Obama puts Democrats in bind with Social Security concession

WASHINGTON (Reuters) - President Barack Obama has put Democrats in Congress in a tough spot politically after he conceded to Republican demands in the "fiscal cliff" negotiations that the government use a lower inflation index for calculating federal benefits.

Although Obama was open to changing the index during last year's budget fight with Republicans, Democrats and progressives who helped re-elect Obama in November hoped new leverage gained from the win would prevent a repeat of that concession and had been warning the White House not to do so.

Their hopes were dashed Monday night when the White House's latest offer in the budget talks included moving to the lower inflation index, which takes into account changes in consumer buying habits.

Known as the "chained consumer price index," or chained-CPI, the index would help the government tackle the budget deficit by changing inflation adjustments for Social Security and other government beneficiaries, w hi le effectively raising taxes for other Americans.

That has put Democrats in a quandary because the White House is essentially asking them to avoid the year-end fiscal cliff of spending cuts and tax hikes by, in part, reducing federal retirement benefits for tens of millions of Americans.

"There are better ways to achieve savings," said Democratic Representative Chris Van Hollen, a member of the House leadership from Maryland.

Democratic Senator Carl Levin of Michigan said chained-CPI was "a problem for Democrats," but he declined to rule it out. "I want to see the whole package," he said.

As a way to appease Democrats who have argued that chained-CPI will hurt those who rely on the retirement benefits the most, the White House has proposed protecting "vulnerable populations," such as the oldest beneficiaries.

Those protections appeared to satisfy House Democratic leader Nancy Pelosi, who said she could sell Obama's plan to Democrats in the House. "Democrats will stay with the president, maybe not every single of them," she told MSNBC television.

But other groups - including liberal lawmakers, the powerful lobby group for seniors AARP and the AFL-CIO labor federation - were upset. "The last thing you want to do is cut Social Security benefits," said Senator Bernard Sanders of Vermont, an independent who votes with Democrats.

AARP issued a strongly worded statement urging Congress and Obama not to change the inflation index and said it would push thousands more into poverty. The AFL-CIO said chained-CPI was a benefit cut and said it opposed the change.

Shortly after the November presidential election, the White House said Social Security should be addressed separately from the talks to avert the fiscal austerity measures. "I want (Obama) to keep that promise," Sanders said.

The administration estimates chained-CPI can trim spending by $130 billion over 10 years and defended its move as "technical" as economists say it is meant to make the government's estimates of inflation more accurate.

Currently, the yearly cost-of-living increase for Social Security benefits is based on the regular CPI for Urban Wage Earners and Clerical Workers, which is a higher inflation rate than chained-CPI. (Additional reporting by Kim Dixon and David Lawder; Editing by Eric Beech)