Republican House leaders late Thursday abandoned plans to vote on a bill that would have raised taxes on those earning $1 million or more a year while extending tax cuts to everyone else.
The bill was the GOP's "Plan B" attempt to avert the "fiscal cliff," massive tax cuts and spending reductions set to take effect in January unless lawmakers can reach a deficit-reduction deal before then.
House Speaker John Boehner, R-Ohio, called off the vote after it became clear that conservatives in his own party were not going to back him and agree to a tax increase. House Democrats were already prepared to vote against it.
The House's failure to act pushed Dow futures down sharply late Thursday as it appeared more likely than ever that lawmakers may fail to reach a deal by the end of the month.
The White House, which earlier insisted that President Obama would veto Plan B, said the president was still confident a deal could be reached.
"The president will work with Congress to get this done, and we are hopeful that we will be able to find a bipartisan solution quickly that protects the middle class and our economy," White House spokesman Jay Carney said in a statement.
Republicans and Democrats remain divided on tax rates and spending cuts, with Obama seeking tax increases for those making more than $400,000 and Republicans pushing for more than $1 trillion in spending cuts.
Republican House leaders, who had hoped that passing Plan B would give them leverage in the stalled negotiation, pulled the bill after a brief, closed-door meeting with their rank and file Thursday evening. When it was clear that conservatives wouldn't back Boehner, the speaker left the Capitol without speaking to reporters.
It was left to his top deputy, House Majority Leader Eric Cantor, R-Va., to adjourn the House for the Christmas holiday.
Boehner later issued a statement saying it was up to Obama and Senate Majority Leader Harry Reid, D-Nev., to work out a compromise.
"The House has already passed legislation to stop all of the Jan. 1 tax rate increases and replace the sequester with responsible spending cuts that will begin to address our nation's crippling debt," Boehner said. "The Senate must now act."
Earlier Thursday, the House passed a bill that would stop the automatic spending cuts scheduled to hit the Pentagon starting in January. Republicans shifted the cuts to other domestic spending. The bill also would strike parts of Obama's new health care law. Republicans said the bill could achieve $230 billion in savings over a decade.
"We are saying we don't think the crude, across-the-board sequester is good policy," said Rep. Paul Ryan, R-Wis., the former Republican vice presidential nominee who chairs the House Budget Committee. "We think it will harm our national security."
Senate Democrats are not expected to take up the Republican bill because they believe the spending cuts would not fall disproportionately on the poor.
Reid said the Senate would return Dec. 27 to resume work on a deal.