WASHINGTON — The White House believes it must strike a budget deal with Congress by July 22 to avoid a risk of defaulting on the national debt , Democratic officials briefed on the negotiations said Thursday, as Senate leaders canceled a recess next week to try to break the deadlock with Republicans. 
 
 The July 22 date looms large, the officials said, because it will take lawmakers at least a week to draft a bill and get it through two houses before Aug. 2. That is the day when, officials say, the government will reach its debt ceiling and no longer be able to borrow what it needs to keep operating and repay existing debt. 
 
 President Obama challenged Republicans on Wednesday to accept higher taxes as part of any package to reduce the deficit, a challenge that House Speaker John A. Boehner swiftly rejected. But underneath these fixed positions, the Democratic officials said, were hints of Republican flexibility, which gives the White House hope that it can strike a deal, albeit probably at the last minute. 
 
 While they emphasized that no agreement had been reached on any major items, the officials said the two parties were coalescing around $200 billion in cuts to Medicare and Medicaid, trims that Mr. Obama has held up as an example of cuts that will inflict pain on his Democratic base. 
 
 The officials also noted that while Republican leaders like Senator Mitch McConnell of Kentucky had ruled out tax increases, they had sometimes used the phrase “tax rates” — which the White House also does not want to raise. The Republicans, they said, have not explicitly ruled out other measures that would generate revenue, like ending tax breaks and loopholes on hedge funds or for the owners of corporate jets — an interpretation of the Republican position that few Republicans would agree with at this stage. 
 
 These tax-related measures being pushed by the White House would generate about $130 billion, a fraction of the roughly $2 trillion in savings over a decade that the White House and Republicans agree is necessary to stave off a debt crisis. 
 
 While Republican leaders have not shown enthusiasm for any of these measures, the Democratic officials said, they recognize that passing a bill without some concessions to House Democrats will be difficult, since House Republicans will not be able to corral enough votes on their own to pass a deficit-reduction package. 
 
 In his news conference on Wednesday, Mr. Obama chided lawmakers for leaving Washington with a deal undone, comparing them unfavorably to his daughters, Malia and Sasha, who he said finish their homework a day in advance. That rankled some on Capitol Hill, though his words appeared to have hit home. 
 
 “We should take responsibility seriously,” the Senate majority leader, Harry Reid of Nevada, said Thursday morning on the Senate floor in announcing the cancellation of the recess next week. “I’m confident we do.” 
 
 The Senate has scheduled a flurry of meetings next week, with Mr. Reid inviting Mr. Obama and Vice President Joseph R. Biden Jr. to meet with Democrats on Wednesday. The next day, the White House plans to send its economic team to brief Democrats on the state of the negotiations. 
 
 Democrats, echoing the president, continued to insist that tax-related revenue would have to be part of the deal. 
 
 “We need a willingness on both sides to give a little,” said Senator Charles E. Schumer of New York. “We’ve given a lot. The vice president has said more than $1 billion in cuts has already been identified. And that would put us far down the road towards an agreement. The question is how to make up the rest.” 
 
 Under the rubric of all revenue is personal, Democrats called for the elimination of $126 million in annual tax breaks for the horse-racing industry that Mr. McConnell secured in the 2008 farm bill. 
 
 Democrats dismissed complaints that Mr. Obama had been overly combative, noting that Republicans had demanded that he engage in the bargaining process, and then criticized him as soon as he did. 
 
 But Republicans were evidently still smarting from Mr. Obama’s chiding tone. Senator Pat Roberts of Kansas even suggested that the president needed some sedation before he resumed discussions with them. 
 
 “I remember when he talked to Republicans before, and all we got was a lecture,” Mr. Roberts said. “So maybe if he would just take a Valium and calm down and come down and talk to us, it might be helpful.” ||||| WASHINGTON—The Obama administration believes congressional leaders must agree to a deficit-reduction deal by July 22 in order to raise the government's borrowing limit in time to avoid a default in early August, according to Democratic officials with knowledge of the negotiations. 
 
 The government needs a week or two to write and pass the necessary legislation and take the steps necessary to avoid missing a payment. "We're down to the wire," one official said. 
 
 President Barack Obama and Senate leaders have agreed on the outline of an agreement to cut federal spending by about $1 trillion over at least 10 years, but are deadlocked over whether to include some tax increases, as Democrats insist, or take them off the table, as Republicans want. The Senate agreed Thursday to cancel its planned recess next week to stay in town in pursuit of an agreement. Still, many disagree about what would happen if they don't reach a deal, and it is hard to know for certain because the federal government hasn't defaulted in modern times. 
 
