Jeff Bezos has an ex-wife, a girlfriend, four children and billions of reasons to watch whether Joe Biden’s tax overhaul wins congressional approval.
The Amazon.com Inc. founder’s heirs may have to pay more than $36 billion if the president succeeds in closing a loophole that helps the rich transfer their fortunes tax-free at death.
Under current rules, whoever inherits the Amazon shares Bezos bought in 1994 for $10,000, worth $180 billion today, will receive a so-called step-up in basis, wiping out any capital gains tax liability. Biden’s plan would close that loophole and apply the top capital gains tax immediately when assets transfer to wealthy heirs. If the rate increases —it’s 20% for holdings like Bezos’s, and Biden has called for boosting it to 39.6%—the eventual tax bill would too.
For Bill and Melinda Gates, who announced on Monday that they would be divorcing, a change in the step-up rule might be less costly. The Gates fortune, valued at $145.8 billion, is older, and they’ve already sold or donated much of their stake in Microsoft Corp. But $26 billion of Microsoft shares remain, and it isn’t clear how the couple will manage their assets in a split.
Congress estimates that stepping up the tax basis of inherited assets costs the government about $43 billion a year. Ending that practice and raising the rate would amount to the biggest curb on dynastic wealth in decades, altering an American economic landscape dominated by a few wealthy families. An Amazon spokesman didn’t respond to emailed questions about Bezos’s shares.
The proposals are far from becoming law, even though Democrats control both houses of Congress, as they threaten wealthy donors to both political parties who have lobbied against them. But proponents say getting rid of the step-up rule, known to estate planners as the Angel of Death loophole, is crucial to achieving Biden’s vision of tax fairness. Otherwise, economists project that the proposed increase in the top capital gains tax rate would further encourage holding assets until death, decreasing revenue for the Treasury.

The step-up rule allows investors to pass on assets to heirs virtually tax-free, raising the taxable value of a property to its fair market value at the time it is inherited. A beneficiary who inherits a house worth $1 million purchased for $100,000 two decades earlier would have no capital gains. If she later sells for $1.5 million, she only pays tax on $500,000.
The rule also applies to Amazon shares, which have risen more than 200,000% since a 1997 public offering, as well as other appreciated assets.
The Joint Committee on Taxation, a nonpartisan arm of Congress, estimates that untaxed capital gains on inherited assets run into the hundreds of billions of dollars a year. About half of unrealized gains belong to the wealthiest 1%, according to an analysis of data in the Federal Reserve Board’s Survey of Consumer Finances. And unrealized and accrued capital gains account for about 40% of the wealth of the top 1%, the Fed data show.
The step-up rule has been criticized as a government-subsidized engine for amassing dynastic fortunes and a cause for widening economic inequality. Even some prominent estate planners say the provision—enacted a century ago to avoid double taxation at a time when the estate tax had few exemptions—has outlived that original purpose.
Billionaires’ lawyers have developed sophisticated strategies to avoid the estate tax, making the step-up allowance an unalloyed boon. “It’s an enormous loophole,” said Jonathan Blattmachr, a trusts and estates lawyer and senior adviser at Pioneer Wealth Partners, a financial advisory firm for high-net-worth clients and family offices.
Republicans and some business organizations have criticized the Biden proposal. A study by Ernst & Young commissioned by the Family Business Estate Tax Coalition predicted that eliminating the step-up rule could cost tens of thousands of jobs a year and cut $10 billion from annual gross domestic product.
Opponents of the plan say the burden would largely be avoided by the ultra-wealthy, who can afford sophisticated estate planning, and fall instead on small businesses and family farms, which might have to be sold to pay tax bills.
“Repealing step-up could have a dramatic impact on small manufacturers across the country, potentially requiring families to liquidate businesses, leverage assets, or lay off employees to cover the tax hit,” said Chris Netram, vice president of tax and domestic economic policy at the National Association of Manufacturers, which supported President Donald Trump’s 2017 tax cuts.
Biden’s plan addressed some of those concerns by sparing the first $1 million in inherited appreciated assets from capital gains taxes and by exempting family farms and small businesses in cases where heirs continue to operate them.
The plan has been cheered by progressives, who have long called for an end to the preferential treatment given to capital gains. Frank Clemente, executive director of Americans for Tax Fairness, an advocacy group allied with labor unions, said the gap between taxes on labor and capital is fundamentally unfair and the administration’s plan simply seeks to “tax wealth like work.”