Analysis: Retirement changes not likely in debt talks

Vice President Joe Biden departs after meeting with a bipartisan group of lawmakers to work on a legislative framework for comprehensive deficit reduction at the Blair House in Washington May 10, 2011.

WASHINGTON (Reuters) - Negotiators trying to get the country's debt under control aren't likely to propose major changes to retirement benefits, but even slowing the growth of those benefits could yield substantial savings.

The Social Security retirement program accounts for roughly one-quarter of government spending, but it has been largely spared from scrutiny as Vice President Joe Biden and top lawmakers search for a way to narrow trillion-dollar budget deficits.

That's in large part due to the program's popularity and the clout of interest groups devoted to its preservation.

"We are adamantly opposed to having Social Security cuts as part of this debate. Social Security's a separately financed program -- it didn't cause the deficit," David Certner, a top lobbyist with the seniors' group AARP, said in a telephone interview.

Certner said AARP would support changes to the program, such as tax increases or benefit cuts, as part of a separate effort to ensure its long-term viability.

That's probably beyond the scope of the Biden group, which hopes to find $4 trillion in budget savings by the end of the month in order to give Congress political cover to increase the country's $14.3 trillion debt ceiling.

"With respect to Social Security, both sides, Republicans and Democrats, have said, 'That's an issue we need to take outside the context of the deficit reduction talks,'" Democratic Representative Chris Van Hollen, a participant in the talks, said on the U.S. cable TV channel MSNBC.

The Treasury Department has warned that it won't be able to pay the country's bills if Congress doesn't act by August 2 -- a scenario that could push the country back into recession and tip global markets into chaos.

Analysts say the Biden group could find substantial savings by tying the growth of Social Security benefits to an index that more accurately reflects inflation.

"It's not like you're somehow changing the way the program works, you're just making it operate more accurately," said Douglas Holtz-Eakin, an economist with the conservative American Action Forum.

COULD BREAK DEADLOCK OVER BENEFITS AND TAXES

Moving to this new measure, known as the "chained Consumer Price Index," would also slow the growth of tax exemptions, leading to roughly $250 billion in budget savings over 10 years, according to a report released Friday by International Strategy & Investment, an analysis firm.

Jim Kessler, a policy expert with the centrist think tank Third Way, gave the Biden group a one in five chance of addressing Social Security, and said that changing the inflation index was the most likely way.

"I think that it could be done with a minimum amount of angst," he said in a telephone interview.

That approach could also help break a deadlock that has prevented the Biden group from reaching agreement on the biggest items. Republicans so far have refused to consider tax increases, while Democrats have opposed benefit cuts, but changing the inflation index would accomplish both.

But it could stir resistance from AARP and other groups who contend that the new measure does not accurately reflect the fact that seniors spend more on healthcare costs, which have been growing faster than inflation as a whole.

"We think there are a number of problems with the chained CPI," Certner said.

The White House said on Friday that Obama does not support any move in debt negotiations that would cut Social Security benefits.

Social Security could face substantial changes even if it escapes the clutches of the Biden group. Another bipartisan group of senators known as the "Gang of Six" had been working on retirement reforms until one of its members, Republican Senator Tom Coburn, dropped out due to a dispute over healthcare costs.

That group has quietly continued its efforts even as the attention has shifted to the Biden group.

U.S. budget deficits in recent years have ballooned to their highest level relative to the economy since World War Two. The deficit is projected to hit $1.4 trillion for this fiscal year, which ends September 30.

(Writing by Andy Sullivan; Editing by Eric Walsh)