US Speaker of the House John Boehner
US Republicans have cancelled a vote in Congress on tax rises they hoped would help to avert a so-called fiscal cliff.
They pulled the vote after failing to get enough support for the bill, labelled "Plan B", which would raise taxes on earnings above $1m (£614,000).
Republican leaders have said the Senate must now act, as the House of Representatives adjourns for Christmas, reports the BBC.
A deal must be reached by January 1, or a combination of steep tax rises and sharp spending cuts will take effect.
Analysts in the US and overseas have expressed concern that failure to reach a deal could take the US into recession.
House Speaker John Boehner said on Thursday evening he was unable to garner sufficient votes to secure passage of the second bill, which would have ensured a permanent tax cut for 99.8% of Americans.
He said in a statement that the bill "did not have sufficient support from our members to pass".
In the wake of Boehner's announcement, the White House said President Barack Obama's "main priority" would be to extend current tax rates for 98% of Americans and 97% of small businesses.
The White House pledged to work with Congress, adding it was "hopeful that we will be able to find a bipartisan solution quickly".
Earlier on Thursday, the House did narrowly pass a companion bill that would cut domestic spending while protecting the defence budget.
Correspondents say the Republican plan would have had no chance of passing the Democratic-led Senate, and was in effect an effort to tell the US public that they should not be blamed if the US falls over the fiscal cliff.
The White House had threatened to veto the legislation if it had passed both chambers of Congress, saying the bill would mean tax rises on 25 million Americans making under $250,000.
A study by the non-partisan Tax Policy Centre found some low-income people would see tax rises because the measure would not renew several tax cuts that were part of the 2009 stimulus package.
On Thursday, the White House criticised Republicans, saying Boehner's response to compromises from the president was "to walk away" from negotiations.
Spokesman Jay Carney said the introduction of Boehner's so-called Plan B was a "multi-day exercise in futility at a time when we do not have the luxury of exercises in futility".
Boehner announced the bill on Tuesday, saying he would bring forward a measure that extended Bush-era tax cuts for those earning less than $1m per year - but would not address the automatic spending cuts.
On Wednesday, the Republican leadership added a companion bill that would replace the automatic cuts with a proposal to remove cuts from defence and government operating budgets. They would be offset by reductions elsewhere in the budget.
The proposal would cut food stamps, benefits for federal workers and some social services programmes.
Obama had sought tax rises for the wealthy, but was pushing for a lower threshold of $400,000.
He also offered a change to the way Social Security cost of living adjustments are made for some recipients, cuts from government healthcare programmes and a two-year extension of the debt ceiling.
Boehner's office called the proposal "a step in the right direction" but not fully "balanced".
Analysts have painted a grim picture of the consequences of going over the cliff, with some warning that the impact could push the US back into recession.
The Organization for Economic Co-operation and Development (OECD) said in its latest economic outlook that the recession from the cliff could become global.