By Lori Montgomery
Washington Post Staff Writer
Friday, June 25, 2010; 1:13 AM - Washington Post

Senate Democrats abandoned on Thursday efforts to provide fresh aid to cash-strapped state governments and extend emergency unemployment benefits for millions of jobless workers, leaving in limbo President Obama's push for more spending to bolster the economy.

The decision came after the Senate failed again to muster 60 votes to advance a package of tax cuts and emergency economic provisions. Sen. Ben Nelson (D-Neb.) joined a united Republican caucus in voting to block the measure, citing concern that even the latest slimmed-down version would expand bloated budget deficits. The package fell short, 57 to 41.

Majority Leader Harry M. Reid (Nev.) blamed Republican intransigence for killing the measure and dismissed talk of continuing negotiations, saying the only path forward would require Republican compromise.

"We've tried and tried. This is our eighth week on this legislation," Reid said, urging reporters to direct questions about the measure's fate to Minority Leader Mitch McConnell (Ky.). "We are here. We're willing to work."

McConnell, meanwhile, blamed Democrats for the impasse and for refusing to support a Republican alternative that would have paid for new spending with cuts elsewhere, reducing future deficits.

"The principle they're defending here is not some program," McConnell said. "The principle Democrats are defending is that they will not pass a bill unless it adds to the debt."

Other senior Democrats said they will probably try again to attract GOP support for the measure, which Obama has called critical to avoiding the layoffs of hundreds of thousands of state workers and propping up the nation's still-fragile economic recovery. But after four months of talks, frustrated senior Democrats said they are likely to delay further action until after the July 4 recess.

"People are in the mood of letting the dust settle before finding the next step," said Budget Committee Chairman Kent Conrad (N.D.).

Emergency jobless benefits, which provide up to 99 weeks of income support, expired June 2. Since then, more than 1.2 million people have had their checks cut off, according to estimates by the Labor Department. That number is expected to rise to more than 2 million people by the time Congress returns from its weeklong break. Unless Congress acts, the program would phase out entirely by the end of October.

White House press secretary Robert Gibbs said the president would not give up on the measure. "The President will continue to press Congress to pass this bill and bring this relief that's critical to our economic recovery," Gibbs said in a statement.

Advocates for the unemployed vowed to continue fighting for an extension, saying it makes no sense to abandon people when the unemployment rate is 9.7 percent -- far higher than the cutoff points for emergency unemployment benefits after previous recessions.

"We've never come close to doing anything like this in the postwar period," said Andrew Stettner, deputy director of the National Employment Law Project. "This is going to cut the heart right out of consumer spending. If they want to cut short the recovery, this is the best way to do it."

Democrats have been trying to push the package to final passage since at least March, when an earlier version actually passed the Senate with the support of six Republicans. That measure would have added nearly $100 billion to budget deficits over the next decade. It had be reworked because it included several tax increases that ultimately were used to help pay for Obama's health-care overhaul.

Since then, concern about the deficit has risen dramatically among lawmakers in both parties, many of whom will face voters in this fall's midterm elections. That anxiety hampered efforts to reshape the package, as even some Democrats demanded that new spending be paid for, forcing Democratic leaders repeatedly to pare it back.

The latest version, released late Wednesday, would have increased budget deficits by $33 billion over the next decade -- the cost of extending jobless benefits through the end of November. Obama's request for $24 billion in state aid was scaled back to $16 billion and its cost would have been covered by unspent funds from last year's economic stimulus package, much of it targeted at the food stamps program.

Other provisions would have been fully paid for, including plans to extend an array of expiring tax breaks that are hugely popular with many of the nation's largest business groups. Among the revenue-raising provisions in the measure are new taxes on investment fund managers and multinational corporations that do business overseas.

So far, business groups have complained loudly about the tax increases but have done little to build Republican support for the tax cuts. By ceasing work on the package, Democrats said they hope to prod business groups as well as Republican governors who need additional federal aid to balance their budgets.

"I frankly hope when Republicans go home, the businesses that want these tax reductions will scratch their heads and say: 'What were you thinking?' " said Sen. Sheldon Whitehouse (D-R.I.), where the jobless rate stands at 12.3 percent, one of the highest in the nation.

If Congress fails to extend emergency benefits, Whitehouse said, "It would be pretty bad."

Despite the anxiety about spending, Congress managed to take care of one group of supplicants. Late Thursday, the House voted overwhelmingly to send to the president a measure that would postpone a 21 percent pay cut for doctors who see Medicare patients. The $6 billion measure would delay the cut until the end of this year.

Staff writer Paul Kane contributed to this report.