Recently, I came across a U.S. Treasury study from 1969 that proposed capital gains tax at death. They gave two justifications: (1) A step-up in basis creates an inequity in the law because tax liability depends on whether the asset was sold or kept until death; and (2) assets become immobile when seniors hold them just to get a stepped-up basis and avoid an income tax on any appreciation.
Here is an excerpt from U.S. Treasury Department, Tax Reform Studies and Proposals pt. 1 (Comm. Print 1969):
Under current law, the tax basis for an asset that is received from a decedent is either stepped-up or stepped-down to fair market value. IRC § 1014. President Biden proposed to eliminate the step-up in basis. See, e.g., Taylor Tepper, Stepped Up Basis Reform: Biden’s Middle-Class Tax Hike?, Forbes, May 7, 2021.
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