Is Anyone Fooled by This Argument?

An "argument" I hear often enough that I want to comment on it goes something like this:

"Say I make a million dollars, if the government raises my tax rate by 4% that means I'd be out 40,000. I could hire a person with that money!"

I heard something just like that on Glenn Beck a few months ago. This is of course, ridiculous. This implies that if only the government wouldn't take that 40,000, Glenn would hire someone out of pure charity with the cash. First of all, this ignores that he gets to write off 39% of the cost of employing that person. But the main point is this; if that person wasn't going to make him any more money than it costs to hire them, he wouldn't hire them no matter what the tax rate.

The decision to hire someone is not based on how much money Glenn has, but how much he can expect to make by having that person either a) do something Glenn can do, but he can make far more money doing something else (or enjoy more leisure time), or b) do something Glenn can't do, but can make Glenn more money than he is paying that person.

Where taxes actually factor in is whether the extra money he can make doing a) or b) is worth the effort after taxes. If we're talking about a DIFFERENCE in marginal tax rate between 35% and 39%, the analysis of making this decision is probably pretty similar. Similar enough that it's unlikely to significantly change any of his investment decisions, such as hiring someone.

I'm not advocating a 39% marginal tax rate - I'd rather keep it at 35% and eliminate some deductions to raise the same revenue- but let's be more realistic about the consequences. A 39% tax rate on the rich will slow long term growth by a small amount due to a slightly higher investment disincentive, but is unlikely to cause any kind of massive destruction of the economy.