MaxiFi Is Fully Updated to the New Tax Law
Use It to Learn the Taxes You'll Save from the One Big, Beautiful Budget Bill.
Economics Matters — Blog/Podcast/Financial Riddler/MaxiFi Puzzler
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MAGA Hype
Vice President Vance described President Trump’s singular legislative achievement — passage of the One Big, Beautiful Bill Act (OBBBA) — as “the biggest tax cut for families that this country has ever seen.”
JD’s statement suggests that we’ll pay dramatically lower taxes on our 2025 incomes than our 2024 incomes. Sadly, this is not remotely true. The OBBBA made only minor changes to the Tax Cut and Jobs Act (TCJA) — the tax system we’ve had for almost a decade. Yes, it’s a bigger cut relative to the pre-TCJA — the 2016 — tax system which was established as the default system to which we’d revert in 2026 had the TCJA or a tweaked version not been enacted.
But no one in his right mind, even JD, who’s arguably out of his mind, expected anything else. JD used the 2016 tax system as his reference point. He could equally have used the 1816 tax system, but then would have been forced to say that OBBBA was “the biggest tax increase for families this county has ever seen” since total taxes, measured in dollars, under OBBBA will be larger than ever before for the simple reason — the country is larger than ever before and nominal incomes have soared since 1816. Moreover, the federal income tax was first enacted in 1913.
John Mitchell was Nixon’s Attorney General. He organized Watergate, lied to Congress, and was jailed for perjury. Mitchell had a pet phrase — Figures Lie and Liars Figure, which he’d spout in response to politically difficult facts. JD and his boss and all their Congressional supplicants have clearly taken a page from Mitchell’s book. They all MAGA-hyped OBBBA. No surprise. They did the same with TCJA. As shown here, TCJA comprised a minor tax cut for almost all households. As for OBBBA, its tax cut relative to prevailing, not 1816 tax law, i.e., the TCJA, isn’t minor. It’s peanuts. Before demonstrating this using my company’s MaxiFi Planner financial planning tool, let me put OBBBA in the larger macro context.
OBBBA Helps Ensure a Massive Net Tax Hike for Our Kids
Check out the chart below. It shows federal outlays substantially exceeding revenues for almost all of the last 44 years. As a result, official federal debt held by the public (not monetized by the Fed) has exploded relative to GDP — from 25 percent of GDP in 1980 to 100 percent of GDP now.
These official debt numbers are super scary. In a few years, we’ll have a higher debt-to-GDP ratio than, gosh, Italy. Yet, the official debt numbers include only obligations that Congress chooses to call/label “official.” Uncle Sam’s off-the-book commitments to pay unfunded Social Security, Medicare, Medicaid, and welfare benefits, repair the highways, fund national defense, and … far exceed official debt. Indeed, as table VIF1 of the 2025 Social Security Trustees Report shows, the system has a present-value, unfunded liability of $73 trillion dollars — more than twice GDP! And this is net of the present value of future Social Security tax receipts.
OBBBA will maintain, if not widen the wedge between outlays and receipts. Hence, the bill’s passage represents a decision to further delay addressing our fiscal imbalance. And with each year’s delay, we let current older generations further off the hook and put our children further on the hook.
Speaking of Italy, I’ve been working over the past year with Italian co-authors to compare long-run US and Italian fiscal sustainability. Our study will be finalized early this Fall. But our preliminary results, which incorporate projected US tariff revenue, suggest two things.
First, scaled by the size of our economies, the US has a far larger fiscal gap than Italy. (The fiscal gap is the present value difference between all projected future government receipts and outlays, no matter whether they are labeled official or not.) The reason is that Italy’s unofficial/off-the-books debt is a much smaller share of its GDP than is the case for the US.
Second, postwar fiscal policy, OBBBA included, has bankrupted America’s current and future children. Collectively, they will need to pay net taxes — taxes net of benefits — that exceed every penny they’ll earn.
Ok, got it. OBBBA is a problem for our kids. But what will it do for us?
Using MaxiFi to Measure the Size of the OBBBA Tax Cut
MaxiFi does economics-based financial planning. It calculates how much, in real (inflation-adjusted) dollars, you can sustainably (i.e., annually) spend, after meeting, through time, all fixed expenses on housing, taxes, Medicare Part B IRMAA premiums, college tuition, etc.
