* Two-day retreat meant to unify Republican rank-and-file
* Party looking to rebound from "fiscal cliff" debacle
By Kim Dixon
WASHINGTON, Jan 16 (Reuters) - With more fights over the U.S. budget deficit just weeks away, House Republicans face their own internal debate over whether to play hardball to try to extract spending cuts from President Barack Obama.
Members expect to air their differences at a two-day retreat in Williamsburg, Virginia, that started on Wednesday.
But with three crucial confrontations ahead of them, starting with whether to raise the government's debt ceiling next month, Republicans have yet to settle on a strategy to avoid a repeat of the beating they took in the ragged conclusion of the "fiscal cliff" controversy.
That ended with the majority of Republicans in the House of Representatives and even some party leaders voting against a deal brokered in part by Senate Republican leader Mitch McConnell to raise some taxes on the most affluent.
"At the end of the day, if the leadership table is not united, there is no way the conference will be," said Republican Representative Tom Cole of Oklahoma, who said he is worried about divisions within the party.
"This is going to be a great session for our leadership to listen to what everybody has got to say and to understand that a good strong team is the best team to put on the field," said Republican Representative Lynn Westmoreland of Georgia, a member of the Tea Party caucus, a group of conservative lawmakers.
The Republican Party has little time to spare.
Its first test will come in mid-February when the Treasury runs out of tools to stave off a debt default without congressional authorization to raise the government's borrowing limit. Some Republicans say they won't vote to raise the debt ceiling unless there is an equal amount of spending cuts.
That will be followed in the first week of March by the unfinished business of the "sequester," automatic spending cuts that were postponed by two months in the Jan. 1 fiscal cliff deal.
Finally, on March 27, Congress will have to vote to continue funding the government or face a possible shutdown.
Republicans, who have a majority in the House, could attempt to use any or all of these deadlines for leverage in their long struggle to get spending cuts from Obama and his Democrats, who control the Senate.
In Williamsburg, Republican leaders are expected to lay out several options, including use of the debt ceiling as a bargaining chip, according to a House Republican aide.
So far, congressional Republicans have gotten little firm guidance from their leaders in the House or Senate on how to handle the challenges ahead. They are also being buffeted by conflicting advice from influential conservative organizations.
Hardliners are bolstered by interest groups like the Club for Growth, which backs conservative candidates in primaries in an attempt to purge the party of moderates.
The Heritage Foundation, a conservative think tank now headed by former Republican Senator Jim DeMint, is also urging Republicans in a statement on its website to "not raise the debt ceiling" without extracting "immediate reforms" toward balancing the federal budget.
But Tim Phillips, president of Americans for Prosperity, a non-profit funded by billionaire brothers Charles and David Koch, questioned the effectiveness of standoffs with Obama over the debt ceiling, saying in an interview with Reuters that they tend to produce tax increases immediately and only unenforceable promises of spending cuts down the road.
He said he did not advocate "rolling over" on the debt ceiling but thought too much attention was focused on that particular point of leverage.
"We believe the sequester that's coming up" and the vote in late March over funding the government "are just better, cleaner fights," Phillips said. They could produce "enforceable spending cuts" without giving Democrats a chance to push for tax increases as part of some larger bargain.
At a recent meeting of freshmen and veterans, new members took a hardline on the debt ceiling while veterans, even some members of the first Tea Party class of 2010, urged moderation, said an aide to a prominent House Republican who asked not to be identified.
"A battle is expected at the retreat over this," the aide said.
Freshman Republican congressman Luke Messer of Indiana said that "we have to get aggressive about spending right now. From my perspective, I want to use every lever we can to try to bring runaway spending under control."
Asked whether he would be OK with putting government in a position where it had to start shutting down operations to pay its debts, he said: "In any negotiation, it's very difficult to get very far if you're not willing to live with the consequences of not having a deal."
In response to Obama's vow not to negotiate over the debt ceiling, Republican House Speaker John Boehner said this week that "the American people do not support raising the debt ceiling without reducing government spending at the same time."
But in a recent Wall Street Journal interview he hinted that using the debt ceiling may not be the best strategy to extract spending cuts.
Republican willingness to support the sequester - automatic spending cuts that kick in on March 1 without lawmaker action - is "as much leverage as we're going to get," Boehner said.
McConnell, in an opinion piece Wednesday in the conservative journal National Review, said: "Any sensible debt-limit increase must involve cuts to Washington spending."
Many House Republicans complained during the cliff negotiations of closed-door discussions involving the leadership from which they were left out and uninformed.
Ultimately, they rebelled, refusing to support an alternative tax and spending "Plan B" presented to them by Boehner as he sought to gain some leverage in his bargaining with Obama.