WASHINGTON (CNN) -- Democratic and Republican congressional leaders unveiled new deficit reduction plans Monday as top officials scrambled to bridge a cavernous partisan divide and raise the federal government's debt ceiling before an unprecedented -- and potentially devastating -- national default.
Both plans provide a path to raise the debt ceiling through the end of 2012, but differ sharply in terms of their requirements for future congressional action and both tax and spending reform requirements.
President Barack Obama is scheduled to deliver remarks on the state of the negotiations at 9 p.m. ET, according to White House press secretary Jay Carney.
If Congress fails to raise the $14.3 trillion debt limit by August 2, Americans could face rising interest rates and a declining dollar, among other problems. As the cost of borrowing rises, individual mortgages, car loans and student loans could become significantly more expensive.
Obama endorses Senate Democratic plan
Officials also warn that, without an increase in the debt limit, the federal government will not be able to pay all its bills next month. Obama recently indicated he could not guarantee Social Security checks would be mailed out on time.
To defuse the crisis, Senate Majority Leader Harry Reid, D-Nevada, outlined a blueprint calling for roughly $2.7 trillion in spending cuts over the next decade while raising the debt limit by $2.4 trillion -- an amount sufficient to fund the government through next year's election.
Reid's plan would not require any new tax hikes and would not mandate any reforms to Medicare, Medicaid and Social Security, politically popular entitlement programs that are facing skyrocketing growth in costs.
Specifically, Reid's plan includes $1.2 trillion in savings from various domestic and defense programs, along with $1 trillion in savings from winding down the wars in Iraq and Afghanistan. It also generates $400 billion in interest savings on the debt, and another $40 billion by rooting out waste, fraud and abuse.
Your cheat sheet to the debt talks
Reid's proposal would establish a congressional committee made up of 12 House and Senate members to consider additional options for debt reduction. The committee's proposals would be guaranteed a Senate vote with no amendments by the end of the year.
Obama immediately endorsed the Reid plan. Carney called it a "responsible compromise ... that should receive the support of both parties."
"I hope my colleagues on the other side will still know a good deal when they see it. I hope they'll remember how to say yes," Reid said. "Democrats have done more than just meet Republicans in the middle. We've met them all the way."
Reid stressed that his plan doesn't include tax hikes and cuts spending more than it increases the debt ceiling -- two key GOP demands.
But House Speaker John Boehner, R-Ohio, argued Reid's plan is "full of gimmicks."
The package doesn't include serious structural reforms and "doesn't deal with the biggest drivers of our deficits and debt, and that's entitlement programs," Boehner said.
For his part, Boehner outlined a plan requiring two separate votes. The first would approve approximately $1.2 trillion in spending cuts over the next decade while raising the debt ceiling through the end of 2011, two GOP leadership aides told CNN. Any failure on the part of Congress to enact the mandated spending reductions would trigger automatic across-the-board budget cuts.
The second vote would raise the debt limit through 2012, but only if Congress approves a series of major tax reforms and entitlement changes outlined by a bipartisan committee composed of Senate and House members.
The proposed structural changes -- a focal point of intense ideological conflict in Washington -- would have to generate between $1.6 trillion and $1.8 trillion in savings, according to a House Republican aide familiar with the package.
Boehner's plan, while allowing a total debt ceiling increase of roughly $2.6 trillion, would also require both a House and Senate vote on a balanced budget amendment to the Constitution between October 1 and the end of the year.
This plan is "less than perfect," Boehner said, but "reflects bipartisan negotiations" conducted with Senate Democrats over the weekend.
"Time is running short," Boehner said. "I think it would be irresponsible for the president to veto (this) legislation because it's a common-sense plan and would help us avoid default."
Democrats are vehemently opposed to the idea of holding more than one vote to raise the debt limit through the 2012 election, arguing that such a requirement is politically unrealistic and could prove to be economically destabilizing. Republicans want to lock in long-term tax and spending changes, and argue that Obama is trying to avoid politically tough decisions in a presidential election year.
As leaders from the two parties continue to bicker, analysts warn that financial markets are growing increasingly nervous about the prospect of a national default. The Dow Jones Industrial Average dropped more than 100 points almost immediately after opening Monday morning, although it later cut that loss.
Meanwhile, the debate over tying Washington's borrowing limit to deficit reduction measures continues to severely test the ability of a divided government to effectively function in an era of fierce partisanship.
Obama canceled two fundraising appearances Monday, a campaign official said, as weekend talks to resolve the crisis hit new roadblocks.
Top Democrats and Republicans appeared to be close to a $3 trillion deal before Boehner suddenly announced Friday he was ending his talks with the White House. Republicans accused the White House of trying to add an additional $400 billion in new revenues to the deal; administration officials insisted they were not making any make-or-break demands.
While each side blames the other for refusing to compromise, the deadline clock continues to tick down. Boehner has told Republican lawmakers that in order to get the debt ceiling raised by August 2, the House must vote on legislation by Wednesday -- and that means it must be posted online Monday, a Republican source familiar with the negotiations said.
Assuming the House passes Boehner's plan Wednesday, the Senate could take it up as soon as Friday night, according to a Senate Republican aide.
Reid's bill, in contrast, could clear the Senate's more numerous procedural hurdles by Saturday, leaving a couple of days for House approval and final congressional passage, a Senate Democratic leadership aide said.
Boehner told House Republicans in a conference call Sunday that the GOP's so-called "cut, cap, and balance" plan will not be part of any final deal. The conservative blueprint would have tied a debt-ceiling increase to sweeping reductions in federal spending, caps on future expenditures and a balanced budget amendment.
It was passed by the Republican-controlled House and rejected by the Democratic-controlled Senate last week. Obama had promised to veto the measure if it reached his desk.
Boehner insisted Monday, however, that the conservative principles behind "cut, cap, and balance" are embodied in his new blueprint.
As the debt ceiling debate drags on, a new CNN/ORC International Poll reveals a growing public exasperation and demand for compromise. Sixty-four percent of respondents to a July 18-20 survey preferred a deal with a mix of spending cuts and tax increases. Only 34% preferred a debt reduction plan based solely on spending reductions.
As in Congress, the public is sharply divided along partisan lines. Democrats and independents, according to the CNN/ORC Poll, are open to a number of different approaches because they think a failure to raise the debt ceiling would cause a crisis of major problems for the country. Republicans, however, draw the line at tax increases, and a narrow majority of them oppose raising the debt ceiling under any circumstances.
Fifty-two percent of Americans think Obama has acted responsibly in the debt ceiling talks so far, but nearly two-thirds say the Republicans in Congress have not acted responsibly. Fifty-one percent would blame the GOP if the debt ceiling is not raised; only three in 10 would blame Obama.