The polarized US Senate rejected rival Democratic and Republican proposals for extending a payroll tax cut due to expire next month in a pair of politically charged votes.
Economists have warned US growth could stall and the United States could even tip back into recession if Congress fails to extend those tax cuts as well as unemployment benefits before the end of the year.
Lawmakers voted 51-49 for the White House-backed plan, short of the 60 votes needed for passage under Senate rules, and then shellacked its Republican counterpart in a 20-78 vote that saw most Republicans oppose their own plan.
Both sides, eager to court voters angry at the sour US economy ahead of the November 2012 elections, say they agree on extending the cut but differ bitterly on how to pay for it in an era of yawning government budget deficits.
"Senate Republicans chose to raise taxes on nearly 160 million hardworking Americans because they refused to ask a few hundred thousand millionaires and billionaires to pay their fair share," said President Barack Obama.
Democrats aimed to raise the funds by levying a 3.25 percent surtax on people earning $1 million -- a position rooted, in part, in an election-year effort to portray Republicans as protecting the rich at the middle class's expense.
Republicans rejected that proposal, saying it would stifle job-creating investment.
As part of a $447 billion jobs plan, Obama called for further cutting the payroll tax for employees to 3.1 percent of earnings and to halve the employer contribution from 6.2 percent to 3.1 percent in a bid to spur hiring.
The administration says the move would give Americans earning $50,000 a year a $1,500 tax cut next year as compared to a $1,000 tax hike if Congress does not extend the benefit by its expiry date at the end of 2011.
Republicans called for extending the payroll tax cut, but not expanding it, and offsetting that with a three-year pay freeze on civilian government workers and reducing the government workforce by 10 percent.
Their proposal also calls for means testing some government health benefits and food aid to exclude millionaires and billionaires -- an implicit acknowledgement of the Democratic approach's political appeal -- and invites the wealthiest Americans to make voluntary contributions to the federal treasury.
The tax, which is separate from federal and state income taxes, goes to finance retirement and medical insurance for the elderly.