NPR thinks it's found a way the tax cut raises your taxes. It's wrong.

This one was going around a lot on social media, and the left - which is desperate to find something wrong with the tax cut - is seizing on it as proof that the whole thing is really just a screw job that will result in a tax hike for the middle class. The only problem is that they don't understand what they're reading, nor does NPR, which reported it, understand what it's talking about. But it doesn't mean what they want it to mean, mainly because they don't seem to understand how marginal tax rates work. According to NPR, you're going to get a tax hike after all because the new tax law uses something called chained CPI to calculate inflation:

The new method, using the so-called "chained" consumer price index to determine when to adjust tax brackets and eligibility for deductions, is expected to push more Americans into higher tax brackets more quickly. In the past, the tax code used the traditional CPI measure issued by the Labor Department each month. By switching to this new method, the government will bring an additional $134 billion into federal coffers over the next decade, according to the Joint Committee on Taxation. How will that happen? It comes down to this: The chained CPI makes inflation appear lower, and that means tax brackets will be adjusted upward more slowly — but lots of workers will continue to get raises based upon the faster-rising traditional CPI. In other words, your income may rise faster than the inflation adjustments, forcing you to pay taxes at a higher rate — even though you may not feel any richer. "Compared to where taxpayers would be under present law, by 2027 most individuals will actually pay more taxes," said Steve Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center.

Yeah, that sounds bad, but the problem is that none of it is accurate. Let's step back.

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First of all, presidents of both parties have believed for years that chained CPI is more accurate than conventional CPI, which doesn't account for the way consumer purchasing decisions change when prices go up. When you calculate inflation using chained CPI, the rate of inflation will actually show as lower because demand goes down if prices overheat. Conventional CPI acts as though that's not a factor, but obviously in real life it's a huge factor. But some companies may calculate raises based on conventional CPI even as the government measures it by chained CPI, so you might be a bigger raise than the rate of inflation would dictate you should if your compensation is tied to inflation. Now: How could that be a bad thing? It means your raise is actually increasing your purchasing power because your compensation is outpacing inflation. That's a good thing. But NPR frets: If your raise happens to put you into a higher tax bracket, you'll pay more in taxes! This is a good opportunity to remind people of how marginal tax rates work. First of all, anyone who gets a raise will pay more in taxes because your tax rate is based on your income. If you measure it strictly in terms of the raw dollars you pay, then yes, when you ask for a raise you ask for a tax hike. But if you get an inflation-precipitated raise and it pushes you into a higher tax bracket, you have to remember that you only pay the higher tax rate on the dollars you earn after the margin. Let me explain: The 12 percent tax bracket for a single filer goes from $9,526 to $38,700. Starting at $38,701 it goes up to 22 percent. So let's say you were making $38,750, and because of a inflation-pegged raise, you're going to go up to $39,500. Oh no! You're in a higher tax bracket! Well, yes, but . . . the tax rates are marginal, so you're not paying 22 percent on all 39,500 of those dollars. You're still paying 12 percent on dollars 9,526 through 38,700. You're only paying 22 percent on dollars 38,701 through 39,500 - and that's only $800. So you're paying a federal tax of $156 on those $800, compared with $96 you'd have paid if those $800 were still in the 12 percent tax bracket. You're talking about a difference of $60.

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But wait, that still doesn't tell the whole story. Before the tax cut, the rate on the same income would have been 25 percent, not 22 percent. So even if chained CPI bumped you into a higher tax bracket, you're still paying less on that above-the-margin income than you would have paid before the tax cut. So if you get a raise based on conventional CPI, which outpaces chained CPI, that will mean your purchasing power is greater and your tax rate is still less than it would have been prior to the tax cut. How is this a bad thing? It isn't. But the left is so desperate to show that the middle class is being screwed by this bill, they'll find a way to believe this is bad for you. It's not. Relax.