The Senate on Friday defeated the Republican "Cut, Cap and Balance" proposal, a move that puts the onus on President Obama and House Speaker John Boehner to present a plan soon to raise the debt ceiling or risk a potentially catastrophic default.
The procedural vote to kill the measure that was approved by the Republican-controlled House on Tuesday was along party lines in the Democratic-controlled Senate.
"We're going to dispose of this legislation as it needs to be, so that President Obama and the speaker can move forward on a [plan] that will have some revenue in it," Senate Majority Leader Harry Reid (D-Nev.) said just before the roll call began.
Friday had been seen as a potentially critical date in the weeks-long budget debate. According to the Treasury Department, lawmakers must agree to a plan that raises the debt limit before Aug. 2 or the federal government could default on its obligations for the first time in the nation's history.
Obama and Boehner have been discussing a plan that would cut federal spending by $3 trillion, meeting a key GOP demand before they would extend the nation's credit line. Some Democrats reacted angrily at the proposed framework, which would put off decisions on revenues.
Obama has been calling for a "balanced approach" to raising the debt ceiling that would include new revenues -- Republicans say tax increases. He is set to hold a town hall meeting just outside Washington on Friday to press his case.
Boehner insisted again Friday that no deal had been reached yet. At a closed-door GOP meeting Friday morning as the Senate was preparing to vote, there was no discussion of alternative plans.
"When is the Senate going to act?" House Majority Leader Eric Cantor (R) said.
Boehner told members he would continue negotiations over the weekend. They are expected back in Washington on Monday afternoon.
In response to a question, Boehner again discussed the possibility of a short-term deal to buy time.
"He said there could be something that kind of keeps things going, we get a little bit of peace of mind and the markets stay stable," said Rep. Bobby Schilling, a Republican freshman from Illinois.
The GOP proposal would have cut spending by $111 billion in 2012 and cap future outlays to 19.9% of the nation's gross domestic output. It also would have required that Congress send a balanced-budget constitutional amendment to the states for ratification.
Lisa Mascaro and Kathleen Hennessey contributed to this report.