UPDATE 2-Obama budget proposal to drop Social Security cuts

WASHINGTON, Feb 20 (Reuters) - President Barack Obama on Thursday dropped a measure to trim cost-of-living increases in Social Security from an upcoming budget proposal in an election-year move that may insulate fellow Democrats facing heat from senior voters.

The White House said Obama's budget proposal for the 2015 fiscal year, to be released on March 4, will not include a plan he made last year in an effort to gain some Republican support and break through congressional gridlock.

Dropping the offer this year is a sign Democrats are girding for November congressional elections and in no mood to risk supporting proposals that could cost them votes from seniors on Election Day on Nov. 4.

Obama had offered to make a controversial change in how the government calculates inflation for Social Security and other federal benefits in a way that could lead to cuts in benefits for some Americans.

But since Republicans have never come forward to identify tax loopholes for the wealthy or corporations in return for Obama's concession, the Social Security proposal was dropped, a White House official said.

The official said Republicans had shown a lack of willingness to negotiate on a deficit reduction deal, "refusing to identify even one unfair tax loophole they would be willing to close despite the president's willingness to put tough things on the table."

The move was greeted with derision from Republicans on Capitol Hill.

"This reaffirms what has become all too apparent: The president has no interest in doing anything, even modest, to address our looming debt crisis," said Brendan Buck, spokesman for John Boehner, the speaker of the U.S. House of Representatives and the top Republican in Washington.

Democrats, however, were thrilled by the decision. Democrats are fighting to hang on to control of the U.S. Senate in November elections and pick up seats in the Republican-controlled House.

"This is a huge progressive victory, and greatly increases Democratic chances of taking back the House and keeping the Senate," said Stephanie Taylor, co-founder of the Progressive Change Campaign Committee.

The budget offer will adhere to spending levels agreed to in a two-year bipartisan budget deal that was achieved at the end of last year, the official said, speaking on condition of anonymity.

The Obama budget will include new proposals, including expanded tax credits for the working poor, the official said.

The offer to trim Social Security costs remains on the table "for whenever the Republicans decide they want to engage in a serious discussion about a balanced plan to deal with our long-term challenges," the White House official said.