WASHINGTON -- It would be "smarter" to cap tax deductions than to raise tax rates on the rich as a means of avoiding the "fiscal cliff," Senate Minority Leader Mitch McConnell (R-Ky.) said Thursday.
Democrats and President Barack Obama want to let Bush-era tax cuts affecting the top 2 percent of earners expire, which would raise about $800 billion over 10 years. Most Republicans remain publicly opposed to letting any rates go up, but GOP aides have suggested Republicans could get behind the idea of capping deductions for the wealthy -- which would allow them to stand by their promise to not raise marginal tax rates, even though the rich would effectively pay more.
McConnell, in a Senate floor speech that offered some potential thawing in the fiscal cliff debate, became the highest-profile Republican to put a public stamp of approval on that idea.
"Instead of raising rates, Republicans have proposed capping deductions through tax reform instead," McConnell said. "If the only way to get Democrats to agree to pro-growth tax reform and meaningful entitlement reform is through more revenue, a smarter way to do it is by capping deductions. Capping deductions, or tax expenditures as some call them, is a far less painful, more economically sound way of closing deficits."
Democrats have not been eager to embrace the deduction cap, believing that they have a stronger argument for requiring the rich pay a little more while shielding the other 98 percent of the country.
A Democratic congressional aide also pointed out that Republicans have made no formal offer to cap deductions in the fiscal cliff talks.
Meanwhile, cracks have begun to appear in the GOP unity on tax rates. Rep. Tom Cole (R-Okla.), a deputy whip in the House, has suggested that Republicans grab the chance to shield 98 percent of Americans from higher taxes for now and then work on broader reforms.
House Speaker John Boehner (R-Ohio) pushed back on that idea, but new reports surfaced Thursday that GOP leaders were polling their members to see exactly what sort of tax hikes they could support.
The fiscal cliff is the combination of spending cuts that Congress set in motion in last summer's debt-ceiling deal and the expiring Bush-era tax cuts that will kick in early next year. Economists fear the double hit could push the economy back into recession.
Democrats are more willing than Republicans to go over the cliff because the budget cuts will take a year to be fully felt and the tax hikes could be reversed later. After the start of the year, however, the debate would no longer be about raising taxes, but about how to cut them.
Still, actually going over the cliff would likely roil markets and cause at least temporary uncertainty.
Senate Majority Leader Harry Reid (D-Nev.) said the best idea is to go the Tom Cole route: The House should pass a Senate bill that preserves lower taxes only for earnings under $250,000.
"We can argue over whether to give more unnecessary handouts to the wealthy tomorrow," Reid said. "We can discuss balanced, responsible ways to reduce our deficit tomorrow. Let’s take care of the middle class today."
McConnell's and Reid's remarks came as Treasury Secretary Tim Geithner was headed to Capitol Hill to talk with congressional leaders about possible fiscal cliff solutions.
Michael McAuliff covers Congress and politics for The Huffington Post. Talk to him on Facebook.