This paper employs a benchmark heterogeneous-agent macroeconomic model to examine a numberof plausible drivers of the rise in wealth inequality in the U.S. over the last forty years. We find thatthe significant drop in tax progressivity starting in the late 1970s is the most important driver of theincrease in wealth inequality since then. The sharp observed increases in earnings inequality and thefalling labor share over the recent decades fall far short of accounting for the data. The model can alsoaccount for the dynamics of wealth inequality over the period—in particular the observed U-shape—and here the observed variations in asset returns are key. Returns on assets matter because portfoliosof households differ systematically both across and within wealth groups, a feature in our model thatalso helps us to match, quantitatively, a key long-run feature of wealth and earnings distributions: theformer is much more highly concentrated than the latter.