Obama holds line on Social Security in budget plan

WASHINGTON Mon Feb 14, 2011 4:53pm EST

WASHINGTON (Reuters) - Social Security would not change significantly under President Barack Obama's 2012 budget plan, leaving for later a fiscal reckoning on the massive U.S. pension program for the elderly and disabled.

Saying he wants to work with Congress, Obama offered general principles for reform reflecting Democrats' long-held commitment to defend the politically popular program, but he offered no new proposals to secure its long-term stability.

"I want to make clear, first, that Social Security isn't contributing to the deficit in the next 5 to 10 years or considerably beyond that," Jack Lew, Obama's budget director, told reporters at a briefing on the budget proposal.

"Social Security is something that we need to address in the long term ... The president wants to work together on a bipartisan basis to have a conversation about how we can do this in a way that meets our values," Lew said.

More than 50 million Americans receive benefits through the $700 billion program, which is projected to be able to continue paying 100 percent of benefits through 2037.

In the long run, however, Social Security faces a problem. "Because of the economic downturn, the Social Security surplus has been declining for several years," the administration said in analysis of the budget proposal.

The surplus is projected to begin growing again as the economy recovers, but "under present law, the surplus is eventually estimated to decline, turn into a deficit, and never reach balance again," it said.

Looking at the program's distant horizon, a commission formed by Obama last year to tackle the federal deficit proposed raising the Social Security retirement age and cutting future benefits. Obama did not adopt the commission's Social Security proposals in his budget plan.

In a statement that could leave the door open for negotiation on modest benefit cutbacks for future beneficiaries, Obama said he "will not accept an approach that slashes benefits for future generations. No current beneficiaries should see their basic benefits reduced."

Taking a stand on the issue of privatizing part of the program, an idea some Republicans have embraced in the past, Obama said "the administration will oppose any measures that privatize or weaken the Social Security system."

Along with the Medicare and Medicaid healthcare programs for seniors and the poor, Social Security is one of the three major entitlement programs that in fiscal 2010 accounted for 44 percent of non-interest federal spending, up from 30 percent in 1980.

By 2035, when surviving baby boomers will be 70 or older, these three programs could account for more than 60 percent of non-interest federal spending.

Because of reforms in 1983, Social Security had been running a cash surplus, with taxes exceeding costs, until 2010.

"The 2010 Social Security trustees' report projects that the trust fund will return to cash surplus briefly as the economy improves, but that cash deficits will reappear in 2015," said long-term analysis included in the budget plan.

(Additional reporting by Patricia Zengerle and Donna Smith; editing by John Whitesides)