The Backdoor Property Tax You’ve Never Heard Of

W alter Schramm did exactly what Americans have always been told to do: He invested in the stock market. In the 1990s, he bought about $6,000 of Amazon stock and left it alone. He wasn’t day trading or chasing the latest fad. He believed that patient investing builds wealth over time.

Twenty years later, he logged into his brokerage account expecting to find an investment worth roughly $100,000. Instead, the account was empty. Delaware had declared the account inactive, seized the shares, and sold them years earlier for about $8,000. The decades of appreciation he expected to find disappeared with them, and litigation is ongoing.

Most Americans have never heard the term “escheatment,” but they or their loved ones soon may. It’s a three-dollar word that means the government can take unclaimed property in trust until its rightful owners or heirs can be found.

Unclaimed-property laws began with a worthy objective. If someone genuinely forgot about a bank account, stock certificate, or dividend check, the state held the property until the owner or heirs reclaimed it. The idea was that the state was a safekeeper of valuables; however, some states have stretched that principle beyond recognition.

In the case of investment accounts, instead of asking whether property is truly abandoned, states increasingly ask whether an owner has interacted with an account in very specific and limited ways. A few years without logging into an online brokerage account can trigger the seizure and liquidation of appreciating investments, even when every statement reaches the customer’s address and every dividend is properly credited to the customer’s account. Buy-and-hold investing is maliciously twisted by state governments into accusations of abandonment.

Escheatment abuse by state governments turns prudent investing into a financial hazard. Financial planners have spent decades urging Americans to save early, invest patiently, and resist the temptation to tinker with successful investments. Warren Buffett built his reputation on precisely that philosophy.

Government should not punish citizens for following it. A government acting as custodian tries to reunite owners with their property. A government financing itself with unclaimed property acquires a financial interest in finding more property to seize. Shorter inactivity periods, broader definitions of owner contact, and procedural shortcuts all produce the same result: more revenue.

Ohio sought to divert hundreds of millions of dollars in unclaimed property to help finance a new stadium for the Cleveland Browns. Recently, Colorado attempted to transfer tens of millions of dollars from its Unclaimed Property Trust Fund into its general fund to cover health-insurance programs. Meanwhile, Delaware relies so heavily on unclaimed-property collections that they rank among its largest revenue sources, and the state recently dipped into its unclaimed fund to close a $110 million funding gap to finance a container terminal. It will probably not surprise you that California collects $1 billion in annual escheatment dollars into a fund that has ballooned to $15 billion.

Viewed through the lens of tax policy, aggressive securities escheatment resembles another levy on wealth. Inflation (a creation of the government via monetary policy made by the Federal Reserve) quietly “taxes” savings by reducing purchasing power. Capital gains taxes reach beyond real investment returns because the cost basis is not indexed for inflation. Investors routinely pay tax on phantom gains that exist only because the dollar buys less than it once did. Tariffs are taxes on everything we buy. Some politicians now advocate explicit wealth taxes on accumulated assets.

Aggressive securities escheatment belongs in that same family. Government enriches itself by taking custody of long-term investments, liquidating them, spending the proceeds, and denying investors years of future appreciation. The legal mechanism differs from an income tax or a wealth tax, but the economic effect is strikingly similar, with private wealth moving into government coffers.

Politicians understandably search for ways to finance growing budgets without imposing politically unpopular tax increases. Aggressive escheatment offers an attractive alternative. Most voters have never heard of it, and even fewer realize that ordinary buy-and-hold investing can trigger it.

Congress can remedy this injustice by passing H.R. 8338, the Safeguarding Americans’ Fairly Earned Retirement (SAFER) Act, a bipartisan measure to establish a national standard protecting Americans from states gaming escheatment laws to seize long-term investments. States should return to the original purpose of unclaimed-property laws by protecting owners instead of treating private investments as another financing mechanism for government spending.

Americans already cope with affordability concerns with inflation, taxes on phantom capital gains, arbitrary tariffs, and recurring proposals for new taxes on wealth. They should not also have to wonder whether following decades of sound investment advice will become another opportunity for government enrichment.