The Fiscal Cliff We All Saw Coming

In early 2001, Paul O’Neill, the new secretary of the Treasury for a new president, began work on a plan for radical tax reform. He wanted simpler forms and fewer deductions, which would make it easy for people to prepare their taxes and cost the government less to process them. He presented a 5-inch-thick binder of research to a senior White House official. “Don’t ever let that see the light of day,” O’Neill says he was told. George W. Bush didn’t want to deliver tax reform. He wanted to deliver the tax cuts he’d promised as a candidate.

He did, in 2001 and then again in 2003. But the kinds of cuts he’d promised—large ones—would create unsustainable deficits after 10 years, the Congressional Budget Office projected. So they were designed to expire in a decade, at least on paper. It was “baloney,” says O’Neill, who publicly supported them at the time. Republicans never intended to let the cuts lapse. “It was put in there so they could make a fiscal claim that it wouldn’t damage us. It had nothing to do with reality.”