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Understanding Taxes

Paul Krugman

Lesson time 13:35 min

Paul explores the data behind “supply side” taxation, the potential impact of the 2017 tax cuts, and how the American tax plan affects each of us.

Paul Krugman
Teaches Economics and Society
Nobel Prize-winning economist Paul Krugman teaches you the economic theories that drive history, policy, and help explain the world around you.


People often trash talk the US tax system as it is and talk about it's hopelessly complex, and it's full of disincentives. And there's some truth to that. But it's not really that terrible. If you actually ask us, is tax reform making the existing tax system cleaner, getting it so you can file your taxes on a postcard, those are not actually important. Those are not central issues. The main thing is that we need some more money. People who think that taxes are a tremendous disincentive to economic activity, I would invite those people to walk around to Copenhagen or Stockholm. Ask, does this look to you like a wrecked economy, a failing society? You know, they look pretty good. So we could do this, and it's not actually a very hard issue, except that nobody wants to hear it. [MUSIC PLAYING] When you're trying to be doing tax policy, the first thing you want to ask is, how much money do we need? How big a government do we want? And that's, of course, that's going to be a value judgment, although I think if we ask what most Americans want, they want to maintain our basic social safety net. People want to maintain Medicare, Medicaid, social security. Interesting, actually, that Medicaid, which is to some extent the poverty program, turns out to have very, very high approval ratings. People don't want to see it cut. They care enough about their fellow citizens. They want to maintain that. That's already telling you that you need quite a lot of money. In fact, you need, if anything, somewhat more money than we're now collecting in taxes because all of these programs spend disproportionately on the elderly, and my generation is steadily moving into it's sunset years. And that's a burden. So you need a tax system that collects a lot of money and, in fact, collects at least a few percent more of GDP than it does now. So we need a lot of revenue. Then you want to say, OK, how do we do that without creating really big disincentives because even liberals do say, taxes are some disincentive? So you want a tax system that is-- that doesn't take away the incentive to work, to innovate, which means that you want to try and keep marginal rates, the rate-- the fraction of the last dollar that you pay in taxes from getting too high. That means that you can only get-- even if you're a big liberal, you can only get so much money out of soaking the rich. Now, there are reasonable estimates of what makes sense as a top tax rate. And they often actually suggest that we'd be OK with the highest tax rate being between 70% and 80%, which sounds really high, except that, in fact, that's all taxes. That's state and local. That's sales taxes plus income tax. In fact, it's probably something like 55 as it stands. So we could go a bit higher, and we can raise some more money by taxing high incomes. But then if you want to go beyond that, if you want to have something that is going to pay for the government services that everybody wants--...

Think like an economist

For Nobel Prize-winner Paul Krugman, economics is not a set of answers—it’s a way of understanding the world. In his economics MasterClass, Paul teaches you the principles that shape political and social issues, including access to health care, the tax debate, globalization, and political polarization. Heighten your ability to read between the lines and decipher the underlying economics at play.


Students give MasterClass an average rating of 4.7 out of 5 stars.

Mr. Krugman managed to truly convey an image of the world in all shades of all colours. He inspired the incentive to care more about what is happening and showed how economic policies shape society, for better or for worse.

Good explanation for economic principles behind major events. Course notes supported commentary well.

Great stuff and guidance to help you come to your own conclusions.

