The latest attempt to avert the so-called fiscal cliff, which many economists say threatens to send the United States back into recession, has failed.
A vote on a Republican bill to limit tax rises to those earning more than $1m a year was abandoned last night in the House of Representatives, due to a lack of support.
President Barack Obama has pledged to work with Congress to avoid the tax increases and spending cuts due to come into force at the end of the year if a deal cannot be reached.
The dramatic twist threw into disarray attempts to head off $600 billion worth of indiscriminate tax hikes and spending cuts that could push the US economy into recession next year.
The move also casts doubts over John Boehner's future as House of Representatives speaker after failing to control unruly conservatives in his caucus.
The Ohio congressman had hoped to demonstrate Republican unity by passing a bill through the House, known as "Plan B", that would limit income-tax increases to those earning $1m and more, a far smaller slice of taxpayers than Mr Obama wants to pay higher taxes.
However Mr Boehner cancelled the vote after failing to round up enough support from his party because many conservative Republicans are opposed to tax hikes on even the richest wage-earning Americans.
"The House did not take up the tax measure today because it did not have sufficient support from our members to pass," Mr Boehner said in a statement after huddling with other Republican leaders.
The bill, had it passed, would have put Republicans on record as supporting a tax increase on those who earn more than $1m per year, breaking with decades of orthodoxy.
It won the blessing of influential anti-tax activist Grover Norquist, but other conservative groups fiercely opposed it and many rank-and-file members said they would not support it.
Mr Obama wants to raise taxes on families earning more than $400,000, a much lower threshold.
Mr Obama and Mr Boehner aim to reach a deal before the New Year, when taxes will automatically rise for nearly all Americans and the government will have to scale back spending on domestic and military programmes.
Economists say the combined $600bn hit to the economy could push the US economy into recession.
Mr Boehner said Mr Obama now must first pass a bill through the Democratic-controlled Senate before he holds another vote in the House.
With Republicans in chaos, Mr Boehner will almost certainly need support from House Democrats to pass a deal before the end of the year.
Alternatively, he could wait until the new year to hold a vote. At that point, tax cuts passed in 2001 and 2003 will have expired for all Americans, and it presumably would be easier to pass a bill that would restore tax cuts for most.
Opinion polls show that more Americans would blame Republicans rather than Mr Obama if they do not reach a deal before then.