The Vanishing Rungs: How U.S. Taxes Tilted, Why Inequality Grew, and What to Fix (1970s → 2025)

A good tax code is a ladder you can climb and a floor you can stand on. Since the 1970s, we've quietly shaved rungs off the ladder at the top—capital income taxed more gently, corporate rates falling—and replaced them with tacks on the floor. This essay maps that drift with numbers, not slogans,.

By a regulated optimist with a pencil, a spreadsheet, and a soft spot for fairness.

I. A Quick Preface About Ladders

good tax code is a ladder you can climb and a floor you can stand on. Since the 1970s, we've quietly shaved rungs off the ladder at the top—capital income taxed more gently, corporate rates falling—and replaced them with tacks on the floor—sales and payroll taxes that bite hardest when wages are the main meal. We did not announce this shift in a prime-time address. It happened one bill at a time, one sunset at a time, one "temporary" cut renewed again.

This essay maps that drift with numbers, not slogans, and ends with a practical playbook that goes beyond the usual French canon (yes, including the new Parisian star everyone's quoting).

II. The Arithmetic of Drift

What the long series say. On average, federal revenue has hovered near 17–18% of GDP over the last half-century. But the composition has changed: payroll taxes grew as a share of revenues in the 1970s–80s and then plateaued; corporate income taxes shrank relative to the economy; individual income taxes oscillated but remained the single biggest piece. Those are not ideological statements; they're the lines in the official tables.

Corporate taxes in particular fell. U.S. corporate receipts have been roughly 1–2% of GDP in recent years, down from mid-1960s peaks. Congress's own researchers attribute much of the multi-decade decline to lower statutory rates and base-narrowing (e.g., faster depreciation). The 2017 law's cut from 35% to 21% deepened that trend.

Inequality rose. CBO's long-running distribution series shows that before-tax/transfer income has concentrated at the top since 1979, while taxes and transfers still reduce inequality but can't fully counter market-income divergence. That's the government's own scorekeeper, not a think-tank polemic.

III. How We Got Here: The Statute-by-Statute Pivot

Top rates and the capital tilt. The top individual rate fell from 70% in 1980 to 50% (early 1980s), then to 28% (1986), back up to 39.6% (1993), down to 35% (2003), up to 39.6% (2013), and 37% since 2018. Meanwhile, preferential rates on capital gains and dividends widened the wage-versus-wealth gap: long-term capital gains dropped to 15% in 2003 (along with a new 15% dividend rate), rising to 20% in 2013 plus a 3.8% net investment income tax for high earners. These are not lore; they're the statute books.

Corporate rate competition—global context. Worldwide, statutory corporate rates have roughly halved since the 1980s; the OECD documents that the long slide has recently stabilized near ~21% average. The U.S. played its part with the TCJA. That context matters when you ask "why are corporate receipts low?"—because every finance minister on earth has been playing limbo for forty years.

The sales-tax revolution after Wayfair. In 2018 the Supreme Court's South Dakota v. Wayfair overturned the "physical presence" rule, letting states compel online sellers (and marketplaces) to collect sales taxes. Every general-sales-tax state now has economic-nexus rules; many added marketplace-facilitator laws. This was a big, quiet shift toward consumption taxation—felt most by households living on wages.

What states rely on now. By FY2023, states collected roughly two-thirds of their tax dollars from just two sources: personal income (≈33%) and general sales (≈32%). Local governments still lean heavily on property taxes. Put differently: the combined state-local stack leans regressive unless offset by credits.

IV. Who Pays? Two Vantage Points

Official incidence, broad brush. The federal system remains progressive in the aggregate—higher-income households pay higher shares—yet less so at the very top when you fold in how lightly capital income is taxed. That's the Tax Policy Center's plain-English summary and it matches CBO's distributional tables.

At the summit, a sharp debate—now with new data. A 2025 research team using administrative sources estimates the 400 richest Americans faced an overall effective rate around 24% in 2018–2020 (including corporate and other layers). That's below broad population averages, and it fell after 2017's changes. Not everyone agrees on the exact number, but the direction is hard to ignore.

At the base, the sales-tax bite. State and local taxes are regressive on average. ITEP's latest Who Pays? shows lower- and middle-income families paying a higher share of income in combined state/local taxes than the top 1%, largely because of general sales and excise taxes. That's design, not destiny.

