All 47 Senate Republicans, one Democrat and one independent voted against a piece of Obamas $447 billion stimulus plan that would have helped construction workers some of the hardest hit after the housing meltdown and economic downturn. The bill needed 60 votes to advance in the 100-seat Senate.
Construction workers face a jobless rate of 13.3%, according to the labour department, far above the nationwide rate of 9.1%.
Obamas jobs plan is effectively dead in Congress, but Democrats are forcing Republicans to vote on it piece by piece as both sides dig in their heels before 2012 presidential and congressional elections in which the economy is expected to be a defining issue.
Its more clear than ever that Republicans in Washington are out of touch with Americans from all ends of the political spectrum, Obama, who is in France for the G20 summit, said in a statement after the bill was blocked.
Obama is under pressure to create jobs and convince voters before the November 2012 presidential election that his administration can revive the economy.
Democrats hope to pay for the plan by raising taxes on the wealthy. That is a nonstarter for Republicans, who say it would hurt job creation, but polls show it is popular with the public.
Under the Democratic bill, Americans making more than $1 million annually would have been hit with a 0.7% income tax increase.
Republican Senator Orrin Hatch said a significant number of people hit by the tax hike would be business owners. The same people we need to create new jobs, he said.
The bill, co-sponsored by Reid, would have spent $50 billion to upgrade roads, airports, bridges, rail lines and transit systems. It would have also allocated $10 billion in loan funding to underwrite a financing institution, or infrastructure bank, to help pay for priority projects.
It was the second time Democrats were unable to muster the votes needed to pass a piece of the Obama administration's jobs package. In October, Republicans rejected a $35 billion plan designed to create or maintain 400,000 jobs for teachers, firefighters and police officers.
Republican roadblocks have already led the administration to act unilaterally to help stabilise the economy and it has rolled out plans to help homeowners, students and veterans. Republicans have lined up behind their own job creation agenda, centered on relaxing pollution controls and other regulations on business.
After the vote on the Obama measure, Senate Democrats voted down a Republican infrastructure plan that would have extended funding for highways and prohibited federal environmental regulators from slapping new rules on cement producers and domestic boilers.