A payroll tax cut for 160 million American workers was in limbo on Wednesday with Democrats and Republicans in the U.S. Congress accusing each other of bringing an extension to a dead stop.

If Congress cannot produce a deal by a December 31 deadline, one of the taxes that workers pay on their wages will rise immediately to 6.2 percent, from the current 4.2 percent.

For the average worker, that would mean about $1,000 (638 pounds) less in potential spending power next year and that, in turn, could cut economic growth, according to economists.

One business group, the International Franchise Association, on Tuesday said that a failure to extend the worker tax cut could jeopardize the creation of 168,000 new jobs in 2012.

With members ranging from restaurants and hotels to automobile service companies and health clubs, the association said that its members' businesses are deeply reliant on consumer spending. A slowdown in spending, it said, would ruin expansion plans.

After the House of Representatives on Tuesday rejected a Senate-passed bill providing for a two-month tax cut extension aimed at giving Congress more time to find a year-long deal, Republicans said the next step was up to the Democratic-led Senate.

I think President Obama needs to call on Senate Democrats to go back into session, move to go to conference, and to sit down and resolve this bill as quickly as possible, House Speaker John Boehner told reporters.

Boehner wants the two chambers to hold formal negotiations on a compromise, an idea that Democrats so far have rejected.

But the House speaker was being undercut by some members of his own party, giving Democrats hope that their opponents will ultimately go along with the Senate bill that won overwhelming bipartisan support in that chamber.

Republican Senator Scott Brown said: House Republicans would rather continue playing politics than find solutions and added that their actions would damage a fragile economy.

Veteran Republican Senator Charles Grassley, in an interview with Iowa radio station WHO, said, I'm not going to argue with the House of Representatives, but do they want taxes to go up on January first or don't they?

Now, it's down to a waiting game to see which side makes a move.

There has been speculation that if the tax cut, as well as some long-term unemployment benefits, are allowed to expire, Congress early next year could pass a bill restoring them that is retroactive to January 1.

Or, as the political pressure rises, one side could blink some time before the stroke of midnight on December 31 in a dispute that has deepened divisions among lawmakers who already have spent the year arguing bitterly.

If we don't get an extension, it will be because of the Tea Party minority within the Republican Party, said House Democratic leader Nancy Pelosi. Her statement reflected some of the finger-pointing that both sides were engaging in.

(Editing by Eric Walsh)