V. Deficits: Rhetoric Versus the Ledger

The big picture. CBO's 2025 outlook has annual deficits near $1.9T and rising over the decade, driven by demographics (Social Security), health costs (Medicare/Medicaid), interest, and policy choices; that's before you assume new tax cuts.

How much do tax cuts matter? Nonpartisan tallies pin trillions of ten-year debt to the 2001/03 cuts (and extensions) and the 2017 TCJA, with additional trillions if expiring provisions are extended. CBO and independent budget groups repeatedly note that making the 2017 individual cuts permanent would add $4T± over a decade. That's not a think-piece—it's the baseline math.

Distribution if extended. Treasury analysis reported by AP found permanence would heavily favor the top, especially the top 0.1%—and cost on the order of $4.2T between 2026–2035; a partial extension (≤$400k incomes) would still cost about $1.8T.

Yes, spending matters too. CBO and groups like CRFB emphasize that aging + health + interest are on autopilot and rising. But it is simply incorrect to say "deficits are only spending." Revenue choices widened the gap as well. Both can be—and historically, both have been—true.

If you talk like a hawk, legislate like one. The durable pattern since the 1980s: cutting top, capital, and corporate rates while promising growth would "pay for it." Dynamic estimates never close the hole. That is the core hypocrisy voters smell. (And for balance: Democrats have added to deficits too; CBO now projects clean-energy credits to cost much more than initially scored.)

VI. The Payroll-Tax Problem (and Why Wages Feel Heavier)

Payroll taxes—earmarked for Social Security and Medicare—rose as a share of revenues through the 1980s and then flattened as a share of GDP. Even so, they function like a broad headwind on wages. Meanwhile, the share of wages covered by the Social Security tax has declined over time as high earnings outpace the taxable cap (down to ~82% of wages covered). If you mainly live on a paycheck, you feel this wedge.

VII. What Changed for Consumption: The Post-Wayfair Reality

After Wayfair (2018), every general-sales-tax state adopted economic nexus; marketplaces must collect in almost all of them. Compliance uniformity is still a mess, but the revenue base is far broader. Economically that's logical; distributively it's regressive unless paired with credits or exemptions (e.g., groceries). Policy, not fate, decides whether this shift hurts the bottom half.

VIII. Beyond Piketty: A Pragmatic Playbook

What Piketty taught us. Thomas Piketty's Capital in the Twenty-First Century and Capital and Ideology stitched two durable points into public finance: (1) absent countervailing policy, wealth tends to concentrate faster than economies grow; (2) tax systems and political coalitions co-evolve, so distribution is a choice, not a fate. Those insights frame the U.S. story since the 1970s.

What Zucman adds. Gabriel Zucman's empirical work (with Emmanuel Saez and the EU Tax Observatory) quantifies how lightly the ultra-rich and multinationals can be taxed in practice and sketches implementable fixes—global minimums for firms, and now a 2% "billionaire minimum tax" that G20 finance ministers have been actively debating, with revenue potential around $250 billion/year. That's not utopia; it's a menu.

Here is a U.S.-grounded, do-able package that addresses distribution and deficits without pretending we can wish math away:

Capital-income neutrality at the top. Align the top capital-gains/dividend rate closer to top ordinary rates, at least for very high incomes, and end stepped-up basis at death above generous thresholds. CRS and Treasury histories show how preference layering erodes progressivity with little durable growth dividend. Pair with stronger enforcement against timing games.
Corporate base, not just rate. Keep the 21% rate if necessary, but tighten the base (book-minimum taxes with fewer carve-outs; slower bonus depreciation; stricter thin-cap rules) so effective rates track the headline. This is consistent with OECD evidence that base-narrowing eroded revenues even when rates paused.
Finish Pillar Two (15% global minimum). Adopt strong domestic top-up rules with a credible undertaxed-profits rule (UTPR) so shifted profits face a floor. Don't reinvent the wheel; use OECD's implementation handbook and align safe harbors to reduce compliance costs.
Make work pay at the bottom. Permanently expand and simplify the Child Tax Credit and EITC; CBO's distribution work shows transfers/taxes can materially reduce inequality when designed well. Fund permanence partly with capital-income reforms above.
Sales-tax offsets at the state level. If you run a sales-tax-heavy state, pair it with a refundable sales-tax credit (or a grocery exemption) and a state EITC; the data say that's the cleanest fix for regressivity in a Wayfair world. Use ITEP's incidence tables to calibrate.
Payroll fairness. Gradually raise the Social Security taxable maximum (or introduce a high-earner surtax) to restore coverage of the wage base. This is the least distortionary revenue lever tied to demographic reality.
Guardrails for deficits. Enact fiscal triggers: if debt service or unemployment crosses thresholds, specified tax and outlay changes phase in automatically (no cliff-edge politics). CBO's long-term outlook underscores why autopilot beats brinkmanship.
Enforcement where the money is. Keep funding modernized IRS data analytics for high-end evasion and cross-border profit-shifting; the EU Tax Observatory's latest reports quantify how much is still slipping the net.

