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Dead billionaires should pay higher taxes

The rich are dying to avoid taxation.

Americans want to soak the rich. But few have strong opinions about precisely how.

Indeed, even among our nation’s most impassioned class warriors, contemplating the fine details of tax policy is an eccentric pastime. In an interview earlier this month, Democratic Socialists of America co-chair Megan Romer called for taxing “the hell out of” the wealthy. When asked exactly what that meant, Romer conceded that she had no “solid answer.”

• A loophole in the tax code allows the rich to escape capital gains taxes by dying.• Closing that loophole would raise a lot of revenue while also making other investment taxes more effective.• A tax on the unrealized capital gains of the dead poses fewer logistical and judicial challenges than many other approaches to soaking the rich.

On one level, this is understandable. Anyone can freeze up when put on the spot. And in any case, Romer believes in collective ownership of the means of production. When your preferred tax policy is 1,000 times more radical than anything Congress would entertain, sweating its particulars might not feel urgent.

Still, there’s more than one way to soak a fat cat. And some approaches work better than others. Thus, for non-revolutionaries, thinking through the details of a “tax the hell out of them” platform seems worthwhile.

Many of that platform’s potential components have already attracted widespread attention. Wealth taxes — which expropriate a certain fraction of the super-rich’s assets each year — are on the ballot in California and the progressive agenda in Washington, DC. And Democrats perennially call for raising the top income tax rates.

Yet there is a less-discussed, populist tax policy that would raise a lot of revenue, pose relatively few logistical challenges or economic trade-offs, and make other levies on the wealthy more effective: taxing the investment earnings of the dead.

The rich are dying to avoid taxes

Shaking down the deceased might seem distasteful. But doing so would close a large loophole in America’s tax code — one that lets the wealthy cheat Uncle Sam out of hundreds of billions in revenue.

One way that the government currently soaks the super rich is by taxing their investment earnings (also known as “capital gains”). If President Donald Trump buys shares in a hot dog company for $10 million — and then sells them for $110 million — he will need to pay a 23.8 percent tax on his $100 million profit.

If Trump holds onto his stock until death, however, his unrealized capital gain disappears. When the shares are passed down to his heirs, the tax code resets its initial value: If Eric Trump inherits the frankfurter fortune — and then immediately sells it for its market value of $110 million — he will owe $0 in capital gains taxes.

Essentially, the tax code treats Donald’s heir as though he purchased the firm for $110 million, then sold it without turning a profit. This rule is known as “stepped-up basis.” And it costs the Treasury upward of $70 billion a year.

That forgone revenue........

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