The ambitious new plan, unveiled by a group of senators known as the "Gang of Six," offers a ray of hope in
an increasingly grim standoff that has threatened the United States' top-notch credit rating.
As they study the details, congressional leaders will determine if the plan could point a way out of the impasse. A more modest proposal likely will be needed to avert the looming disaster but the Gang of Six plan could help lawmakers thrash out a broader budget deal in the coming months to address long-term fiscal problems.
Initial reaction was positive. Obama seized on the plan as a "very significant step" on Tuesday and urged congressional leaders to start discussing it. Senators from both parties embraced it while Republican leaders in the House of Representatives said it contained some good elements.
Investors welcomed the plan as well, driving up the price of 30-year Treasury bonds sharply and pushing U.S. stocks to their best day since March.
Obama and Republicans have been unable to forge an agreement that would raise the $14.3 trillion debt ceiling before the country runs out of money to cover all of its bills on Aug. 2.
Both sides agree that spending cuts should accompany a debt-limit increase to tame the rapidly mounting debt but have been unable to agree on the particulars. White House talks on a comprehensive deficit-reduction deal have stalled over tax increases, which Republicans oppose.
The Gang of Six plan includes many of the same politically risky remedies that have doomed other efforts but pairs them with incentives that could defuse opposition.
Republicans might object to the $1 trillion-plus in new tax revenue generated by closing an array of loopholes and breaks but they have welcomed the lower income tax rates that the plan also would provide.
Democratic distaste for the plan's $500 billion squeeze of Medicare and other health plans could be softened by assurances that their essential services would be maintained.
With less than two weeks until the Aug. 2 deadline, congressional aides say it is probably too late to use the Gang of Six as the basis for a debt-ceiling increase. But it could encourage a new round of discussions.
"My hope ... is that they tomorrow are prepared to start talking turkey and getting down to the hard business of crafting a plan," Obama told reporters on Tuesday.
It is not clear whether Obama would resume the high-profile White House meetings that ended inconclusively last week.
Democratic Senate Leader Harry Reid will speak with Obama on Wednesday, an aide said, but a meeting with all of the top leaders in Congress did not appear likely.
Obama's schedule remains relatively open, according to the White House.
Meanwhile, Congress is moving ahead with other debt-limit measures.
The Republican-controlled House passed a bill on Tuesday that would tie a debt-ceiling increase to passage of a balanced-budget amendment to the Constitution. That approach is expected to fizzle in the Democratic-controlled Senate.
In the Senate, leaders of both parties are crafting a complex compromise that would give Obama the authority -- and the blame -- for raising the debt ceiling.
Procedural hurdles could push a vote well into next week, meaning that final passage could come in the final days before Aug. 2.
Although that plan could avert a default, it is not likely to satisfy ratings agencies that are looking for a solution that would prevent the debt from growing out of control. Moody's Investors Service analyst said the Senate's compromise plan could result in a negative outlook on the U.S. credit rating, a sign of a possible downgrade in 12 to 18 months.