US President Barack Obama has called Congressional leaders to talks at the White House to try to stop the US falling over the "fiscal cliff".
Republicans and Democrats have only four days to reach an agreement before hundreds of billions of dollars of tax rises and spending cuts take effect.
Over time the loss of income would have a deleterious effect on the US economy.
Analysts say sliding over the "cliff" could tip the US into recession and set back the global economic recovery.
President Obama cut short his holiday in Hawaii to resume the negotiations, and is due to host the White House talks at 15:00 EST (20:00 GMT).
Congressional divisionsThe priority for Democrats is retaining tax cuts for households earning less than $400,000 (£250,000) while raising taxes for the richest 2% of Americans in order to rein in deficit spending.
Republican congressmen feel they were re-elected with a mandate to block new taxes - certainly for those earning less than $1m. They are also demanding cuts in some popular healthcare and welfare benefit schemes.
Analysts say the two political parties remain far apart, particularly over plans to increase taxes on the wealthiest Americans.
What is the fiscal cliff?
- On 1 January 2013, tax increases and huge spending cuts are due to come into force - the so-called fiscal cliff
- Deadline was put in place in 2011 to force president and Congress to agree ways to save money over the next 10 years
- Fear is that raising taxes while massively cutting spending will have huge impact on households and businesses
- Experts believe it could push the US into recession, and have a global impact on growth
Divisions in the two chambers of congress - with Republicans having a majority in the House of Representatives while Democrats control the Senate - are also making it hard to reach consensus: Any potential deal must pass votes in both chambers and be signed by the president.
An alternative plan proposed by Republican Speaker John Boehner - which would have seen taxes rise only on those earning over $1m - failed in the House of Representatives late last week.
The BBC's Jonny Dymond in Washington says it is very difficult to see how a solution can be reached before the new year.
The Democratic majority leader in the Senate, Harry Reid, said he thought a deal was unlikely and Senate Republican leader Mitch McConnell said his colleagues were unwilling to sign a blank cheque.
"We'll see what the president has to propose. Members on both sides of the aisle will review it, and then we'll decide how best to proceed," said Mr McConnell.
"Hopefully there is still time for an agreement of some kind that saves the taxpayers from a wholly preventable economic crisis."
In the Senate chamber on Thursday, Mr Reid said the requirement to get at least 60 of 100 votes to move to a vote on any legislation almost certainly doomed any new plan unless Republicans gave it strong backing.
"It looks like that [the fiscal cliff] is where we're headed," Mr Reid said.
Mr McConnell said that while Senate Republicans would consider any proposal sent to them by Democrats, they would not "write a blank cheque" to resolve the fiscal cliff.
Cuts and benefitsThe term fiscal cliff refers to the combination of almost $600bn (£370bn) of tax rises and spending cuts due to come into force on 1 January if Congress does not pass new legislation.
Sweeping tax cuts passed during the presidency of George W Bush will expire, eventually affecting people of all income levels, and many businesses.
Other tax cuts and benefits to expire include:
- A 2010 payroll tax cut, the expiration of which would prompt immediate wage-packet cuts
- Benefits for the long-term unemployed
- Compensation for doctors treating patients on federal healthcare programmes
- Inheritance taxes are also likely to be affected if no deal is reached.
In addition, spending cuts mandated by a law passed to break a previous fiscal impasse in Congress will come into force, affecting both military and domestic budgets.
The cuts are expected to affect federal government departments and the defence sector, as well as hitting unemployment insurance and veterans' support.
How the Bush tax cuts were brought in | ||||||||
|---|---|---|---|---|---|---|---|---|
| Tax year | 1993-2000 | 2001 | 2002 | 2003-2008 | 2009-2012 | 2012 tax brackets | 2013 scenarios | |
| Tax cuts expire | Tax cuts expire for top incomes | |||||||
| Source: Tax Foundation, IRS. Tax brackets shown for unmarried individuals | ||||||||
| President |  Bill Clinton |  George W Bush |  Barack Obama | |||||
| Bottom rate | 15% | 10% | 10% | 10% | 10% | Up to $8,700 | 15% | 10% |
| 15% | 15% | 15% | 15% | $8,700-$35,350 | 15% | |||
| 28% | 27.5% | 27% | 25% | 25% | $35,350- $85,650 | 28% | 25% | |
| 31% | 30.5% | 30% | 28% | 28% | $85,650- $178,650 | 31% | 28% | |
| 36% | 35.5% | 35% | 33% | 33% | $178,650-$388,350 | 36% | 33% or 36%* | |
| Top rate | 39.6% | 39.1% | 38.6% | 35% | 35% | Over $388,350 | 39.6% | 39.6% |
| *President Obama has previously called for the tax cut to expire for those earning over $250,000 | ||||||||
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