Competing fiscal plans blocked in divided Senate

The U.S. Capitol dome and U.S. Senate (R) in Washington, August 2, 2011. The United States is poised to step back from the brink of economic disaster on Tuesday when a bitterly fought deal to cut the budget deficit is expected to clear its final hurdles in the U.S. Senate.

WASHINGTON (Reuters) - Senate Republicans and Democrats rejected each other's economic stimulus bills on Thursday, underscoring their inability to craft a bipartisan solution on job creation before next year's elections.

All 47 Senate Republicans, joined by two of President Barack Obama's fellow Democrats and one independent, stopped a key piece of Obama's $447 billion economic stimulus plan.

The $35 billion proposal would raise taxes on millionaires to create or protect 400,000 jobs for teachers, firefighters, police officers and other first responders. In a 50-50 vote, its backers fell short of the needed 60 votes in the 100-member chamber to clear a Republican-led procedural roadblock.

"For the second time in two weeks, every single Republican in the United States Senate has chosen to obstruct a bill that would create jobs and get our economy going again. That's unacceptable," Obama said in a statement vowing to continue pushing for passage of the plan "piece by piece."

Democrats fired back by blocking a Republican bid to repeal a 3 percent withholding tax on business set to take effect on January 1, 2013. The 57-43 vote was also short of the needed 60 to stop a procedural roadblock by Democrats. Ten Democrats crossed party lines to vote in favor of the measure.

Democrats control the Senate, 53-47.

Both sides accused the other of jockeying for position in advance of the 2012 presidential elections that seems certain to feature the economy as the top issue.

"Protecting millionaires and defeating President Obama are more important to my Republican colleagues than creating jobs and getting our economy back on track," charged Senate Democratic Leader Harry Reid.

"The American people want us to do something about the jobs crisis," said Senate Republican leader Mitch McConnell. "What Republicans have been saying is that raising taxes on business owners isn't the way to do it."

WASHINGTON GRIDLOCK

Obama's approval rating is only about 41 percent largely because of his inability to bolster the economy. But Congress is even more unpopular: its approval rating is about 12 percent after budget battles pushed the government to the brink of a shutdown and an unprecedented default.

With the U.S. jobless rate stuck above 9 percent for five straight months, a recent Wall Street Journal-NBC poll showed that voters back Obama's bill by a two-to-one margin.

Obama spent three days this week campaigning in North Carolina and Virginia, key states in his reelection bid, to promote his jobs bill and crank up pressure on Republicans.

The president's strategy is to force Republicans to accept his proposals or be painted as obstructing economic recovery.

Republicans counter that Obama's plan are laden with wasteful spending and job-killing tax hikes on millionaires.

McConnell argued that the Republican bill to repeal a pending 3 percent withholding tax on business mirrored a provision that Obama included in his own jobs bill.

Democrats disagreed, noting that Obama's proposal would have delayed implementation of the tax, not repealed it.

In issuing a veto threat shortly before the Senate vote, the White House also pointed out that the Republican measure, unlike Obama's proposal, called for $30 billion in spending cuts to cover lost tax revenue.

Obama's overall $447 billion bill seeks to create jobs with a mixture of stimulus spending and tax cuts for the middle class and small businesses. It would be financed by a 5.6 percent surtax on millionaires.

McConnell rejected Democratic charges that his party is trying to hurt the economy to damage Obama's reelection bid.

"If Republicans wanted the economy to fail, we'd all line right up behind the president's economic policies, rather than opposing them," McConnell said.

(Reporting by Thomas Ferraro; editing by Anthony Boadle)