Some notes (from a letter I wrote, not a real review):

• Krugman argues that the rationale behind the tax plan is purely political, in the sense that it seeks to achieve a shift of power through tax policy. The goal of the shift is to reduce the power of government by reducing its ability to spend on discretionary items, and therefore to be an option for addressing problems. In this, the most telling feature of the tax plan is the reductions are phased in gradually. (One argument he brings up is that high- tax/high-budget states and low-tax/low-budget states tend to be self-reinforcing: most people living in high-tax states do not complain about it because most people in those states receive net benefits, whereas people living in low-tax states do complain, because they receive next-to-nothing for their taxes. I think of the rabid anti-tax rhetoric in places like New Hampshire and Oklahoma, which have astonishingly worthless state governments. I recently read a comment by Larry McMurtry on driving through Idaho, that everyone there complains about how oppressive big government is, even where one can hardly find any government anywhere.)

• Krugman's opposition to the Bush tax plan is based both on his fiscal conservatism, his satisfaction with the status quo, and his alarm over the dishonesty by which the tax plan is sold. Krugman argues that current government expenditures are for the most part spent on worthwhile things, so it would be dangerous to jeopardize that. He also argues that government should run a surplus during periods of economic prosperity -- balancing the need to run deficits during economic downturns. Most of the book addresses the dishonesty, especially over the amount of the tax reduction (its cost to government, and how this has been greatly underestimated through untenable assumptions, the arbitrary 10-year forecast period, and deliberately misleading statistics) and distribution of benefits (tuning the sales pitch to the typical family of four earning $40K, whereas 40-45% of the benefits go to the top 1%) and timing (the argument that a permanent tax cut that is phased in over 8 years would be an anti-recession stimulus; he also points out that the economic boom in the 1990's followed an increase in marginal tax rates).

• One significant part of Krugman's opposition is based on his concern over the viability of retirement programs as the baby boomers retire (shortly following the 10-year forecasts). He points out that until the mid-1980's social security had been a pay-as-you-go plan (as opposed to a fully-funded account), but since the 1980's has been deliberately running a surplus to invest against future needs. In Krugman's view, retirement programs have become the dominant feature of the US government, so much so that he refers to it as "the retirement state".

• Krugman's strongest points are cutting through economic theory: e.g., the vast difference between the commonplace theory that taxes are a drag on the economy and the supply-side fantasy that cutting taxes from current US rates produces so much economic growth that total taxes rise (thus allowing one to ignore the effects of cutting taxes on balancing budgets).

Some thoughts:

• The balance of power between state and private sector: it's easy to find fault with the state, but the state is at least in principle subject to democracy and therefore in principle capable of advancing some form of public interest. Try doing that with a corporation and you'll have shareholders suing you and the SEC all over your case. I think one of the core political divisions now-and-future will be to establish the credibility of the public sector at addressing problems. The main rightwing agenda is to cripple and discredit government. There needs to be a countereffort to show that the public sector can work more effectively than the private sector -- I think this is something that public employee unions should take to heart.

• The cost of retirement: everyone agrees that the retirement costs of an aging population are going to be an increasing strain on the ability of the working population to support them, but why? Recall that the purpose of business is to be able to take in more money than is spent to produce and sell its goods and services: in this regard, business has a deep inherent bias toward inflation. That "more money" works as upward pressure on prices and downward pressure on real wages, which is only compounded if the profits flow to the rich and escape taxation. (The retirement system in the US is financed by payroll taxes that exempt the rich.) I think there's a fairly simple solution to this, but it's so unconventional that nobody even discusses it:
  1. Attack the inflationary bias of business to yield much lower prices, both for retirement costs and for general costs (which would improve real wages, making payroll taxes more affordable). Examples include promoting more business competition, shifting/consolidating costs to the public sector (e.g., R&D), eliminating patents.
  2. Significantly increase the estate tax.
  The most obvious component of retirement costs is health care, and a big piece of that is drugs, which are sold at outrageous prices based on patent monopolies. Huge savings are possible simply by publicly underwriting development and testing of new drugs and licensing them to competitive manufacturing. There are many other opportunities here, both to cut costs and to improve quality.

  However, note that a large percentage of retirement costs are service labor, so efforts to improve wages in this sector add to retirement costs, whereas more general efforts to reduce costs can improve real wages without inflating retirement costs. General cost cutting is a very unorthodox idea, running counter to the systemic bias towards growth and profit-maximization. However, I think there are wins in general cost cutting (especially combined with worker empowerment directed at improving quality) that include more equal opportunity, better use of natural resources, more free time, general life style improvements.

• Krugman points out that repeal of the estate tax benefits no more than the upper 1%, and as such effectively doubles the tax cut benefit to the rich, but he doesn't explore what it means economically or politically or socially. There are simple reasons for taxing estates at confiscatory levels:
  1. The economy depends on people being willing to work, which implies that society should place a relatively high value on work. However, inheritance is unearned, and for the rich is often much more than any worker can possibly earn. (The injustice of this, and its consequent concentration of power is a potent source of class conflict.)
  2. Income/wealth which escapes taxation shifts the burden of supporting the public sector (taxation) to people less capable of doing so, undermining the public sector (although property taxes recover some of this loss).
  3. Taxing estates helps to recycle wealth, creating more opportunities for more people. In recycling wealth, short-term inequities in the political/economic system are corrected in the long term.
  4. This is one tax where the rate does not affect behavior: i.e., a higher tax rate will not lead to a lower death rate.
  Even a confiscatory estate tax does not solve the inequality problem, but it is an important step toward keeping it from getting a whole lot worse.

  (The actual framing of a solid estate tax law would have to handle a lot of details, and would even so probably provide a lot of room for evasion, e.g. through gifts.)

• Speaking of taxes, I have two pet tax schemes that I'll throw out here, since they address issues that are popular with R. voters in ways that separate those voters from the super-rich who actually benefit from R. tax plans:
  1. The payroll tax is approx. 15% up to $80K, nominally split between employee deductions and employer tax. One effect of this is to hit self-employed people very hard in the $50-80K range: effectively, they wind up paying 45% taxes in this range, then drop back to 33% over that. One could smooth this tax hit out by letting self-employed pay half the rate up to twice the total (7.5% up to $160K).
  2. A much bigger item is that unearned income (interest, capital gains, gifts) should be taxed progressively over the taxpayer's life (rather than each year taxed at its own rate). For example, the tax rate might be 2% up to $250K, 4% to $500K, 8% to $1M, 16% to $2.5M, 24% to $5M, 32% to $20M, 40% over $20M.
• Krugman accepts defense spending pretty much as is, but one could argue that almost all money spent on defense is waste that doesn't return value to the public, ergo argument for smaller government/tax reductions. The whole superpower thing (with all its patriotic trappings) is an argument for dysfunctional government.

• My rap on labor unions is that they should give up on being a special interest group and start thinking of themselves as a public interest group: how do I make my job contribute more to the public welfare?