The Hidden Property Tax Most Investors Never See

Center for a Free Economy President Ryan Ellis has published a new op-ed in National Review Online examining how aggressive state escheatment laws are putting long-term investors at risk. In "The Backdoor Property Tax You've Never Heard Of," Ellis explains how some states have transformed unclaimed property laws from a consumer protection into a growing source of government revenue, creating incentives to seize and liquidate investment accounts that were never truly abandoned.

For generations, Americans have been encouraged to build wealth by investing consistently and allowing those investments to grow over time. In several states, however, long-term investing can unintentionally trigger escheatment laws if account holders fail to meet increasingly narrow definitions of account activity.

When Protecting Property Becomes Seizing Property

The experience of Walter Schramm illustrates the consequences of aggressive escheatment policies. After purchasing approximately $6,000 of Amazon stock during the 1990s, Schramm followed a traditional buy-and-hold investment strategy. Years later, he discovered that Delaware had declared his account inactive, seized the shares, and liquidated them for roughly $8,000. Had the investment remained untouched, it would have grown to approximately $100,000. Litigation over the case remains ongoing.

Unclaimed property laws were originally designed to safeguard genuinely abandoned assets until owners or heirs could reclaim them. Ellis argues that some states have moved well beyond that purpose by treating inactivity as abandonment, even when investors continue receiving account statements and maintain ownership of their investments.

A Growing Source of Government Revenue

The concern extends beyond individual cases. Several states have increasingly relied on unclaimed property collections to finance government spending, creating financial incentives to broaden enforcement.

Ohio proposed using hundreds of millions of dollars in unclaimed property to help finance a new stadium for the Cleveland Browns. Delaware now relies on unclaimed property as one of its largest revenue sources and recently used those funds to help close a $110 million financing gap for a container terminal project. California collects approximately $1 billion each year through unclaimed property and has accumulated roughly $15 billion in its unclaimed property fund.

As Ellis explains in his op-ed, governments acting as custodians should work to reunite owners with their property. When governments instead depend on unclaimed property to finance spending, broader definitions of abandonment and shorter inactivity periods can produce more revenue.

Congress Can Strengthen Investor Protections

Ellis also highlights H.R. 8338, the "Safeguarding Americans' Fairly Earned Retirement (SAFER) Act," bipartisan legislation that would establish national standards to better protect investors from aggressive state unclaimed property practices while restoring the original purpose of these laws.

CFE Takeaway

Aggressive unclaimed property policies should not become another mechanism for governments to finance spending at the expense of long-term investors. Ryan Ellis's National Review Online op-ed explains why stronger protections are needed and how Congress can help restore confidence that patient investing will not be treated as abandoned property. Read the full op-ed, "The Backdoor Property Tax You've Never Heard Of," for a deeper look at this growing policy issue.