I'd mentioned that there are many ways in which the offspring and other inheritors from the wealthy can avoid taxes on what they inherit. Key among them is step-up basis.
When you buy and sell your stock, you pay taxes on profits: what you sold it for minus what you paid for it, where what you paid for it is called the basis. Say you bought shares of XYX for $1,000, and you sold it for $1,020. It's a really trivial calculation: sale minus basis is $20, and you pay your taxes on that twenty bucks in profit.
Say you didn't sell it, and over decades of market growth, the shares rose to a value of $10,000. You carry those shares to your grave.
Under US law, you can't take it with you, so somebody is going to inherit those shares; let's say it's your daughter. She holds on to it for a while, it rises, it falls, she sells it for $11,000. You paid $1,000 originally, she sold for $11,000, the difference is $10,000. If she's in a 25% tax bracket, a tax on a 10k profit would be $2,500 in taxes, which arguably isn't a lot given that she got these shares for free.
This is where step-up basis comes in. #
She'll never pay most of those taxes. On death and inheritance, the basis resets, as if your daughter had bought the shares herself for $10,000.
At that basis, her sale made a profit of $11,000 - $10,000 = $1,000. She pays $250 in taxes, not $2,500. Between the two of you, there's a profit of $9,000 unaccounted for.
But that's chump change and we all know it. There's no requirement for an estate to report the original basis anywhere, but in 2010 there was a legal glitch that most big-money estates did, giving a chance to reveal some stats. The average step-up, according to the tabulation in this paper was $5,285,000, or 43.6% of the value of the assets; multiply by 7,937 estates and you've got $42 billion in gains that our wealthier friends never paid taxes on. At a 25% rate, that's $10 billion in taxes evaporated (in 2010, then the first inflation calculator I could find says that'd be $14B today).
Are you a fan of NOAA, the source of the weather data your favorite web site or TV station uses, and the forefront of the U.S. climate change response? Its budget is about $6.5 billion/year.
Last time, we saw that we are all exempt from the estate tax until the estate is circa $11 million. One could imagine a similar rule that would allow the step-up basis for only the first, say, $100k in gains, but stopping there and requiring those inheriting millions to not change the original basis after that first $100k. But we can expect that the same people who are fighting (to the death?) to protect the next 3,000 millionaires who will pay the estate tax would also fight any proposal to halt step-up basis for those millionaires' millions.