(Reuters) WASHINGTON | Wed May 25, 2011 6:59pm EDT  - Senate Democrats on Wednesday defeated a Republican plan to scale back health benefits for future retirees and forced their opponents to take a stand on the unpopular proposal.

Pressing their advantage after winning an election to fill an open congressional seat in New York, Democrats in the Senate staged a vote on the Republican budget plan, which would save trillions of dollars in coming decades by privatizing the Medicare health program for the elderly.

The measure failed, as expected, by a vote of 40 to 57 as five Republicans broke ranks to oppose it.

Democrats say voter opposition to the Republican plan helped them win Tuesday's election in a conservative district and boosted their prospects in the 2012 presidential and congressional elections.

The architect of the Republican plan, Rep. Paul Ryan, warned that political maneuvering could scuttle efforts to tame the national debt and increase the country's borrowing authority before an early August deadline.

"Trying to scare seniors and turning these things into political weapons, what that ends up doing is inflicting political paralysis," Ryan said at conference that drew together some of the main players in the U.S. deficit debate.

Ryan's comments underscored the political risks inherent in efforts to bring the spiraling national debt under control.

Polls show widespread public concern about the debt, which has more than doubled in the past 10 years. At the same time, specific proposals to scale back spending or raise taxes risk a public backlash.

Congress must raise the $14.3 trillion debt ceiling by August 2 to avoid a potentially catastrophic default. Lawmakers from both parties say any increase must be paired with steps to bring stubborn trillion-dollar deficits under control.

The United Nations warned of a possible crisis of confidence in the U.S. dollar if debt concerns continue to drive down its value.


The Senate defeated several other budget proposals along with the Ryan plan, including President Barack Obama's February budget request. Obama unveiled a more ambitious deficit-reduction plan after his initial effort was panned.

Republicans said Democrats were not taking the country's fiscal situation seriously.

"They're so focused on an election that's nearly two years away that they can't see the crisis in front of us," Senate Republican Leader Mitch McConnell said in a statement.

Negotiators led by Vice President Joe Biden say they can probably get more than $1 trillion in savings, measured over 10 years. Combined with a commitment to trim deficits further in coming years through yet-to-be-determined measures, that could get close to the $4 trillion in savings that experts say is needed to keep the debt from overwhelming the economy.

Their efforts are being closely watched by Wall Street and members of the business community.

"I am optimistic that something will happen. It drives me nuts to see how painful everybody makes it," Honeywell CEO David Cote told Reuters Insider. Cote sat on a deficit-reduction panel set up by Obama last year.

The negotiators, who next meet on Thursday, have yet to bridge a stark divide over taxes and health care. Democrats will not consider health care changes unless Republicans stop ruling out tax increases, aides from both parties said.

Republicans worry that the details of their plan are being lost in the debate -- specifically, that it would not apply to the current retirees who make up a powerful voting bloc.

In an Internet video released, Ryan said his plan would tame galloping health care costs and ensure that the program does not run out of money in the decades to come.

Speaking in London, Obama told British lawmakers that both countries will have to balance painful budget cutting with the need to take care of the unfortunate.

"We have faced such challenges before, and have always been able to balance the need for fiscal responsibility with the responsibilities we have to one another," Obama said.

(Additional reporting by Caren Bohan, Alister Bull, David Morgan, Richard Cowan, Donna Smith, Emily Stephenson, John McGowan and Doug Palmer; Editing by John O'Callaghan and Christopher Wilson)

© 2010 Thomson Reuters. Click for Restrictions.

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