One of the reasons politicians and economists fail to understand the Laffer Curve is the confusion of work with productivity.  Politicians understand that higher taxes may make people work harder to attain the same level of after tax income, but they fail to understand that productivity will decline.

For example:

Three contractors who work together can build three houses in three months. One builds the foundation, another the frame and another the roof.  If they work separately, each building the entire house, it would take them six months to build the same three homes.

At a  tax rate of 49% they work together because they get a small material gain by doing do.  But at a 51% tax rate it no longer pays them to work together and the contractors will work independently building their own homes and make more money. Productivity is halved, leaving fewer jobs for subcontractors, fewer mortgages for banks, fewer sinks and windows to sell from Home Depot, less concrete poured, less air conditioners installed, and less tax revenue for the deficits.

The effect can be compounded if the rates drive further output into the barter economy.

paraphrased from Jude Wanniski’s explanation in The Way the World Works

HKO Comment:

While the math in his example is less than perfect it still reflects that productivity is different than work, and that when the marginal tax rate destroys productivity tax revenues will suffer.  This is happening throughout the small business community now. Both expected higher taxes and the uncertainty of the impact of pending legislation is killing any incentive for capital investment and economic growth.  But I also think we are getting less work as those that are financially able retire early (going Galt), even  if they have to adjust their lifestyle to do so, and are taking fewer financial risks.