No universal "should"—it depends on goals, evidence, and trade-offs. Here's a fact-based breakdown.
The question is normative (what ought to be) rather than purely positive (what is). Reasonable people disagree based on values (fairness/equity vs. growth/incentives), empirical beliefs, and definitions of "wealthy" and "higher." I'll summarize current realities (primarily US-focused, as that's the most-discussed case), key data, economic arguments on both sides, and evidence. Other countries vary widely.
Current US Tax Picture (Approximate, Recent Data)
•Statutory top marginal rates: Federal income tax top rate is 37% (plus 3.8% Net Investment Income Tax for many high earners). Combined with state taxes, effective top rates can exceed 50% in high-tax states (e.g., CA, NY). Corporate rate is 21%. Capital gains/qualified dividends: max 20% + 3.8%.
•Effective rates (what is actually paid after deductions, credits, preferences): Often lower for the very wealthy. IRS and CBO data show the top 1% pay a large share of federal income taxes (around 40%+ of individual income taxes) but their average effective federal rate is typically in the mid-20s% range when including all federal taxes; including state/local and looking at economic income can change this. Warren Buffett and others have noted cases where ultra-wealthy pay lower effective rates than middle-class wage earners due to capital gains treatment, carried interest, etc.
•Wealth vs. income: Much "wealthy" taxation debate centers on unrealized capital gains, estates, and wealth itself (no broad federal wealth tax currently). The top 0.1% hold disproportionate wealth.
•Historical context: Top marginal rates were 70-90%+ in mid-20th century US (with many loopholes); they fell sharply post-1980s. OECD averages for top rates are often 40-55%.
Sources for rates and shares include IRS SOI, CBO, Tax Foundation, and Treasury data (figures fluctuate yearly with realizations and policy).
Arguments for Higher Rates on the Wealthy
•Ability to pay / progressive fairness: Diminishing marginal utility of money—extra dollars matter less to billionaires than to others. High inequality can undermine social cohesion, democracy (via influence), and opportunity. Piketty, Saez, Zucman et al. argue for higher top rates or wealth taxes to curb r > g dynamics.
•Revenue for public goods: Infrastructure, education, R&D, safety nets, climate. The wealthy benefit from stable society, rule of law, educated workforce. Top earners' tax share is high, but absolute revenue potential exists if base is broadened.
•Correcting market failures or rents: Some high incomes stem from monopoly power, bailouts, network effects, or tax preferences rather than pure productivity. Higher taxes (or closing loopholes) can fund redistribution without large efficiency losses if elasticities are low.
•Empirical claims: Some studies (e.g., on past rate cuts) find limited trickle-down; post-WWII high-rate eras had strong growth. Diamond-Saez optimal tax work suggested top rates could be 70%+ under certain assumptions about labor supply elasticity and social welfare weights. Recent wealth-tax proposals (e.g., Elizabeth Warren-style) aim at ultra-high net worth.
•International: Nordic countries combine relatively high taxes with high trust, mobility, and strong outcomes on many social metrics (though they also have broad bases, VAT, and cultural factors).
Arguments Against (or for Caution)
•Incentives and growth: High marginal rates discourage work, entrepreneurship, investment, and risk-taking (especially for mobile capital and high-skill labor). Laffer curve: beyond some point, higher rates reduce revenue via avoidance, evasion, less activity, or emigration. Capital is mobile; labor less so but top talent can relocate.
•Effective incidence and avoidance: Statutory rate hikes often don't translate 1:1 to revenue. Wealthy use deferral, munis, charitable contributions, entities, international planning. Realization-based systems mean lock-in effects. Corporate/pass-through and capital income respond elastically.
•Economic evidence: Many studies (e.g., Tax Foundation, some NBER) link lower rates or flatter structures to investment and growth. 1980s/2017 US cuts correlated with certain expansions (causation debated). High taxes can reduce reported income more than real activity. Wealth taxes have administrative issues, valuation problems, capital flight (see France, others that repealed them).
•Fairness counter: "Wealthy" already pay the bulk of income taxes. Double taxation (corporate + individual, or income + estate). Much wealth is illiquid or from after-tax savings. Consumption taxes or broad bases may be more efficient/neutral. Mobility and absolute poverty reduction matter more than relative Gini in some views.
•Behavioral and dynamic effects: High rates can push activity offshore, into non-taxable forms, or reduce innovation. Empirical elasticities of taxable income for top earners are often estimated 0.2–0.7+ (non-trivial).
What Does the Evidence Suggest?
•Revenue: Moderate increases in top rates or base-broadening (limit deductions, equalize capital/labor treatment, better enforcement) can raise revenue. Extreme rates or poorly designed wealth taxes often underperform due to responses. CBO/JCT score proposals with dynamic effects.
•Growth/inequality trade-off: Consensus in economics is that taxes have efficiency costs (deadweight loss rises with square of rate and elasticities). Optimal top rate estimates vary wildly (20–80%+) depending on parameters (especially elasticity of taxable income, and how much weight on equality). Inequality has risen in many places with globalization/tech; taxes are one tool among education, competition policy, etc.
•Cross-country: High-tax high-trust societies can work; low-tax high-growth ones too. US has lower top rates than much of Europe but higher inequality and different safety nets. No simple correlation that "higher top taxes = better outcomes."
•Recent trends: Post-TCJA (2017), top rates fell; debates continue on expiration, billionaire minimum taxes, unrealized gains taxes (e.g., proposals under Biden or progressive platforms). Inflation, asset booms, and realization timing heavily affect measured rates.
Practical Considerations If Raising Rates
•How: Higher statutory rates? Surtaxes? Mark-to-market for ultra-wealthy? Higher capital gains? Estate/wealth taxes? Close carried interest, step-up basis? Each has different distortions.
•Base matters more than rate: Broad base + moderate rates often beats narrow base + high rates (less avoidance).
•Administration and politics: Enforcement capacity, international coordination (OECD BEPS/pillar efforts), transition rules.
•Alternatives or complements: Growth policies, better K-12/human capital, antitrust, land-value taxes, carbon taxes, consumption-based systems (which can still be progressive via rebates), or spending efficiency.
Bottom line: If the goal is pure revenue maximization or heavy redistribution with limited regard for growth elasticities, yes—many models support higher effective rates on top incomes/wealth, especially via base reforms. If prioritizing incentives, capital formation, simplicity, and avoiding flight/avoidance, current or lower effective rates (with broader bases) are preferable. Data shows the wealthy already fund a disproportionate share of government; whether "enough" is a values question. Extreme positions ("confiscatory" or "zero") lack support. Policy should be evidence-driven, scored dynamically, and paired with spending priorities.
For specifics, check primary sources: IRS Statistics of Income, CBO Distributional Analyses, OECD Tax Database, academic reviews (e.g., Saez/Zucman vs. critics like Summers, Mankiw, or Tax Foundation/NBER papers). Rates and shares change with law and economy—verify latest.