggressive."

The Treasury Department announced Monday that better-than-expected tax receipts bought the federal government a few more weeks before a default if Congress fails to raise the debt ceiling. The new deadline is August 2. But the negotiations are going to be exceedingly tricky. They start getting serious this week, when Vice President Joseph Biden kicks off deficit cutting talks on Thursday.

At the moment, Republicans aren't exactly bracing for a rally-round-the-flag effect. David Winston, a GOP pollster and adviser to House Speaker John Boehner (R-Ohio), says whatever goodwill Obama earns from bid Laden's killing won't translate to domestic debates over the economy. "The American people can segment this," he said.