President Obama and congressional leaders were facing a rapidly shrinking set of options for averting the fiscal crisis as they prepared to meet Friday afternoon, with Senate Republican Leader Mitch McConnell warning they are "running out of time."

Just a few weeks ago, lawmakers had high hopes for a "grand bargain" that would narrow the deficit, overhaul the tax code and set the country on a course to curb its entitlement spending -- all while averting massive tax hikes and spending cuts set to hit Jan. 1.

Having squandered that time, lawmakers -- and taxpayers -- will now be lucky if they can just avert the tax hikes.

At the meeting Friday afternoon, Obama was expected to pitch a "Plan C" that's essentially a version of the scaled-back proposal he floated a week ago before leaving for Hawaii.

The White House on Tuesday rejected House Speaker John Boehner's call for a fall-back option to avert the looming fiscal crisis, in a move the speaker's office said "defies common sense."

The feisty exchange came as both sides crept toward a possible middle ground in private talks. But underscoring the differences that remain, the White House resisted Boehner's bid to craft a "Plan B" just in case those talks fail to yield a compromise before a Jan. 1 deadline -- that's when taxes are set to rise on everyone, followed by a wave of spending cuts.

"Every income tax filer in America is going to pay higher rates come Jan. 1 unless Congress acts," Boehner said Tuesday morning, as he introduced his alternative plan.

Boehner called for taxes to rise only on households making more than $1 million. His plan also called for entitlement cuts and a tax reform debate next year...