IX. The Hypocrisy Test (and an Honest Scoreboard)

If your brand is deficit hawkery, but your core legislative asks are unfunded, high-end tax cuts that add multi-trillion holes, voters will notice. If your brand is equity, but you low-ball the cost of new credits or duck base-broadening, voters will notice that too. The record is public: CBO and independent groups show that extending 2017 individual cuts adds ≈$4T over a decade; demographic and health-cost pressures add the rest. The honest route is to say what you will cut or how you will raise. It's arithmetic, not moral theater.

X. FAQ, Briefly

"Aren't U.S. taxes still progressive overall?" Yes. But progressivity at the very top has thinned, and state/local stacks remain regressive without credits. Both statements can be true.

"Do corporate rate cuts pay for themselves?" No credible scorekeeper has ever found they come close. They can change behavior; they don't mint trillions.

"Isn't this all just about spending?" Spending growth is real and must be addressed; so are revenue losses from serial tax cuts. The ledger shows both.

XI. A Closing Note on Style and Stakes

The American tax code is a mirror that fogs when we breathe on it. Since the 1970s, we have breathed stories into law: that work needs heavier payrolls, that consumption should float the states, that wealth deserves gentle treatment because it might wander away. You can hold any philosophy you like, but you cannot escape the math. Inequality rose. Corporate payments shrank. Deficits widened when we cut taxes and forgot to pay the bill.

A better settlement is available: tax capital like income at the very top; make global profit-shifting unprofitable; offset sales taxes with credits; keep the ladder climbable and the floor steady. It's not utopian. It's administrative competence.

Do that, and the rungs stop vanishing.

Sources & References (selected)

Core tax & distribution data

CBO & OMB historical data: revenues by source as % of GDP (1962–2024), composition of federal receipts; FY2024 revenue infographic.
CBO distributional series: Trends in the Distribution of Household Income, 1979–2021.
CRS on corporate receipts: Trends and Proposals for Corporate Tax Revenue (2024).
Capital gains & dividends history: CRS dividend brief; Treasury & TPC historical capital-gains rate documentation.

Global context & coordination

OECD corporate tax statistics 2024; Pillar Two implementation handbook.
State/local incidence & reliance: ITEP Who Pays? (7th ed., 2024); Pew on state revenue mix FY2023; Tax Foundation on local revenue composition.
South Dakota v. Wayfair, 585 U.S. ___ (2018); post-decision state adoption summaries.

Deficits & distributional impact

Debt & deficits outlook: CBO 2025 baseline and long-term outlook; CRFB synthesis.
Cost & distribution of extending TCJA: Reuters on CBO baseline and extension cost; AP on Treasury distributional analysis.
Ultra-rich effective tax rates: Balkir, Saez, Smith, Zidar, Zucman (2025 working paper).

Theoretical & policy frameworks

Piketty, Thomas. Capital in the Twenty-First Century (Harvard Univ. Press, 2014); Capital and Ideology (Harvard Univ. Press, 2020). Foundational long-run evidence on income/wealth concentration and the politics of taxation.
Saez, Emmanuel & Zucman, Gabriel. The Triumph of Injustice (W.W. Norton, 2019). U.S. effective tax rates by income group; concrete reforms for base-broadening and enforcement.
EU Tax Observatory (Zucman, director). Global Tax Evasion Report 2024; and "Blueprint for a Coordinated Minimum Effective Taxation Standard for Ultra-High-Net-Worth Individuals" (the 2% billionaire minimum). Empirics on evasion/avoidance and the feasibility of coordinated UHNW taxation.
Zucman (G20-commissioned). Report on the Coordinated Minimum Taxation of Billionaires; contemporaneous coverage and government endorsements.

The Vanishing Rungs: How U.S. Taxes Tilted, Why Inequality Grew, and What to Fix (1970s → 2025)