* Democrats hope to show voters action on economy
* Obama urges swift passage of small business bill
* Unclear if Democrats have votes for Obama tax plan (Adds Obama comment)
By Andy Sullivan and Donna Smith
WASHINGTON, Sept 14 (Reuters) - Democrats in the U.S. Senate advanced a measure to help small businesses on Tuesday, less than two months before they face voters who blame them for an economy still burdened with high unemployment.
But Democrats are still short of the votes they need to pass another top priority for President Barack Obama: ensuring that income tax rates do not rise at the end of the year for the vast majority of Americans.
With the unemployment rate stuck at 9.6 percent, economic issues are expected to dominate the agenda in the few weeks before lawmakers break for the Nov. 2 election that Republicans see as their opportunity to recapture control of Congress.
The small business bill, a long-stalled package of lending incentives and tax breaks, is one of the last chances Democrats have to show voters they are working to create jobs and help the economy recover from its worst downturn since the 1930s.
By a vote of 61 to 37, Democrats broke a Republican logjam and moved toward a final vote on the bill, probably by the end of the week. The House of Representatives has already passed a similar version.
Obama urged Congress to send him a final version to sign into law quickly, saying small businesses "have been waiting for Washington to act on this bill for far too long."
If the measure clears Congress, it would be a rare victory on the job-creation front for the Democrats, who have seen many of their other efforts blocked by Republicans this year.
REID HOPES FOR TAX VOTES
On taxes, victory appeared less certain for Democrats.
Tax cuts enacted during the presidency of Republican George W. Bush are set to expire at the end of this year if Congress does not act. Investors and companies also worry about a potential rise in the tax rate for dividends and capital gains if Democrats and Republicans cannot reach a compromise.
Obama wants to make the Bush-era income tax cuts permanent for all but the wealthiest 3 percent of Americans, arguing that the country cannot afford to extend them for families that earn more than $250,000 per year.
Senate Democratic Leader Harry Reid declined to say whether he had the votes to make that happen.
"There's only one way of finding out and that's to take a vote on it. I think Democrats all support it," Reid told reporters after meeting fellow Democrats who control 59 seats in the 100-seat Senate.
All of the Senate's 41 Republicans and at least three Democrats and one Independent want the tax cuts to be extended for top earners but it is unclear how many non-Republicans would vote against Obama's proposal.
In the House, Democratic leaders could also face resistance from some of their more centrist members who support extending the tax cuts for all Americans.
Republicans argue that wealthier Americans drive the economy and tax cuts for them help the entire country. Because many small business owners file business income as personal income, any tax hike in the top bracket could hurt them as well, Republicans say.
Some of "our most productive, job-generating small businesses would be impacted by the tax increase in the middle of a recession," Senate Republican Leader Mitch McConnell said.
House Speaker Nancy Pelosi took issue with that position, saying a higher tax rate in the top bracket would "not affect the vast majority of America's small businesses."
"The nonpartisan Pulitzer Prize-winning PolitiFact labeled this GOP (Republican) claim a 'pants on fire' falsehood," Pelosi wrote in her blog.
VOTERS FOCUS ON ECONOMY
Republicans are poised for big gains in November, likely winning control of the House and possibly the Senate.
A Reuters/Ipsos poll released on Tuesday showed the sputtering economy is far and away the top concern of voters in Nevada, where Reid is fighting for his political life.
Republicans George Voinovich and George LeMieux broke with their party colleagues in the Senate to support the Democrats' small business bill.
LeMieux told Reuters Insider the bill would help the 2 million small businesses in his home state of Florida, many of which are struggling to get access to credit.
The bill, backed by industry groups, would create a $30 billion fund that the government would invest in independent community banks to encourage lending to small firms.
It would also exclude from taxes all capital gains on sales of small business stock and ease tax rules for expensing and depreciating equipment. Tax breaks in the bill total $12 billion.
Democrats estimate the measure could create 500,000 new jobs. Some 8 million jobs have been lost since the recession began in late 2007.
Anne Mathias, an analyst with the Concept Capital research group, said the bill's incentives probably would encourage banks to free up more capital to lend to small businesses and the tax incentives could encourage more equipment purchases.
Smaller firms have complained of trouble getting loans to expand after the 2007-2009 financial crisis, when many banks pulled back their lending activity.
Bernard Baumohl, head of the Economic Outlook Group, said the Federal Reserve could lower the interest rate it pays on bank reserves to encourage banks to lend rather than stashing money at the central bank.
But ultimately, small businesses will not hire until the economy improves, he said.
The government's definition of a "small business" varies by sector but typically encompasses firms that employ fewer than 500 workers or take in less than $7 million in annual revenues. Those limits can be substantially higher for firms in certain business sectors, such as transportation. (Additional reporting by Kim Dixon, Thomas Ferraro, Richard Cowan and Emily Kaiser; Editing by Leslie Adler and John O'Callaghan)