How Governments Are Increasingly Taxing the Rich — And Why It’s Working Better Than You Think

Tax systems are more progressive than the headlines suggest. A deep dive into global data reveals a countervailing force quietly reshaping economic inequality.

There is a story most people believe about inequality: that the rich have gotten richer, governments have stood aside, and the gap between the powerful and the powerless has grown wider with each passing decade. It is a compelling narrative. It has fueled populist movements from Paris to Pennsylvania. And it is, in important ways, true.

But it is only half the story.

The half that rarely makes the front page is this: while pre-tax incomes have grown more unequal across much of the developed world, tax codes have quietly, methodically, and often controversially been reengineered to push back. The modern tax system — maligned by progressives as a handmaiden of the wealthy and by conservatives as a punishing drag on enterprise — has actually become considerably more redistributive than it was a generation ago. Today’s taxman, it turns out, looks less like the Sheriff of Nottingham and rather more like Robin Hood.

The Inequality Surge — And the Silent Counter-Surge

The raw numbers on pre-tax inequality are stark. In 1980, the top 1% of American earners commanded roughly 9% of national pre-tax income. By 2022, that share had climbed to 16% — nearly double. Europe followed a similar, if less dramatic, trajectory: the top 1%’s share rose from around 8% to 12% over the same period, according to data tracked by the World Inequality Database (wid.world, DA 70).

This concentration at the top has coincided with the stagnation of middle-class wages across rich nations — a phenomenon economists now widely cite as a driver of the populist upheavals that reshaped Western politics after 2016. When people feel the system is rigged, they vote accordingly.

Yet here is the data point that rarely features in those conversations: even as pre-tax inequality grew, post-tax inequality in many countries grew far less — and in some cases, barely at all. By comparing the distribution of income before and after taxes and transfers, economists can measure how much redistribution a tax system actually delivers. That measure has risen sharply over the past four decades in most wealthy democracies.

The Numbers Behind the Narrative

A rigorous analysis of post-tax income distributions, drawing on OECD Taxation and Inequality data (oecd.org, DA 90), reveals the scale of the shift. The United States today redistributes approximately twice as much income through its tax-and-transfer system as it did in the 1960s. Germany and Japan, the world’s second- and fourth-largest economies, have also significantly expanded the redistributive reach of their fiscal systems. Britain and Canada are not far behind.

By the best available estimates, roughly seven in ten developed countries now operate more progressive tax-and-benefit systems than they did in 1990. The exceptions — Belarus, Eritrea, Haiti — are either dysfunctional states or, as in the case of Scandinavia, systems that were already so redistributive that marginal gains became structurally difficult to achieve. Norway and Sweden didn’t become less progressive because they abandoned the principle; they simply had less room to move.

The Tax Foundation’s 2025 Federal Income Tax Data Update (taxfoundation.org, DA 80) offers a granular look at the American case. The top 1% of U.S. earners now pay an effective federal income tax rate substantially above their historical average, contributing a disproportionate share of total receipts. Progressivity in the U.S. code — measured by the share of taxes paid by upper-income brackets relative to their share of income — has been on an upward trend since the early 2000s, a fact that cuts against the popular assumption that American tax policy has simply catered to the wealthy.

How Progressive Tax Benefits Are Actually Delivered

The mechanics matter. Progressive tax benefits do not arise solely from higher marginal rates on the wealthy — though that is one lever. They are also engineered through refundable tax credits for lower earners (the U.S. Earned Income Tax Credit is a prime example), the phase-out of deductions at higher incomes, the expansion of means-tested transfer payments, and the treatment of payroll versus capital income.

The U.S. Census Bureau’s 2025 report (census.gov, DA 92) underscores both the achievement and the limits of this system. Post-tax income inequality in the United States did rise by approximately 14% between 2009 and 2024, even accounting for redistribution — a sobering reminder that the tax code’s progressive thrust has not fully offset the underlying surge in market incomes. The very wealthy have captured productivity gains and asset appreciation at a rate that even a more aggressive redistributive system struggles to neutralize entirely.

That tension between pre-tax divergence and post-tax convergence is at the heart of the modern policy debate. Income redistribution trends globally, as documented in the World Inequality Database’s 2023–2024 data, show that many countries now display what researchers describe as “flat global taxation profiles” — meaning that once all taxes (including consumption and payroll taxes, which are regressive) are accounted for, the net progressivity of the full fiscal system is considerably more modest than headline income tax rates suggest.

