There already is a penalty for dying. You are forcefully transported to the fountain, you are barred from continuing to participate in kills and objectives, and (if the enemy got a kill, which is usually the case) the enemy gets gold. Losing stacks on death increases binary performance, also known as snowballing or "feast or famine." You're not doing well, you die, you lose stacks, you do even worse.
Cho used to work like this, gaining 100/140/180 health per stack up to six stacks and losing half on death. When it was changed to unlimited stacks, its strength was reduced to 80/110/140, but then increased to 80/120/160 two patches later. He gains health a little more slowly, but it doesn't bounce around and it's actually a late-game strength rather than being pretty much a base stat that he A) has to work for and B) can also lose.