Understanding the basics of economics ! Superb course


A fellow student

Aside from the fact that this is clearly a one sided argument and is largely based on personal opinion I think there are 2 missing components in this presentation: 1. The role one personally believes the government should play in ensuring its country's citizens wellbeing. Some people like Krugman advocate for a paternalistic approach, what would be part of a social democratic paradigm. However, the US has historically been a liberal country and the role of the individual has been praised and advocated for over more active participation by the government. I come from Spain and the idea of basic income is now a topic of discussion. Regardless of whether I believe this could be a realistic policy to enact it worries me to think of a country's citizens relying so heavily on the government's actions for their substenance; in my opinion it concentrates too much power on the government's hands, and in light of quite bad, not empirical based and demagogic policy which we have seen, I don't think this is something we should strive for ( I do realise this is a personal opinion and based on the fact that I have enough priviledge to not rely on the government to start with). 2. What are the tax dollars being used for? I am not against raising taxes but I think there needs to be transparency of where the money is going to and what are the real benefits of tax increases. In light of so much corruption and lack of transparency in politics it is hard for me to believe that increases in taxation are genuinely coming from a place of trying to enact effective policies which will result in positive social impacts, and not from a desire to accumulate more power and money from the government's sides. In summary, I believe increases in taxation are easier in countries where people trust the government (the Nordics are an excellent example of this) and I just don't think many countries are quite there.

A fellow student

It's astounding to me that people comment here with completely uninformed dogma and slurs on the instructor. All of what he is saying is actually backed up by data. You are wasting your own time taking this class if you think you know all about this already, and you're wasting everyone else's time if you're posting uninformed dogmatic posts labeling the instructor as "socialist." You clearly don't even know the definition of the word. Read the workbook and try to comprehend the materials instead of just parroting alt-right catch phrases, you never know, you might actually learn something.

brendan D.

Reading between the lines, what I'm seeing is that after the 2016 election, Mitch McConnell made a deal with Trump (an unpopular candidate within the Republican Party) that he would deliver the Republican Party to Trump if he got significant tax cuts through that would satisfy donors. Trump bullies the tax cuts through in 2017, donors are delighted and grateful, and republicans think he's God. Trump also thinks he's God, but the wheels are starting to come off ... thank God.

Ruther L.

Nobody likes to make money and have it immediately taken from them and redistributed in ways they cannot and will never see. Nor does someone used to making (lets say) 1 million USD / year, want to have to spend even more of their "hard earned" money if taxes were to be raised. What if we proposed a system that allowed people with higher wealth to vote where his/her tax money shall go? A percentage that increases with size of wealth. An individual and/or company chooses between, for example sake, 20 charities that are choses by an online secured citizen vote. You can choose as many of them as you like to evenly distribute, or even 1 if it truly speaks to you. Maybe even another option to evenly distribute that percentage across the entire staff and board of your company (if making under a certain amount). We need a redistribution that feels like we have a choice. Imagine the feeling we would get from knowing that our money is guaranteed to go to the right places, even if we are forced to do so... I dream of that future.

Dan L.

Thought the class was great until he began to use his own views with data only substantiating his views and not providing the entire view. Some of the examples he uses such as the Scandinavian model as mentioned below is flawed and has been proven flawed by many different experts. At this point it is best just to skip several videos while he provides his view on the governments responsibility and the use of taxes, or if you watch to realize it is a very one sided view.


Surprised to find Krugman at Masterclass. One-sided, socialist view of economics.

Wen X.

"blackmail everybody of the Congress into what I think is good policy" He's so funny :D

Paul I.

Enlightening and solid evidence based perspective. And from a common sense perspective, makes a lot of sense. Good class.

Kyle J.

For starters, Krugman is obviously intelligent, well-spoken and can be pseudo-persuasive. However, I'm rather upset (though not at all surprised) with Masterclass for pushing political ideology without providing a counter-argument for Krugman's left-leaning economic philosophy. I feel as if I could have gotten the same information for free just by watching MSNBC. He keeps using Scandinavia as an example for the US; this is a fundamentally-flawed comparison. They have comparatively small, homogenous societies where most people have very similar culture and work ethic; their policies likely wouldn't play out the same in the United States.

A fellow student

We aren't communist. Raising taxes to 70-80% isn't going to take away from the rich and give to the poor. It's going to destroy the rich and benefit the poor only to a slight degree. Look at Sweden and Denmark, indeed the population is very equal, but equal to the sense that they are all near the lower middle class range. These high taxes can't sustain the economy. Yes you are more fairly splitting the pie, but by shrinking the pie and then distributing it evenly.