As Wealth Taxes Gain Steam, a New Study Finds the U.S. Code Is Already the Most Progressive in the OECD

Sharon Kreider, CPA

Taxing the rich is back near the top of the agenda, and not just as a talking point. On the federal side, Democrats have reintroduced their two marquee proposals. Senator Elizabeth Warren’s Ultra-Millionaire Tax Act would impose an annual 2% tax on net worth above $50 million, plus an additional 1% on billionaires, paired with a 40% exit tax on anyone worth more than $50 million who renounces citizenship to escape it. Senator Ron Wyden’s Billionaires Income Tax takes a different approach, taxing the annual gain on billionaires’ tradable assets each year whether or not they sell, aimed squarely at the “buy, borrow, die” strategy. Neither is likely to move in the current Congress, but both keep the pressure on.

California voters will weigh in on their own version this fall. The One-Time Wealth Tax for State-Funded Health Care Programs Initiative, better known as the Billionaire Tax Act, has qualified for the November 3, 2026, ballot. It would impose a one-time 5% tax on the net worth of California residents with more than $1 billion in net worth. Although the tax would be due in full, taxpayers could elect to pay it in five annual installments of approximately 1% each, subject to a 7.5% annual deferral charge on the unpaid balance. The revenue from the tax would be earmarked for Medi-Cal, food assistance, and public education. The tax would affect anyone who was a California resident as of January 1, 2026. The Legislative Analyst’s Office estimates it could raise tens of billions over several years, while also shrinking income tax revenue as some billionaires leave the state. A handful already have. Governor Newsom opposes the measure, and well-funded opposition is preparing to challenge it in court if it passes.

These proposals share a premise that the wealthy are not paying enough, and that the tax code is not progressive enough to change that. A Fraser Institute study puts a number on the progressivity question, and the results complicate that premise. Ranking tax systems across Organization for Economic Co-operation and Development (OECD) economies, the study finds the United States comes out on top, with the most progressive tax system of the 33 countries studied (45 jurisdictions in all).

Measuring progressivity is harder than it sounds. Tax codes are complicated, and the debate often shifts to spending and transfer programs that have nothing to do with how revenue is raised. The Fraser study keeps the focus on the tax system itself, building an index from five measures. Three describe the income tax structure: the spread between the top and bottom marginal personal income tax (PIT) rates, the income level (relative to the national average) at which the top rate kicks in, and the size of the basic exemption relative to average income, which for the United States combines the federal and state standard deductions. The other two capture the tax mix: the share of revenue raised through personal income taxes, which tend to be the most progressive, and the share raised through consumption taxes, which are regressive because a flat charge takes a smaller bite out of a high earner’s income than a low earner’s. A higher income-tax share signals more progressivity; a higher consumption-tax share signals less.

Because state-level policy varies so much, the index samples high-tax and low-tax jurisdictions within countries. For the U.S., California and Texas stand in for the high and low ends of state PIT rates, with Texas having no state income tax.

That sampling puts both U.S. jurisdictions near the very top of the table. Of the 45 ranked, California comes in first and Texas fourth. The systems filling out the rest of the top five are a Canadian province, Newfoundland and Labrador, in second; Korea in third; and Austria in fifth. Korea is the highest-ranked national tax system in the study, and it still sits behind California.

The California result deserves a bit more analysis. Treated as if it were its own country, California would have the most progressive tax system in the OECD, ahead of every national government measured. And Texas, with no state income tax at all, still lands fourth, a sign that the federal structure, not state policy, is responsible for the ranking.

What really drives the U.S. ranking is the tax mix. The U.S. is second only to Denmark on income tax share of revenue, and it ranks as the most progressive on consumption tax share, with the lowest reliance on consumption taxes in the OECD. That is largely because the U.S. has no national consumption tax, while most other OECD countries lean heavily on value-added taxes.

Where the Index is Useful, and Where It Falls Short

The design has real strengths. Most progressivity studies blend the tax system together with spending and welfare policy. This isolates tax design, which gives a cleaner read on how countries raise revenue, separate from how they redistribute it. It also accounts for the tax mix rather than looking at income tax alone, which paints a fuller picture.

But practitioners should note what the index leaves out. It relies on statutory rates and standard deductions, so tax credits never enter the picture. That is a meaningful gap for the U.S., where refundable credits aimed at lower-income households do a lot of the progressivity work. A related gap sits on the rate side. The structure variables run off the ordinary-income statutory schedule, so they never see the preferential federal rate on long-term capital gains and qualified dividends under IRC §1(h), or the additional 3.8% net investment income tax under IRC §1411. When the index credits the United States with a high top marginal rate, it is scoring the 37% ordinary rate, not the roughly 23.8% a gains-heavy filer pays. Because realized gains, and tax-exempt municipal bond interest under IRC §103, concentrate at the top, the effective rate there sits well below the statutory one the index rewards, and the gap runs toward overstating U.S. progressivity, not understating it.

The revenue-mix metrics have their own blind spot. They track only the income-tax share and the consumption-tax share of federal revenue, so payroll taxes are scored for neither. The Social Security wage-base cap, and the fact that FICA and the self-employment tax under IRC §1401 fall on wages but not on capital income, make payroll taxes among the most regressive pieces of the federal system, and no metric in the index considers them. In fairness, most OECD countries fund social insurance through similar or heavier payroll contributions, so pulling them in would not necessarily move the United States down the rankings. It would just give a more honest picture of who carries the federal burden.

The sharpest limitation, though, is hiding in a modeling choice: the revenue variables use national data only. So, the consumption-tax share ignores state and local sales taxes altogether. That absence, not any genuine American aversion to taxing consumption, is the real reason the country shows up as the least consumption-reliant in the OECD. There is an inconsistency baked in here, too. The index folds state income taxes into its rate-structure variables, which is how California enters the picture at all, but it drops state sales taxes from the consumption variable. The progressive half of state taxation counts; the regressive half does not.

That same federal-only lens misses a fast-growing layer of state and local taxes aimed squarely at the wealthy, which cut the other way. New York’s mansion tax, enacted in 1989 as a flat 1% on residential sales of $1 million or more and restructured in 2019 into progressive tiers within New York City that climb to 3.9% on sales of $25 million and up (N.Y. Tax Law Article 31), is one example. Washington’s tax on large long-term capital gains is another: 7% on gains above an inflation-adjusted exemption, roughly $285,000 for 2026, with a 2.9% surcharge added in 2025 that brings the top rate to 9.9% on gains over $1 million (RCW 82.87, as amended by SB 5813). The Washington Supreme Court upheld the tax in Quinn v. State, 1 Wn.3d 453, 526 P.3d 1 (2023), concluding that the capital gains tax is an excise tax rather than an income tax.

The Bottom Line

No index can make tax systems perfectly comparable across countries, but the Fraser study is a credible framework, and its headline finding lines up with other research placing the United States at or near the top of the developed world on tax progressivity.

The more useful takeaway is not the ranking itself but what it exposes about the question. Whether a code is “progressive enough” depends almost entirely on what you measure: statutory rates or effective burdens, the federal system alone or the full federal-state-local stack, the income tax in isolation or the payroll and consumption taxes layered alongside it. The study answers one version of that question and leaves the others open. Those are the distinctions worth raising with clients and in policy conversations as the California measure heads to the ballot and the federal proposals resurface, with the data informing the debate rather than settling it.

Source: Grady Munro, Milagros Palacios, Nathaniel Li, and Jason Clemens, Measuring Tax Progressivity in High-Income Countries (OECD), Fraser Institute, November 2025, available at fraserinstitute.org.

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