That's a great point!

It cuts both ways. Obviously if the tax rate is 100% over $200,000 then very few people are going to be paid $220,000. But this is an extreme example. Assume that I am considering between being a teacher and a stripper. I would rather be a stripper but only if it brings home twice as much money. If enough other people think like me (which is quite reasonable) then strippers would need to be paid more under a more progressive tax system. Whether or not pay for a high paying job would increase or decrease under a more progressive tax system depends. If demand for a job is perfectly inelastic and supply is perfectly elastic then pay would rise. If the reverse were true then pay would fall. In intermediate cases you would need use some formula which I don't want to think about deriving.

"If you reduce the rate to 99% or 95% or 90% a similar dynamic still applies -- it's very inefficient for a company to spend $10 in order to buy just $1 of my labor, and that's what happens when there's a 90% tax rate."
Right, and taxes purchase nothing of value for the company say tall ships and fast airplanes to secure "free" markets for the company's products around the world. Or perhaps, the taxes will purchase life long medical services and artifical limbs for the service men injured during the armed conflits undertaken to secure the same "free" markets. Matt Y's logic brilliant, no, inhumanely and narrowly childish much like GWB's "it doesn't really matter anyhow", yes. Didn't I read somewhere else on this blog that compensation and work effort correlate/correspond up to a point just over $300,000 dollars a year and after that point compensation is a matter of serendipity? Why not tax the excess at a higher rate and prevent some vicious narcissist at the top of heap from fueling his/her own grandiose delusions or alternately paying some "fortunate" employee the privilege of earning a "living" wage of $20,000/year.