Obama backs off Social Security cuts in deficit plan

WASHINGTON (Reuters) - President Barack Obama, yielding to pressure from his political base, has backed off a proposal to reform Social Security retirement benefits in a high-stakes deficits deal Congress needs to reach this year.

The Democratic president upset many core supporters in July when he considered changing how the popular pension funds are linked to inflation during acrimonious negotiations with Republicans over raising the U.S. debt ceiling.

Obama saw the change as a way to ensure the federal program remains viable for future generations, but liberals felt he was giving up too much ground to Republicans.

White House spokesman Amy Brundage said Obama's suggestions on how Congress can get to a $1.2 trillion deficit-reduction target, to be unveiled on Monday, "will not include any changes to Social Security."

A senior administration official said his proposals to 12-member congressional panel tasked with finding the savings by November 23, were still being finalized.

But they are expected to total as much as $3 trillion over 10 years and include tweaks to Medicare and Medicaid, the government's healthcare programs for the elderly and for the poor, and tax changes to close more loopholes for wealthy Americans and companies.

Obama's recommendations will not be binding on the "super committee" of six Republicans and six Democrats, but may influence the tone of the negotiations and will play into the 2012 election campaign rhetoric.

His shift in stance means the Democratic members of the super committee charged with tackling the federal deficit would not have to make immediate concessions in negotiations with their Republican counterparts.

Financial markets and credit ratings agencies are watching those talks closely for signs Washington can move beyond his debt ceiling rancor that provoked a Standard & Poor's downgrade and make a meaningful dent in deficits.

Fitch Ratings has said the U.S. credit outlook hinges on the super committee's action and Moody's Investors Service has warned it may downgrade the U.S. rating if Washington's plan to reduce the budget deficit turned out not to be credible.

If Congress fails to accept the congressional panel's plan, across-the-board spending cuts would be imposed that could further slow U.S. growth and drag on the fledgling global economy.

LOBBYING

House Speaker John Boehner, the top Republican in Congress, called on Thursday for the super committee to keep Social Security, the federal pension plan, Medicare and Medicaid on their radar for reforms.

He also signaled a willingness to close some tax loopholes as part of a deficit-cutting plan, a move that was welcomed by Democratic House Leader Nancy Pelosi who said it was important not to "put too much of a burden on the cut side."

In addition to Social Security, Obama had been open in the summer debt talks with Boehner to raise the eligibility age for Medicare health benefits to 67 from 65. He is also considering changes to save hundreds of billions of dollars in Medicare and Medicaid through streamlining and negotiated lower drug prices, as well as higher premiums for wealthier Medicare recipients.

The Wall Street Journal said on Thursday the White House was now looking instead at cuts to providers and increased premiums for wealthier recipients of Medicare, the healthcare program for the elderly.

Republican members of the super committee have questioned whether reaching far beyond the $1.2 trillion target is achievable, especially with Social Security off the table.

White House spokesman Jay Carney declined to say how much deficit-cutting Obama would pursue. "The goal is to do substantial deficit reduction and debt control," he said.

Obama's Social Security shift is a win for advocacy groups for the elderly, who have been pushing to take Social Security off the table because it is not adding yet to the deficit.

Eyeing the 2012 election, congressional Democrats including Senate Majority Leader Harry Reid have also said it should be walled off.

Jared Bernstein, a former economic adviser to Vice President Joe Biden, said protecting Social Security "makes a lot of sense for Democrats."

"These things are critical to the base," he said.

In addition to the proposals from Obama, Boehner and other lawmakers, the super committee members are hearing concerns from defense contractors, aerospace firms, healthcare providers and the pharmaceutical industry, who fear the impact of government spending cuts in their areas.

Boeing, Lockheed Martin, Northrop Grumman, General Dynamics and other aerospace companies have launched a grassroots campaign to highlight their ties to the economy, and health insurers, drugmakers, hospitals and doctors are doing their own lobbying and encouraging patients to present their own concerns to super committee members.

(Additional reporting by Deborah Charles, Donna Smith, Andy Sullivan, Kevin Drawbaugh and Alister Bull; Editing by Ross Colvin and Jackie Frank)

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