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.

Under the proposal, lawmakers would extend the current tax rates for the "middle class." What income level defines middle class remains up for debate - Obama had previously pushed for tax hikes on families making over $250,000 and later upped that threshold to $400,000. House Speaker John Boehner, in a proposal that died in the House last week, called for tax hikes only on those making over $1 million...