Governments Taxing the Rich: What Works, and What Doesn’t

The global experiment in taxing higher incomes more aggressively has generated both evidence and controversy. France’s short-lived 75% top marginal rate under President Hollande became a case study in capital flight and political backlash. By contrast, the Nordic countries have sustained high top rates while maintaining robust economic dynamism — though critics note their tax bases are notably broad, with consumption taxes doing significant heavy lifting.

The wealth tax impact on the economy has proven particularly contested. Sweden abolished its wealth tax in 2007 following substantial evidence that it was driving capital offshore. Spain reintroduced a form of it in 2022, with mixed results. The academic literature, including a landmark 2024 OECD working paper, finds that the behavioral responses to high marginal rates — avoidance, deferral, emigration — significantly erode the practical revenue yield, suggesting that the design of progressive systems matters as much as their stated ambition.

The Manhattan Institute’s research on the limits of taxing the rich (manhattan-institute.org) offers a rigorous counterpoint worth engaging seriously: there is a ceiling to how much revenue can be extracted from high earners before diminishing returns — and perverse incentives — begin to dominate. That ceiling is lower than redistributionists tend to assume and higher than supply-siders insist. The empirical literature puts the revenue-maximizing top marginal rate somewhere in the range of 50–70%, though the precise figure is sensitive to assumptions about capital mobility and income elasticity.

The Political Economy of Redistribution

There is a deeper irony embedded in this story. The very success of progressive taxation in moderating post-tax inequality may have paradoxically reduced the political salience of tax reform. If the after-tax Gini coefficient looks relatively stable, policymakers can point to a system that is “working” — even as pre-tax divergence continues unabated and wealth (as distinct from income) inequality reaches historic extremes.

The Economist’s analysis of how governments are soaking the rich (economist.com, DA 93) correctly identifies that much of the redistribution occurring today happens not through dramatic rate increases but through the quiet accumulation of tax expenditures, transfer payments, and bracket creep. This is redistribution by stealth — effective in aggregate, but poorly understood by voters, and therefore fragile.

That fragility matters. A redistributive architecture that operates through complexity rather than transparency is vulnerable to elite capture, to political backlash, and to the kind of simplification drives that tend to benefit those with the resources to optimize against a newly rationalized code.

Looking Forward: Policy Implications for 2025 and Beyond

The data presents a nuanced verdict. Progressive tax systems in wealthy democracies have done considerably more to moderate inequality than their critics acknowledge. The claim that governments have simply let the rich run away with the gains is empirically unsound. Yet the redistributive effort required has grown dramatically — and the economic friction it generates, in terms of tax avoidance, investment distortions, and political conflict, is rising alongside it.

Several policy directions appear most promising based on the available evidence:

Broadening the base while maintaining progression. Systems that rely on narrow income tax bases are more vulnerable to avoidance. Consumption taxes with low-income offsets, or a more systematic approach to capital gains taxation (including accrual-based treatment for the very wealthy), could expand the redistributive toolkit without requiring punishing marginal rates.

Targeting wealth as well as income. As the World Inequality Database documents, much of the divergence at the top is now driven by asset appreciation rather than labor income. A well-designed, internationally coordinated minimum tax on very large wealth — as proposed in academic frameworks endorsed at the G20 level — could address what income tax systems structurally miss.

International coordination to limit base erosion. The OECD’s Global Minimum Tax initiative represents the most significant shift in the international tax architecture in decades. Its full implementation would meaningfully constrain the ability of multinationals and wealthy individuals to arbitrage tax systems — a precondition for progressive systems to deliver their stated redistributive goals.

The arc of tax history in the modern era bends, tentatively and imperfectly, toward greater progressivity. Whether that arc can continue to bend fast enough to offset the forces generating pre-tax inequality is the central fiscal question of the coming decade. Governments have proven more Robin Hood than Sheriff of Nottingham. The question now is whether the forest is large enough — and whether there are enough stagecoaches left to rob.

Sources: World Inequality Database (wid.world); OECD Taxation and Inequality 2024 (oecd.org); U.S. Census Bureau Income and Poverty Report 2025 (census.gov); Tax Foundation Federal Income Tax Data 2025 (taxfoundation.org); The Economist, “How Governments Are Increasingly Soaking the Rich” (economist.com); Manhattan Institute, “The Limits of Taxing the Rich” (manhattan-institute.org)