Stymied by Republicans, Democrats are at a loss as they struggle to help pump up the economy in the run-up to congressional elections this fall.
The demise of their jobs-agenda legislation Thursday means that unemployment benefits will phase out for more than 200,000 people a week. Governors who had counted on fresh federal aid will now have to consider a more budget cuts, tax increases and layoffs of state workers.
Senate Democrats cut billions from the bill in an attempt to attract enough Republican votes to overcome a filibuster. But the 57-41 vote fell three votes short of the 60 required to crack a GOP filibuster, leaving the way forward unclear.
"Democrats have given Republicans every chance to say 'yes' to this bill and support economic recovery for our middle class," said Senate Majority Leader Harry Reid, D-Nev. "But they made a choice to say 'no' yet again."
President Barack Obama will keep pressing Congress to pass the bill, his spokesman said. But Democrats haven't shown they can come up with the votes.
The setback forced congressional Democrats to settle for a much smaller victory: Congress passed a bill temporarily sparing doctors from a 21 percent cut in Medicare payments, sending the measure to Obama for his signature.
The Medicare funding had been a part of the larger bill to provide extended unemployment benefits for laid-off workers and provide states with billions of dollars to avert layoffs. When it became clear Senate Republicans would block the larger bill, Democrats begrudgingly voted for the smaller Medicare fix.
"It is clear that Senate Republicans have no intention of passing any jobs legislation, whether it is tied to physician payments or not," said House Speaker Nancy Pelosi, D-Calif.
Congressional Democrats began the year with an aggressive agenda of passing a series of bills designed to create jobs. One has become law, offering tax breaks to companies that hire unemployed workers. Others stalled as lawmakers, after hearing from angry voters, became wary of adding to the national debt, which stands at $13 billion.
"The debt is out of control," said Sen. Scott Brown, R-Mass.
The rejected bill would have provided $16 billion in new aid to states, preserving the jobs of thousands of state and local government workers and providing what White House officials called an insurance policy against a double-dip recession. It also included dozens of tax breaks sought by business lobbyists and tax increases on domestically produced oil and on investment fund managers.
"This is a bill that would remedy serious challenges that American families face as a result of this Great Recession," said Max Baucus, D-Mont., the chief author of the bill. "This is a bill that works to build a stronger economy. This is a bill to put Americans back to work."
The legislation had been sharply pared back after weeks of negotiations with GOP moderates Olympia Snowe and Susan Collins of Maine, but they were not persuaded to support the measure. The latest draft would have added $33 billion to the deficit.
The Medicare bill that passed Thursday would delay cuts in payments to doctors until the end of November -- after congressional elections -- when lawmakers hope the political climate is better for passing a more permanent, and expensive, solution.
There was some urgency to approve the funding because Medicare announced last week it would begin processing claims it had already received for June at the lower rate. Lawmakers said some doctors have already stopped seeing new Medicare patients because of the cuts.
The bill would increase payments to providers by 2.2 percent. The legislation, which costs about $6.5 billion, is paid for with a series of health care and pension changes that both Democrats and Republicans agreed to.
The Medicare cuts were required under a 1990s budget-cutting law that Congress has routinely waived. The latest extension expired May 31 after concerns about adding to the budget deficit held up the larger bill that also included unemployment benefits.
Obama praised Congress for passing the measure, while urging lawmakers to work on a more permanent solution.
Associated Press writer Andrew Taylor contributed to this report.