UPDATE: Obama to address nation on debt talks stalemate at 9 p.m. ET. Please check back for additional updates.
WASHINGTON (The Blaze/AP) -- In a blunt challenge to President Barack Obama, House Republicans drafted legislation Monday to avert a potentially devastating Aug. 2 government default - but along lines the White House has already dismissed. U.S. and world financial markets shrugged off the uncertainty.
"This is a city where compromise is becoming a dirty word," Obama lamented as congressional leaders groped for a way out of a looming crisis.
In stinging remarks a short while later on the Senate floor, the Republican leader, Mitch McConnell of Kentucky, urged the president to reconsider his position rather "than veto the country into default."
According to a GOP aide familiar with the emerging House bill, it would provide for an immediate $1 trillion increase in the government's $14.3 trillion debt limit in exchange for $1.2 trillion in cuts in federal spending.
The measure also envisions Congress approving a second round of spending cuts of $1.8 trillion or more in 2012, passage of which would trigger an additional $1.6 trillion in increased borrowing authority.
White House communications director Dan Pfeiffer called the proposal "not a serious attempt to avert default because it has no chance of passing the Senate."
While the bill marked a retreat from legislation that conservatives muscled through the House last week, the two-step approach runs afoul of Obama's insistence that lawmakers solve the current crisis in a way that avoids a politically charged rerun next year in the middle of the 2012 election campaign.
Without signed legislation by day's end on Aug. 2, the Treasury will be unable to pay all its bills, possibly triggering an unprecedented default that officials warn could harm an economy struggling to recover from the worst recession in decades.
That deadline has set off an epic clash between the two parties, each side maneuvering for public approval and political leverage in advance of next year's elections with the White House and control of Congress at stake.
House conservatives, many of them backed by tea party organizations, have provided the political muscle for the Republican drive to cut spending deeply in return for raising the debt limit.
But two rank-and-file Republicans said their constituents were voicing concerns other than the rising federal debt.
Rep. Tom Rooney, R-Fla., said his office is getting calls from constituents saying, "If I don't get my Social Security check, it's your fault."
Rep. Tom Reed, a New York freshman, said many of his constituents are telling him to stand firm in his drive to cut spending. "But I will admit there's some anxiety in the district" about Social Security and other programs, he added.
As House Speaker John Boehner readied his legislation, Senate Democratic leaders called a news conference to announce their own next steps.
The Democrats' measure would cut $2.7 trillion in federal spending and raise the debt limit by $2.4 trillion in one step - enough borrowing authority to meet Obama's bottom-line demand.
The cuts include $1.2 trillion from across a range of hundreds of government programs and $1 trillion in savings assumed to derive from the end of the wars in Afghanistan and Iraq. The legislation also assumes creation of a special joint congressional committee to recommend additional savings with a guaranteed vote by Congress by the end of 2011.
"We shouldn't let these extremists dictate" the direction of the country, Reid said of the tea party-backed Republican lawmakers.
Yet in the maneuvering it appeared another of the president's long-held conditions appeared to be in danger of rejection.
Neither Boehner's measure nor the one Reid was drafting included additional revenue, according to officials in both parties.
In remarks during the day, the president renewed his call for a balanced approach to cutting deficits that includes both spending cuts and higher revenue.
The wealthy and big corporations have to "pay their fair share, too," he said.
In addition to a two-step approach to raising the debt limit, the House measure would require lawmakers in both houses to vote later this year on a constitutional amendment requiring a balanced federal budget.
An earlier bill, passed in the House last week but then scuttled in the Senate, would have required Congress to approve an amendment and send it to the states for ratification.
That same bill would have made $6 trillion in spending cuts in exchange for raising the debt limit.
Obama promised to veto that bill even before the House voted on it.
The day's developments followed a weekend that veered between brinkmanship and bipartisan negotiations.
After Boehner broke off compromise talks with Obama late Friday the president called the top four congressional leaders to the White House for a Saturday morning session.
That set the stage for fresh negotiations involving leadership aides - talks that Republicans later said had neared agreement on a two-step process that Obama has rejected.
Those efforts evidently were set back when Reid and House Democratic leader Nancy Pelosi met with Obama at the White House Sunday evening, and the Senate leader issued a statement saying talks had broken down over a Republican insistence on a short-term bill.