Senate rejects House-passed debt bill

NEW YORK -- (CNN) -- Speaker John Boehner's plan to raise the nation's the debt ceiling and slash government spending narrowly passed the House on Friday -- and then was blocked by Senate Democrats, setting up a weekend of negotiations to seek a deal that would avoid a potential federal default next week.

The Senate vote was 59-41 to table the measure, which effectively kills it unless Democrats decide to bring it up again.

Earlier, Boehner's proposal was approved by the House in a sharply polarized 218-210 vote that was delayed by a day while the speaker rounded up support from wary tea party conservatives. No Democrats supported the measure, and 22 of the 240 members of the Republican majority also opposed it.

Even though it was blocked in the Senate, the Boehner plan now is the Republican negotiating position for hammering out a deal with congressional Democrats and President Obama to avert a possible government default next week.

Friday's vote was a critical test of Boehner's control over his tea party-infused GOP caucus. The speaker was forced to quell a right-wing revolt over the measure after a number of members complained that it doesn't do enough to shrink the size of government and stem the tide of Washington's red ink.

Boehner, R-Ohio, managed to sway several of those members by including a provision requiring congressional passage of a balanced budget amendment to the Constitution before the debt ceiling can be extended through the end of 2012.

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In his floor speech before the vote, Boehner called the proposal imperfect but necessary, and he criticized Obama and congressional Democrats for rejecting all deficit reduction measures passed by the House so far.

Democratic leaders vehemently object both to the balanced budget amendment and the requirement of a second debt ceiling vote before the next election. They argue that reaching bipartisan agreement on another debt ceiling hike during an election year could be nearly impossible, and that short-term extensions of the limit could further destabilize the economy.

Earlier in the day, Obama urged Senate Democrats and Republicans to take the lead in the congressional deliberations.

The House plan "has no chance of becoming law," Obama said at the White House. "The time for putting party first is over. The time for compromise on behalf of the American people is now. ... It's important for everybody to step up and show the leadership that the American people expect."

As the political maneuvering continues, the clock continues to tick down. If Congress fails to raise the current $14.3 trillion debt ceiling by August 2, Americans could face rising interest rates and a declining dollar, among other problems.

What could happen: Some financial experts have warned of a downgrade of America's triple-A credit rating and a potential stock market plunge. The Dow Jones Industrial Average dropped for a sixth straight day on Friday.

Without an increase in the debt limit, the federal government will not be able to pay all its bills next month. President Obama recently indicated he can't guarantee Social Security checks will be mailed out on time.

Leaders of both parties now agree that any deal to raise the debt ceiling should include long-term spending reductions to help control spiraling deficits. But they differ sharply on both the nature and timetable of the cuts. Republicans are seeking another vote on the debt ceiling before the 2012 election; Democrats call the demand a political nonstarter and economically destabilizing.