For those who haven't figured it out the level difference is capped at a hard 40% damage reduction. Otherwise a lvl 20 couldn't damage a lvl 26 at all. The lvl certainly does make a difference, but it is about as subtle as doing a lvl 20 mission at lvl 18.
I'm lvl 27 and I notice that most lvl 29 people can out gun my by about 1 shot. Its not much, but it makes a difference.
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A 40% reduction would make a 32 damage headshot deal ~20 damage. There are videos of Level 4 players with the starter Auto Rifle, which normally does 32 damage to the head in the normal Crucible (or Iron Banner when you hit the cap), dealing 29 headshot damage to Level 28 players. That's not even a 10% damage reduction and that's the largest gap in gear you can get, pretty much.