The Myth of the Regressive Code: New Study Ranks U.S. Tax System as the World’s Most Progressive

For decades, the prevailing narrative in American political discourse has been that the United States tax code is insufficiently progressive, failing to extract a fair share from the highest earners while burdening the middle class. However, a landmark study released by the Fraser Institute suggests that this conventional wisdom is not only misguided but fundamentally at odds with empirical reality.

According to the new report, which evaluates the progressivity of tax systems across the Organisation for Economic Co-operation and Development (OECD), the United States maintains the most progressive tax structure of all 33 nations studied. This finding challenges the assumption that the U.S. lags behind its European counterparts in ensuring that the wealthy carry a disproportionate share of the fiscal burden.

The Complexity of Measuring Progressivity: A Chronology of Analysis

Measuring tax progressivity is notoriously difficult. Historically, analysts have conflated "tax progressivity"—the design of the tax code itself—with "fiscal redistribution," which includes government spending, transfer payments, and social welfare programs. This conflation often obscures the reality of how money is actually collected.

The Fraser Institute’s study marks a departure from this trend by isolating tax design from the broader fiscal environment. By creating a standardized index, the researchers sought to move beyond anecdotal evidence and look at the structural mechanics of tax collection.

In the late 20th and early 21st centuries, the OECD and other global bodies focused heavily on how transfer payments reduced inequality. However, as global economic integration increased, the need to compare how tax systems themselves treat various income brackets became paramount. The Fraser Institute’s 2025 analysis provides a snapshot of this evolution, utilizing five distinct metrics to compare 45 jurisdictions across 33 OECD countries. By focusing on statutory rates, revenue sources, and the architecture of the code, the study provides a "pure" look at progressivity that is rarely seen in mainstream economic literature.

Supporting Data: How the U.S. Leads the Pack

To account for the significant variance in subnational tax policies, the study examined regional samples. In the United States, the analysis compared California—a state with high personal income tax (PIT) rates—and Texas, which levies no state-level personal income tax. Even with these divergent state policies, both fared exceptionally well on the global progressivity scale.

The Five Metrics of the Fraser Index

The study utilized five core metrics to determine its rankings:

1. Marginal PIT Rate Range: Measuring the steepness of the tax brackets.
2. Distance to Top Tax Bracket: Assessing how quickly a taxpayer enters the highest marginal rate.
3. Low-Income Tax Protection: Examining the threshold at which citizens begin paying significant taxes.
4. Income Tax Share of Revenue: Evaluating how much of the government’s intake comes from progressive income taxes.
5. Consumption Tax Share of Revenue: Assessing the reliance on flat consumption taxes (like VATs) versus progressive income taxes.

The results were striking. California ranked as the most progressive jurisdiction among all 45 sampled. Texas, despite its lack of a state income tax, still managed a respectable fourth-place ranking.

The primary driver of this high ranking is the U.S. federal government’s unique tax mix. Unlike most OECD countries, which rely heavily on Value-Added Taxes (VATs)—a form of consumption tax that is often considered regressive because it takes a larger share of income from lower-earning households—the U.S. relies almost exclusively on income taxation. Because the U.S. lacks a federal consumption tax, its revenue structure is inherently more progressive than that of its peers.

Official Responses and Methodological Strengths

The study has been lauded for its methodological rigor, particularly its decision to isolate the tax code from the "noise" of government spending. By stripping away welfare and transfer payments, the index allows policymakers to see exactly how the tax system functions in a vacuum.

"This provides insight into the distributional burden of how countries raise tax revenue, separate from how they spend or redistribute that revenue," the report notes. This distinction is vital for reform; if a government wants to improve equity, it must decide whether to alter the tax code or adjust its spending priorities. These are two different levers, and the Fraser study clarifies which one is currently being pulled.

Moreover, the inclusion of consumption taxes in the analysis provides a more complete picture of the taxpayer experience. Many previous studies have erroneously focused solely on income taxes, ignoring that a country with a highly progressive income tax but a very high VAT might actually place a heavier burden on the poor than a country with a moderate income tax and no VAT.

Addressing the Critics: Limitations and Weaknesses

Despite the study’s findings, some economists argue that the index has blind spots. The most notable criticism is the exclusion of tax credits, such as the Earned Income Tax Credit (EITC) and the Child Tax Credit.

In the U.S., these refundable credits are primary tools for poverty alleviation and redistribution. Because the Fraser Index relies on statutory rates and standard deductions, it effectively ignores the "negative tax" impact of these credits. Critics argue that by excluding these, the study may be undercounting the true progressivity of the U.S. code. Furthermore, because these credits reduce the total income tax collected, they may indirectly lower the "income tax share of revenue" metric, potentially skewing the results in a way that suggests less progressivity than is actually occurring on the ground.

Additionally, the study does not fully account for cross-country differences in business income reporting. In the U.S., the proliferation of the "pass-through" sector—where business income is taxed under the individual income tax code rather than a corporate rate—inflates the amount of high-end income reported on individual returns. This creates an appearance of higher income concentration, which can skew the "income tax share of revenue" data when compared to countries with different corporate reporting structures.

Implications for Future Policy

The implications of the Fraser Institute’s findings are profound for the current American political debate. If the U.S. tax code is already the most progressive in the developed world, then calls for further increases in top marginal tax rates should be evaluated with extreme caution.

Economic research, including the analysis of the "Laffer Curve," suggests that there are diminishing returns to increasing marginal tax rates. Excessive rates often lead to capital flight, increased tax avoidance, and a deceleration in economic growth. If the system is already highly progressive, the marginal utility of raising rates further may be outweighed by the resulting economic drag.

Furthermore, the data suggests that U.S. policymakers should pivot from the rhetoric of "tax fairness" to the reality of structural design. If the goal is to further protect low-income households, the most effective path might not be increasing the top marginal rate, but rather strengthening existing refundable credits or broadening the base to allow for lower rates across the board.

The Bottom Line

The Fraser Institute’s index provides a necessary, data-driven corrective to the narrative that the U.S. tax code is a bastion of inequality. While the study is not without its limitations—particularly regarding the treatment of tax credits and international reporting discrepancies—it offers a robust framework for comparing tax structures across the OECD.

For taxpayers, policymakers, and researchers, the lesson is clear: the U.S. tax system is significantly more progressive than the global average. As the nation faces future fiscal challenges and debates over tax reform, understanding this international context is essential. Policymakers should focus on the evidence, recognizing that the U.S. already possesses a highly progressive engine, and that further adjustments should be made with a keen eye toward both efficiency and the potential for unintended economic consequences. The "fairness" of the code is not merely a matter of tax rates, but a sophisticated balance of revenue sources that the U.S. has arguably managed more aggressively than any of its peers.