 Some, including top officials at the Treasury Department and the Federal Reserve, say the consequences of failing to raise the $14.29 trillion debt limit by Aug. 2 would be catastrophic, with the U.S. government unable to meet all its financial obligations, interest rates soaring, thousands of businesses filing for bankruptcy and hundreds of thousands of people losing their jobs almost overnight. 
 
 "If we didn't pay our bills, it would plunge the United States not into a recession, not into the so-called double-dip recession, but into a full-blown depression," Senate Majority Leader Harry Reid (D., Nev.) said Thursday. 
 
 The International Monetary Fund said this week that failing to raise the ceiling would send "a severe shock to the economy and world financial markets." 
 
 But skeptics have said the impact is much less certain and would depend in large part on whether the White House could avoid defaulting on its debt by continuing to make interest payments to bondholders, such as China. The Obama "administration insists on pretending that...as soon as the first employee is furloughed there will be a catastrophic collapse of the markets because the world will see the U.S. government in default," said Sen. Pat Toomey (R., Pa.). "That's ridiculous." 
 
 White House officials emphasized this week that they wouldn't choose which payments to make and which to suspend if the debt ceiling isn't raised, with Treasury Secretary Timothy Geithner calling the idea "unwise, unworkable, unacceptably risky, and unfair to the American people." 
 
 The federal government hit the debt ceiling in May but has been able to keep operating through a series of emergency funding maneuvers. But Treasury officials say if the government cannot borrow more by Aug. 2, they won't have enough cash to pay all the government's bills. Many members of Congress say they won't vote to lift the debt cap without first reaching an agreement to reduce the federal deficit over the next decade. 
 
 Without a debt-ceiling increase, the Treasury would face several immediate challenges, with $23 billion in Social Security benefits checks due Aug. 3, $90 billion in government debt maturing Aug. 4, and more than $30 billion in interest payments due Aug. 15. 
 
 A key test would be whether Treasury would be able to replace $467 billion in existing debt that matures in August. Investors might shun the new debt as too risky or demand sky-high interest rates. "If they didn't increase the debt ceiling, then truly horrific things would happen both in financial markets and the economy over all," said David Kelly, chief market strategist at J.P. Morgan Funds. 
 
 The consequences would play out in two ways. First, experts believe some sort of "trigger" event would move stock and bond markets, either before or after Aug. 2. Such an event could occur if a rating agency downgraded U.S. government debt, as several have threatened to do in recent weeks. Because Treasury yields are a benchmark for other interest rates, borrowing costs could soar on mortgages, credit cards, business loans and other forms of credit, and send the stock market plummeting. 
 
 Moody's Investors Service said Wednesday if the federal government defaults on its debt, the firm would downgrade its ratings on the other debt linked to Treasurys, such as bonds issued by cities, towns, and large banks, immediately driving up their costs of borrowing. 
 
 The second event would begin Aug. 3, with an immediate and unprecedented drop in federal spending, as the government stopped making payments to Social Security beneficiaries, government workers, Pentagon contractors, and others. 
 
 One reason the consequences remain unclear is because the government would continue to collect taxes in August, giving the Treasury Department enough money to meet more than half its commitments. In August 2010, Treasury brought in $164 billion in revenue for the month, which covered roughly 65% of its spending. 
 
 But reducing federal spending by 44% could mean laying off one-third of the federal work force, said Jay Powell, a visiting scholar at the Bipartisan Policy Center and former top Treasury official during the George H.W. Bush administration. "That's 600,000 or 700,000 workers." 
 
 —Naftali Bendavid contributed to this article. 
 
 Write to Damian Paletta at damian.paletta@wsj.com
– The date for what may or may not be financial doomsday is now July 22. Both the Wall Street Journal and the New York Times say the White House has figured that to be the do-or-die day to hammer out a deal with Republicans to avoid an unprecedented default on the national debt. The government has enough funds to keep operating under the debt ceiling until August 2, but it will take time to get legislation through the House and Senate before then to raise the borrowing limit. Hence the July 22 deadline. Democrats say the stakes are enormous: "If we didn't pay our bills, it would plunge the United States not into a recession, not into the so-called double-dip recession, but into a full-blown depression," maintains Harry Reid, who canceled the Senate's July 4 recess. Republicans say those claims are exaggerated: Fears of a "catastrophic collapse of the markets" are "ridiculous," says Sen. Pat Toomey.