President Barack Obama's Republican foes in the Senate blocked a move Saturday to let Bush-era tax cuts for the wealthiest Americans expire, rejecting in the process Democrats' efforts to extend those breaks just for the middle class.
Obama said he was "very disappointed" at the vote.
"It makes no sense to hold tax cuts for the middle class hostage to permanent tax cuts for the wealthiest two percent of Americans," he added.
In a rare weekend session that followed days of stormy debate, the 100-member Senate fell short of the 60 votes necessary to approve the Democratic proposal of renewing low tax rates only for individuals earning up to 200,000 dollars and for families with 250,000 dollars or less of income.
The measure, backed by the White House, would have let rates on higher earners rise at the beginning of next year to where they were before cuts enacted by former president George W. Bush's administration in 2001 and 2003.
Republicans blocked the legislation on a procedural vote, complaining the measure failed to extend low tax rates for wealthier Americans. They want all of the tax cuts -- including those that directly benefit the top earners -- to be extended instead.
They also rejected another Democratic proposal to extend the tax cuts for annual incomes of up to one million dollars. A handful of Democrats voted against the two measures.
"With so much at stake, today's votes cannot be the end of the discussion," Obama said in a statement.
"It is absolutely essential to our hardworking middle class families and to our economy to make sure that their taxes don't go up on January 1."
Democratic leaders claimed that Republicans' plan to alleviate taxes for the rich would cost 700 billion dollars over 10 years, as the United States stares down an already abysmal deficit.
"It's also a bit contradictory to say you care about deficit reduction but not when it comes to tax breaks for the wealthiest people," Democratic Senator Chuck Schumer told Republicans.
His Republican colleague Charles Grassley shot back: "The bottom line is this: Stop the tax hikes!"
The White House has already set the table for a final compromise, indicating it will accept a temporary extension of the tax cuts for the wealthiest earners.
On Thursday, the House of Representatives adopted an extension of the tax cuts for the middle class but the text had few chances of getting adopted by the Senate.
In a last-ditch appeal for the Democratic plan, Vice President Joe Biden said earlier that if lawmakers failed to pass the bill, the earnings of millions of middle-class families will be significantly reduced starting January 1.
"That's the last thing we should let happen," Biden continued in a weekly radio address he delivered instead of Obama, who visited US troops in Afghanistan on Friday.
"After a decade in which they lost ground, middle class families can ill-afford a tax hike -- and our economy can't afford the hit it will take if middle class families have less money to spend."