Business, Politics & Society

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.
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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.

Helped me analyze better. Absorb economic news better.

Very well done and presented. Does give economics its full sense and interest.

"Keep on pluggin', and don't let the crazies drag you down." Good words to leave off on.

The class is definitely a revisit to Economics and I am glad Paul Krugman was the one to refresh my understanding!


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.

A fellow student

I have to say though, he used Denmark and Sweden as examples of highly developed countries, almost entirely ruling out that the United States still in fact has THE most developed economies. We have to stop treating taxes and fiscal policy objectively and really to start understanding the relationships between incentives of the highly rich and the economy and inequality itself.

A fellow student

Loved this class. It presents concepts tied into stories and general examples which really help make the fundamentals stick.

A fellow student

But what about all the claims that the top 1% makes saying that people didn't pay their taxes when they were too high, and that's actually why the economy growth was better when taxes were too high

A fellow student

Is this an economics class? Or a political class? When do we get out of opinion and get into the science? This is NOT one of Master Class's finest moments.