Washington (CNN) -- President Barack Obama and House Speaker John Boehner, R-Ohio, are expected to continue talks Friday on a potential deal tying roughly $3 trillion in new savings over the next decade to an increase in the debt ceiling.
The negotiations -- necessary to stave off an unprecedented national default that could prove economically devastating -- are testing the ability of leaders on both sides of the aisle to legislate effectively in an era of increasingly shrill and unyielding partisanship.
Republicans, feeling the pressure of tea party populism, remain staunchly opposed to any tax increases. Democrats are desperately trying to protect one of their party's primary legacies -- entitlements such as Social Security and Medicare, programs forged at the height of the New Deal and Great Society.
What, if anything, either side is prepared to yield remains an open question.
Some congressional Democrats appeared to be on the verge of open revolt against their own president Thursday night after hearing some of the details in the $3 trillion plan -- a package many of them contend does not do nearly enough to ensure wealthier Americans share in the burden of stemming the tide of Washington's red ink.
The talks have now become a race against the clock. If Congress fails to raise the $14.3 trillion limit by August 2, Americans could face rising interest rates, a declining dollar and increasingly jittery financial markets, among other problems.
The Democratic-controlled Senate is expected to cast aside the House GOP's so-called "cut, cap, and balance" plan Friday -- a plan that would tie a debt ceiling increase to sweeping reductions in federal spending, caps on future expenditures, and a balanced budget amendment to the Constitution.
Voting on the measure allows Republicans to demonstrate their preference for steps favored by many in the tea party movement even as GOP leaders try to find a middle ground with Democrats.
Boehner, meanwhile, is set to meet behind closed doors Friday with House Republicans. The speaker told reporters Thursday that while some members of his caucus wouldn't compromise, he didn't believe they "would be anywhere close the majority."
Obama and Vice President Joe Biden huddled with top congressional Democrats on Thursday night.
Spokesmen for Obama and Boehner have denied that any deal is imminent.
Regardless, attention continue to swirl around the prospects of the $3 trillion compromise. The possible deal remains in limbo over a disagreement on whether to extend Bush-era tax cuts for families earning more than $250,000 a year, according to congressional aides who spoke on condition of not being identified.
Nothing has been agreed to yet, they noted.
The possible deal would include spending cuts expected to total $1 trillion or more agreed to in earlier negotiations led by Biden, the sources said. It would reform entitlement programs by changing the eligibility age for Medicare over time, and using a more restrictive inflation index for Social Security benefits, according to the sources.
On taxes, it would permanently extend the Bush tax cuts for families earning less than $250,000 while allowing the cuts to expire at the end of 2012 for those with income above that, the aides said. At the same time, the deal would include a commitment to reform the tax code next year, which is expected to lower all tax rates and eliminate loopholes and subsidies, the sources said.
Boehner, however, wants the deal to make all of the Bush tax cuts permanent while keeping the commitment to tax reform, the sources said. Republicans oppose any tax increases, and their resistance has been a major obstacle to any deal in the negotiations so far.
Some sources said the deal would work in two stages, with spending cuts and a debt ceiling increase occurring right away while entitlement reforms and tax reforms would occur later.
It is unclear -- even if a deal is reached -- that any sweeping package can be approved by the August 2 deadline.
White House Press Secretary Jay Carney signaled to reporters earlier in the week that the president may now be willing to sign a short-term debt limit extension if Democratic and Republican leaders are close to agreement on a broad plan that includes both tax hikes and spending reforms.
Obama previously indicated he would veto any short-term extension.
Meanwhile, lawmakers are also continuing discussions focused on the $3.7 trillion debt reduction blueprint put forward by the "Gang of Six," a group of three Democratic and three Republican senators.
Under the group's proposal, $500 billion in budget savings would be immediately imposed, with marginal income tax rates reduced and the controversial alternative minimum tax ultimately abolished.
The plan would create three tax brackets with rates from 8% to 12%, 14% to 22%, and 23% to 29% -- part of a new structure designed to generate an additional $1 trillion in revenue. It would require cost changes to Medicare's growth rate formula as well as $80 billion in Pentagon cuts.
Obama has praised the plan, calling it "broadly consistent" with his approach to debt reduction because it mixes tax changes, entitlement reforms and spending reductions.
The proposal, however, has been hit with a barrage of criticism from both the right and the left. Conservatives have complained about some of the plan's tax changes, while liberals have warned it would cut entitlement benefits too deeply.
If all else fails, party leaders could still turn to a fallback plan initially put forward by Senate Minority Leader Mitch McConnell, R-Kentucky. The measure would give Obama the power to raise the borrowing limit by a total of $2.5 trillion, but also require three congressional votes on the issue before the 2012 general election.
Specifically, Obama would be required to submit three requests for debt ceiling hikes -- a $700 billion increase and two $900 billion increases. Along with each request, the president would have to submit a list of recommended spending cuts exceeding the debt ceiling increase. The cuts would not need to be enacted in order for the ceiling to rise.
Congress would vote on -- and presumably pass -- "resolutions of disapproval" for each request. Obama would likely veto each resolution. Unless Congress manages to override the president's vetoes -- considered highly unlikely -- the debt ceiling would increase.
The unusual scheme would allow most Republicans and some more conservative Democrats to vote against any debt ceiling hike while still allowing it to clear.
McConnell and Reid are also working on two critical additions to the plan, according to congressional aides in both parties. One would add up to roughly $1.5 trillion in spending cuts agreed to in earlier talks led by Vice President Joe Biden; the other would create a commission meant to find more major spending cuts, tax increases and entitlement reforms.
Changes agreed to by the commission -- composed of an equal number of House and Senate Democrats and Republicans -- would be subject to a strict up-or-down vote by Congress. No amendments would be allowed.
Sources say the panel would be modeled after the Base Closing and Realignment Commission, which managed to close hundreds of military bases that Congress could not otherwise bring itself to shut down.CNN's Ted Barrett, Kate Bolduan, Tom Cohen, Lisa Desjardins, Deirdre Walsh and Jessica Yellin contributed to this report
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