UPDATE 2-US Senate Republicans block new bid to restore jobless benefits
* Reid promises to keep trying
* Jobless benefits seen as an election-year issue
* Four Republicans backed bill, one more needed
By Thomas Ferraro
WASHINGTON, Feb 6 (Reuters) - U.S. Senate Republicans on Thursday blocked a new bid by Democrats to restore long-term unemployment benefits for 1.7 million Americans while also making millionaires ineligible for such emergency assistance.
On a mostly party-line vote of 58-40, Democrats fell short of the needed 60 to clear a Republican procedural hurdle against a proposed three-month, retroactive extension of the relief that includes a way to fully cover the $6.4 billion cost.
Senate Democratic Leader Harry Reid, expecting defeat, said before the vote that he would keep trying. "We are not going to give up on the unemployed," he vowed.
With the support of four Republicans, backers of the bill initially got 59 votes, one shy of the needed 60. Reid then switched his vote from yes to no, which under Senate rules allows him to bring the measure up again.
At the White House, press secretary Jay Carney said, "We cannot allow one vote to stand in the way of supporting these Americans as they struggle to find work."
"Both sides of the aisle have worked together to prevent this kind of hardship in the past, and neglecting to do so now is unacceptable," Carney said.
Amid partisan gridlock, Democrats have accused Republicans of being insensitive to the jobless, and Republicans have accused Democrats of trying to jam through the legislation without amendments.
Jobless benefits for workers unemployed for six months or more expired on Dec. 28, and Democrats have taken the lead in trying to restore them. But Republicans argue that what the unemployed really need is a job and that the jobless program needs to be reformed.
Democrats contend that benefits should be restored while Congress examines how to create new employment opportunities and reform the Emergency Unemployment Compensation Program.
Senator Jack Reed of Rhode Island, chief sponsor the bill, pleaded for bipartisan support shortly before the vote began.
"I honestly believe that there are many more than 60 of my colleagues that fundamentally believe that this is the right thing to do, and the right way to do it," Reed said.
In an effort to build support, Reed added a provision to his bill that would prohibit anyone from receiving unemployment benefits if they earned at least $1 million in income the previous year.
The provision was modeled after one earlier drafted by Republican Senator Tom Coburn of Oklahoma. The provision received unanimous Senate support in 2011, but never became law.
According to 2009 federal tax income data, as many as 2,300 households that reported income of more than $1 million received jobless benefits, which lack means-testing.
Democrats control the Senate 55-45. Even if backers get the 60 votes needed to pass the measure in the Senate, it is unclear if the Republican-led House of Representatives will approve the measure.
The battle is seen as a prelude to campaign stands in the November congressional elections, with Democrats backing Obama's uphill efforts to cut the gap between rich and poor by raising the federal minimum wage and boosting education funding.
Senate Republicans blocked two earlier versions of Reed's bill last month. So he again revised it to meet their demands that it be fully paid for and not increase the federal debt.
The $6.4 billion cost would be covered with "pension smoothing," which allows companies to use historic interest rate averages to determine their pension contributions.
That, in turn, increases profits as well as taxable income, which produces federal revenue that could be used to pay for jobless benefits.
Democrats said they have done what they could to meet Republican demands, moving to fully fund the bill and offer them an opportunity to amend it.
"The real reason that the (Republican) political leaders in the Senate want to stop unemployment benefits is that they believe unemployed people are lazy," said Assistant Senate Democratic leader Dick Durbin, adding that Republicans appear unaware of people struggling to survive.
Senator Kelly Ayotte of New Hampshire, one of four Republicans who voted for Reed's bill, rejected Durbin's charges, saying, "That's not true. To say that I think is really troubling."
Ayotte attributed Republican opposition to the fact they are still waiting for a "good-faith offer" from Democrats to amend the bill.