Dead billionaires should pay higher taxes

The United States faces a persistent issue where the wealthy evade paying taxes on their investment earnings, also known as capital gains. When an individual like President Donald Trump holds shares in a hot dog company, for example, and then sells them at a profit, they must pay a 23.8% tax on their $100 million gain. However, if Trump retains the stock until his death, the tax code erases this gain through a loophole called "stepped-up basis."

Upon passing the stock to his heirs, the IRS resets the asset's value based on its current market worth—$110 million in this case—resulting in no capital gains tax for the heirs.

This loophole, costing the Treasury around $70 billion annually, primarily benefits the affluent and ultra-wealthy. For instance, the top 10% of Americans hold about three-quarters of the nation's unrealized capital gains, with the top 1% claiming 43% of it, according to the Survey of Consumer Finances. While raising the top capital gains tax rate to 39.6%, similar to the rate for labor income, is a popular demand among Democrats, doing so could incentivize the rich to hold onto their assets until death, thereby avoiding higher taxes.

Closing the stepped-up basis loophole by taxing the unrealized capital gains of the deceased could raise substantial revenue while simultaneously making other taxes on the wealthy more effective. This approach would present fewer logistical and judicial challenges compared to other high-profile tax policy proposals. By closing this loophole, the government could close a significant revenue gap while also promoting a more efficient investment market.