MaxiFi was recently ranked among the top three Best Financial Planning Software of 2025 by Bankrate. It’s just been fully updated for OBBBA, i.e., the program’s default system is now OBBBA. But you can specify, under Settings and Assumptions, the continuation of pre-OBBBA law, namely The Tax Cut and Jobs Act.
Is JD Delivering a Sack of Coal for Christmas?
To give you a sense of the allegedly fabulous tax break coming your way, I ran a hypothetical, 60-year-old, upper-income, married, Oregon couple — Lowell and Beth White — through MaxiFi. Specifically, I assumed continuation of TCJA in their base profile and adoption of OBBBA in an alternative profile. I also considered financial clones of the Whites whose inputs range from one fourth to five times the couple’s inputs.
The Whites are the same age. They both earn $100K. Both will retire at 64 and start their Social Security at 65. Each spouse has a $750K IRA and the couple has $50K in their checking account. They own their house outright. It’s valued at $1 million. Property taxes, insurance, and maintenance cost $7.5K, $5K, and $10K per year, respectively.
OBBBA’s Bonanza for the Whites — $316 a Year!
The above chart shows the reduction in the Whites’ lifetime and annual taxes from the passage of OBBBA relative to simply leaving TCJA in place. Note that the reduction in lifetime taxes (the present value of annual future taxes) equals the increase in the Whites’ lifetime discretionary spending (the present value of their annual future discretionary spending). This “biggest ever” tax cut will let the Whites spend an extra $316 per year in inflation-adjusted dollar. This has a lifetime present value of $8,309. $316 will cover roughly three trips to the supermarket.
The Impact on the Whites’ Clones
Perhaps, OBBBA provides major tax breaks to low-income households? It certainly did such households no favors when it comes to healthcare. The bill kicked 17 million poor households off of either Medicaid or Obamacare?
Here’s the chart for the Whites’ 1/4 x clone couple. Rather than earn $100K per spouse, the 1/4 x couple earns $25K per year and so on with all inputs multiplied by 1/4.
OBBBA’s Bonanza for the 1/4 x Whites
The 1/4 x Whites fare even worse than the Whites. Their lifetime tax savings is $2,523. And once they start collecting Social Security and are no longer cash-flow constrained, they get to spend an extra $87 per year. Before 65, their annual tax savings is bigger — $136.
If OBBBA delivers a tax cut worth peanuts to the Whites and a tax cut worth less than peanuts to the 1/4 x Whites, what’s it do for the 5 x Whites? Their tax cut equals $479 a year and $12,629 in present value, i.e., enough to cover, say, four trips to the grocery store.
OBBBA’s Bonanza for the 5 x Whites
OBBBA Is a MAGA Con Job
I could explain for pages why the seemingly major provisions, including their phase outs with income, of OBBBA, including the quadrupling of the SALT deduction and the provision of an extra $6K deduction for those 65 and over, don’t end up mattering at all or very much for typical households. That said, you may have exactly the right combination of factors, including age, income, and itemizable deductions, to benefit by more than peanuts from OBBBA. If you are already using MaxiFi, it will take seconds to compare profiles with and without OBBBA. If you aren’t, it will take less than an hour to sign up for MaxiFi, enter your data, and run your TCJA-OBBBA comparison. Do let JD know how much OBBBA saves you in taxes.
OBBBA is 330 pages long. It takes a lot of pages to undo with small print what you’ve done in large print. But many/most of the pages are there to provide special tax breaks needed to bribe particular members of Congress to sign onto a bill that solidifies our children’s bankruptcy.
This is how Washington’s swamp works. Rather than drain the swamp, this Administration is expanding it far beyond what anyone would have imagined. As for extending TCJA under what is effectively just a new name — OBBBA, everyone expected this to happen. I.e., no one expected we’d return to 1816 or 1916 or 2016 tax law. Using distant past tax systems as your reference point without disclosing you’re doing so and then pretending that retaining the current tax system under a new name rather than reverting to an undisclosed past tax system is the biggest deal since sliced bread does a major disservice to sliced bread.
This is such a great read Larry. Thank you.
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