Top US Republican John Boehner has failed to secure enough support from his own party for a tax bill designed to avert America's fiscal cliff.
A vote on the bill, which would have limited tax rises to those earning more than $US1 million a year, was dramatically abandoned in the House of Representatives.
House speaker Boehner has been locked in negotiations about the budget with president Barack Obama to avoid automatic spending cuts and tax rises next month that could send the US back into recession.
In a statement, Mr Boehner said it was now up to Mr Obama to work with Democrats in the Senate to hammer out a deficit-reduction deal.
Mr Obama wants tax increases to apply on those earning $US400,000 a year and above, which is itself a compromise on his initial proposal for tax increases on those earning at least $US250,000.
The Democrat-controlled Senate had already expressed its opposition to the Plan B proposal and the president had threatened to veto it.
The House had earlier narrowly passed a bill to cut domestic spending.
It is part of what Republicans have called Plan B - a back-up plan to a broader deal over the so-called fiscal cliff, which is due to come into force at the end of the year if the White House and Republicans cannot reach a deal.
The House of Representatives is now adjourned until after Christmas, denting prospects of a pre-Christmas deal.
Mr Boehner says he has been making efforts to reach a compromise with the White House.
"President Obama and Senate Democrats haven't done much of anything," Mr Boehner said.
"Their plan B is to slow walk us over the fiscal cliff." White House spokesman Jay Carney says the president is standing firm.
"It is a multi-day exercise in futility at a time when we do not have the luxury of exercises in futility," he said.
Mr Obama says he is ready to strike a balanced deal with Republicans, including some of the spending cuts they want.
Negotiations are likely to resume after Christmas.
Heading for the edge The former chief administrator of the House of Representatives, Scot Faulkner, says he is highly doubtful that a deal can be struck in time.
"Both sides have dug themselves so deep into their trenches that you are not going to see a deal until after the first of the year and a new Congress comes in," he said.
"The problem is that both sides really don't think the fiscal cliff is going to happen no matter how much they posture to the public, and they both think the other side is going to give more ground and nobody is going to give more ground." According to projections from the Congressional Budget Office, gross domestic product will drop by 0.5 per cent next year if the US falls off the fiscal cliff.
That contraction in the economy is forecast to cause unemployment to rise to 9.1 per cent in the fourth quarter of 2013.
However, the agency estimates that after next year, economic growth will pick up and the labour market will strengthen with unemployment shrinking to 5.5 per cent by 2018.
"What will happen is that the first time that thing hits, one of those indicators hit recession, the recession zone, you will then have a scramble for everyone to first blame everyone else and then say okay, what can we do about this," he said.
"So I think it's going to take an economic shock to finally get the political system working, even if it is only superficially."