UPDATE 1-Obama: Republicans holding small businesses 'hostage'
* Obama urges Republicans to allow vote on bill
* Reid hopeful that Senate can act on bill next week
* Obama says he'll call Republicans' 'bluff' on deficit (Adds Obama comments on deficit in paragraphs 9-11)
By Ross Colvin
WASHINGTON, July 31 (Reuters) - U.S. President Barack Obama on Saturday accused Republicans of holding American small businesses "hostage to politics" after Republican senators refused to back a $30 billion small-business lending package.
Senate Republicans blocked the package on Thursday, dealing a fresh blow to Obama's efforts to show Americans, in the midst of a tough election year, that his administration is focused on tackling stubbornly high unemployment.
With opinion polls showing eroding support for Obama's handling of the economy, Democrats fear voters will punish them for the 9.5 percent unemployment rate come November, when all 435 seats in the House of Representatives and 37 of the 100 seats in the Senate will be in play in mid-term elections.
"I'm calling on the Republican leaders in the Senate to stop holding America's small businesses hostage to politics, and allow an up-or-down vote on this small business jobs bill," Obama said in his weekly radio and Internet address.
"Understand, a majority of senators support the plan. It's just that the Republican leaders in the Senate won't even allow it to come up for a vote," he said.
Democratic leaders failed on Thursday to muster the 60 votes needed to advance the measure over Republican objections.
Republicans are upset that Democrats shut them out during discussions to amend the package, which they say is another example of Obama's overreach in government spending.
The economy is likely to be the main flashpoint in the November elections and the ballooning U.S. deficit is another point of contention between the two main political parties.
In an interview with CBS television, Obama challenged Republicans to lay out their ideas for tackling U.S. debt and deficit problems.
"Now the Republicans have said that this is their number one concern. I'm going to call them on their bluff," he said in the interview, according to excerpts released by the network.
"I want to see their ideas for how we're going to deal with these issues. I'm going to have a bunch of ideas," he said.
Obama also said the small business package was "as bipartisan a set of ideas as you can imagine." Senate majority leader Harry Reid is hopeful that a deal can still be reached that would allow the Senate to act on the bill next week.
But even if the Senate passes the bill, it would be too late to get it to Obama's desk before mid-September.
The House, which passed its version of the bill in June, is set to begin a six-week break on Friday. It will be unable to vote on the version passed by the Senate until then.
Obama's comments were at least the third time in a week that he had called on Republicans to back the bill.
The bill provides for a $30 billion fund to invest in community banks to bolster lending. It also would provide tax credits and a limited capital gains exemption.
Small businesses, which account for two-thirds of jobs created in the United States, have been hit hard by the credit crunch, making it difficult for them to expand. (Additional reporting by Jeff Mason; editing by Mohammad Zargham)