A Democratic plan to provide additional aid to jobless workers, businesses and cash-strapped states and raise taxes on investment fund managers failed in the Senate on Thursday.

The bill, which also would have provided more aid to cash-strapped states for the Medicaid health program for the poor, fell a few votes short of the 60 needed to advance in the 100-member Senate. One Democrat, Ben Nelson, joined 40 Republicans to block the measure.

Democrats argued that the bill would have helped shore up the fragile U.S. economic recovery, a priority for President Barack Obama's administration.

The White House said Republicans had blocked critical aid for unemployed Americans and cash-strapped U.S. states, and vowed to continue pressing Congress to pass the bill.

The President has been clear: Americans should not fall victim to Republican obstruction at a time of great economic challenge for our nation's families, White House spokesman Robert Gibbs said in a statement.

Democrats, who control 59 seats in the Senate, have been pushing to win over a few Republicans by paring back the package that at one point would have added about $80 billion to the deficit over 10 years.

Senators expressed concern about the size of the bill. So we cut the total size of this bill from $200 billion to $140 billion. And then to $118 billion. And then to less than $110 billion today, Senate Finance Committee Chairman Max Baucus.

That still left about $35 billion in deficit spending and Republicans argued that was too much.

The only thing Democrats are insisting on in this debate is that we add to the debt, Senate Republican Leader Mitch McConnell said.

STATES SEEK MEDICAID FUNDS

Republicans offered a one-month extension of unemployment insurance benefits for the long-term unemployed plus continued health insurance aid paid for by using unspent money from the economic stimulus plan enacted last year. Democrats objected saying diverting money meant to help create jobs to pay for unemployment benefits would not help the economy.

States have been pushing Congress to extend extra Medicaid funding that was provided in last year's economic stimulus package. Many governors were counting on it as they prepare next year's budgets. Democrats argued that without the funding many states would be forced to lay off teachers and other workers or raise taxes.

New York Democratic Governor David Paterson told WOR radio that about 30 states -- including New York -- had counted on the extra Medicaid dollars for their budgets. We were almost guaranteed that we would get that money back in January, that was almost a foregone conclusion, he said.

Reid said a number of governors would be in Washington next week to push for the package.

The $13 trillion debt and $1.4 trillion deficit are major issues ahead of the November congressional elections, in which Republicans hope to regain control of Congress.

Separately, a measure that would stop a 21 percent pay cut for doctors treating Medicare patients overwhelmingly passed the House of Representatives. The Senate passed the measure last week when it became clear the jobs bill was faltering amid partisan bickering over its cost.

(Reporting by Donna Smith; additional reporting by Jon Lentz, Lisa Lambert and Joan Gralla; editing by Anthony Boadle)

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