Although Paul Graham’s letter reads more like a ransom note than an essay, I can’t in good conscience agree with your claim that a progressive tax will not ultimately risk the rapid growth of the start-up economy. The rate at which the ROI is reached is integral to investment outcomes and this is inhibited by higher taxation. The will to accrue wealth is the ultimate drive for any entrepreneur, just as it is the goal of a war chief to gather land to fulfill his own interests.
I realize it is in your interest to defend the startup economy; however I’m sure you can recognize the conflict of interest. Entrepreneurs are only obligated to ensure the well being of their workers as well as their own ‘sphere of care’, that is, those they are obliged to care for — in other words, loosely described, their kin. Their sphere can include their family and friends as well as their investors for whom they are obligated to provide returns. It could also include the whole country, depending on the entrepreneur’s philantropic interests, but I will ignore this point for the sake of my argument, as I do not believe this is significant.
The interests of these kin determine to a large extent the direction of the company, as they are completely dependent on the derived income to be fulfilled. As such, startups are largely disinterested in the well being of the larger economy so long as they can serve the interests of their sphere. If what you are saying is true — that the economy is not growing enough to ensure a positive-sum game — which I believe it is, then the massive wealth generated by startups will generate income inequality in a large scale, akin to that generated by capital gains, as startup directors depress their labor costs in order to increase investment to maintain the income necessary to keep the standard of living of their kin. Technology will make this even easier, as work will readily be outsourced and made increasingly efficient. As such, a progressive tax on income would arguably have little effect in reducing inequality on a large scale and will ultimately result in a transfer of wealth from the middle class to the lower class.
In the absence of stricter regulations on business practices, a progressive income tax will ultimately only decrease income variance among the non-stupidly rich.