Article was recommended to me by Google News. Krugman uses economic theory terms in a very unstandard way - as in might fail econ 101 way. I don't see what's the point of having a Nobel prize in economics as a columnist if they're going to obfuscate rather than illustrate issues.
The key point is his rather stunning conclusion that the "the social benefit from getting high-income individuals to work a bit harder is the tax revenue generated by that extra effort" which is very different than the usual way social benifit is defined: the sum of the consumer and producer surplus.
The pretzel logic used is to conclude that the consumer surplus from extra output is zero is that in a competitive market "everyone gets paid his or her marginal product" so "if a rich man works an extra hour, adding $1000 to the economy, but gets paid $1000 for his efforts, the combined income of everyone else doesn’t change."
Luckily in standard economic theory perfectly competitive markets can create consumer surpluses. A government tax cut would move the supply curve and the consumer surplus would be the additional area under the curve.
It's weird that Krugman spends so much time making such an iffy point.