Want to tax the rich? Start with the dead
A loophole in the tax code allows the rich to escape capital gains taxes by dying. Closing this loophole would raise a lot of revenue while also making other investment taxes more effective.
Intelligence analysis by Llama
The US tax code allows the wealthy to avoid capital gains taxes by dying, but taxing the investment earnings of the dead could raise a lot of revenue and make other levies on the wealthy more effective.
Imagine you have a big jar of money that grows over time. When you die, the government lets your heirs keep all the money in the jar without paying taxes on it. This is unfair because it helps the rich avoid paying taxes. We should change the law so that the government can tax the money in the jar when someone dies.
Analysis
The Stepped-Up Basis Loophole
The US tax code allows the wealthy to avoid capital gains taxes by dying. This loophole, known as stepped-up basis, costs the Treasury upward of $70 billion a year. When someone dies, their unrealized capital gains are reset to the market value of their assets at the time of their death. This means that their heirs do not have to pay capital gains taxes on the appreciation of the assets since the original owner's death.
The Problem with Stepped-Up Basis
Stepped-up basis creates problems for raising taxes on investment income. Democrats have long called for increasing the top capital gains rate to 39.6 percent, but in a world with stepped-up basis, hiking the top capital gains rate can theoretically cost the government money. Investors may be incentivized to sit on their most lucrative assets until they die, rather than selling them and paying capital gains taxes.
Taxing the Dead
Taxing the investment earnings of the dead could be a more effective way to soak the rich than other approaches. It would raise a lot of revenue for the government and make other levies on the wealthy more effective. The rich are dying to avoid taxes, and it's time to close this loophole.
Key points
- The US tax code allows the wealthy to avoid capital gains taxes by dying.
- Closing the stepped-up basis loophole could raise a lot of revenue for the government.
- Taxing the investment earnings of the dead could be a more effective way to soak the rich than other approaches.
If we close the stepped-up basis loophole, we could raise a lot of revenue for the government and make other levies on the wealthy more effective. This could help reduce income inequality and make the tax system more fair.
If we don't close the stepped-up basis loophole, the rich will continue to find ways to avoid paying taxes. This could lead to a decrease in government revenue and an increase in income inequality.
