× Expand Mark Lennihan/AP Photo David Koch at the Economic Club of New York in 2012.

David Koch died late last week, just shy of 80 years old. Whole books have been written cataloguing his legacy as an industrialist and political figure, but to be brief, he leaves behind his stake in the country’s second-largest privately held company and a political network said to rival the entire Republican Party in scale. Everything from Texas oil pipelines to Dixie cups to the Tea Party owes its existence in some way to David Koch.

He also leaves behind a $50 billion estate, a gargantuan sum that made him one of the richest people in the world. In the past, that would have resulted in a massive inheritance for his heirs—but also a significant amount of revenue returned to the public coffers in the form of estate tax. If David Koch had died between 1941 and 1981, his estate (upon his wife's death) would have been taxed at a rate of at least 70 percent after the first $10 million. Some back-of-the-envelope math would indicate that's roughly $35 billion in tax revenue that could go toward any number of public services. (For reference, a 2013 estimate by the Department of Housing and Urban Development pegged the cost to end all homelessness in the United States at $20 billion.)

But thanks largely to a political climate David Koch and his brother Charles helped create, the federal government will never see anything close to that. Part of that is because of his libertarian network's relentless campaign against the inheritance tax, rhetorically reinvented as the “death tax,” which became a major political cause célèbre, despite the fact that 2018 saw only 1,900 taxable returns from those who died. The top tax rate on estates has dropped from 55 percent to 40 percent since 2000 alone.

But in broader terms, there's one massive tax loophole that has helped the estates of America's billionaire class balloon to unthinkable sums, while getting taxed at rock-bottom rates. Thanks to a tax provision called step-up in basis, capital gains on inherited assets—stocks, properties, and more—are totally wiped out upon death. It's a tax giveaway from Congress that may outstrip all the rest.

Put simply, step-up in basis is a tax provision that allows unrealized capital gains to reset to zero upon inheritance. When an investor parks money in stocks, property, and the like, and that investment gains in value over time, the gain is supposed to be taxed (though at a rate much lower than income tax rates, at just 20 percent) when sold. But if the asset is never sold, its gains never realized, and then passed to an heir, it will be reassessed at its current market value with those gains included. Its basis, therefore, “steps up,” and the capital gains taxes that should have been levied on it are dropped to nothing.

A simplified example: Let's say an investor with a reasonably high-paying job put $10,000 a year into a distinctly average-performing bouquet of stocks. Done dutifully over a 35-year career, that would sum to $350,000 in contributions into the market all told. At the end of that 35-year period, compounded at our theoretical rate of return, the balance sitting in that account would be $2,710,244, with some $2,360,244 in capital gains.

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Under the step-up in basis procedure, the inheritor of that account would have that $2.7 million in stock reevaluated at that level, with the entire tax burden negated. Capital gains tax that could have been recouped by the federal government would go to zero; so too would state and local taxes that might be levied on a sale. Say that the account owner was based in New York City: The combination of federal, state, and local taxes would have been $800,000 on that $2.7 million, leaving the inheritor with $1.9 million. With step-up in basis, the tax is $0.

That decision has a multiplier effect. If the heir holds onto the underlying asset, and it continues to produce an average rate of return, the annual payout on a $2.7 million principal is markedly higher than what you'd get on $1.9 million. The yearly difference in payout could be as high as 43 percent. The heir could also then use that asset to borrow against for a home loan or something else. And if they sold the stock, real estate, or other asset upon receiving it, they could pocket the entire $2.7 million, some $800,000 extra, in cash.

Imagine that scaled up by orders of magnitude. Because for people like David Koch, investments don't happen in installments of $10,000 per annum; they happen in the tens and hundreds of millions. And as those assets see their basis stepped up upon inheritance, the amplification is colossal. Take the numbers presented above, and move the decimal point six places to the right. The result, as we've seen, is dynastic wealth on an unbelievable scale. “You get instances where the head of a family who's on the Forbes list dies, and then all of a sudden their ten kids are all on the list,” noted Mark Mazur, Robert C. Pozen Director at the Tax Policy Center.

There's no way to know exactly how much David Koch had taken advantage of this loophole, but it's safe to assume he was well aware of it. It's well known that the Waltons, the tycoons behind Walmart who make $100 million a day, position a majority of their holdings to avoid taxes in this very way.

Of course, as Congress generously provides for this loophole, it can also take it away. Even Larry Summers has called for eliminating step-up in basis. And there are plenty of sound reasons to do so, even beyond the obvious benefits of dynasty deterrence. Step-up in basis has been criticized on the grounds that it deters taxpayers from reinvesting capital gains earnings in other areas of the economy, and encourages nonproductive hoarding, known as the “lock-in effect.” And while some objectors have claimed that eliminating it would be needlessly difficult, or have to come in tandem with lower capital gains taxes, there’s no reason to believe that. “You can tax assets annually, tax them at death so you don’t get the tax-free step-up in basis, implement an actual inheritance tax,” Mazur told me. “There’s no shortage of things you can do.”

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Step-up in basis is far from the only beneficial inheritance policy the Koch estate has reaped the benefit of. In 2010, Obama conceded to a Republican minority in the Senate, signing into law a tax cut to 35 percent on estates over $5 million. The Trump tax plan, after flirting with eliminating the estate tax, raised the ceiling on tax-free estates to over $11 million per person.

With Democratic presidential candidates turning their focus to wealth taxes rather than income taxes as a more effective way to combat runaway inequality, step-up in basis represents one of the more flagrant and easily rectified programs. It's a huge giveaway that overwhelmingly benefits the very rich, while its positive-feedback nature amplifies wealth disparity. And while tax policy is decided by Congress, recent proposals from Senator Elizabeth Warren and Representative Alexandria Ocasio-Cortez have already started to reverse a long-standing trend in the conversation about the estate tax, which has been steadily shrinking for decades. As Democrats in Congress seek ways to overturn the Trump tax cuts, nixing step-up in basis could prove to be a quick and lasting fix for a more equitable tax policy.