John Cochrane takes issue with Paul Krugman on the optimal level of the top tax rate. High tax rates, Cochrane concedes, may not much reduce hours worked. But:
The big margin for economic growth is people’s human capital decisions — the decision to go to school, to take hard courses (computer programming) rather than softer more pleasant ones, the decisions to start businesses and invest enormous time when young developing them. The optimal redistribution literature just ignores all of this. And, like the decision to relocate, it depends on the total tax bite, not just the marginal tax bite. How much will I earn, after all taxes — what lifestyle will I lead — if I go to med school, or just stay where I am? High tax countries do not immediately see people staying home from work. But they do not see vibrant business formation and human capital investment. (Chad Jones has a great new paper on this.)
The rest of the post is worth reading too.