SuperCitizen

Under current U.S. tax law, when an asset is passed on at death, its cost basis is generally "stepped up" to the fair-market value on the date of death. The result is that unrealized capital gains accrued during the decedent's lifetime are never subject to capital-gains tax, though the assets may be subject to the federal estate tax above a high exemption threshold.

Critics argue step-up creates a significant gap in the income-tax base, disproportionately benefits the wealthy, and incentivizes holding appreciated assets until death rather than redeploying them. Defenders argue it avoids double taxation given the estate tax, prevents heirs from facing tax bills on assets whose original cost may be undocumented, and protects family-owned businesses and farms.

Reform proposals range from full repeal (treating death as a realization event), to carryover basis (heirs inherit the decedent's basis), to narrower limits on the value of assets eligible for step-up.

Spectrum of framings

How adherents on each side of the conventional left / center / right spectrum frame this issue — written so each camp would recognize the framing as charitable.

left

Progressives generally favor repealing or sharply limiting step-up, viewing it as a loophole that allows large fortunes to escape income tax across generations.

center

Moderates often look for middle ground — preserving step-up below a high threshold or for farms and small businesses — to capture the largest gains without disrupting middle-class inheritances.

right

Conservatives largely defend step-up, citing double-taxation concerns relative to the estate tax and the burden of recordkeeping and forced sales for family businesses and farms.

Perspectives

Each perspective is presented in terms its advocates would recognize, with the concerns they treat as paramount. None is endorsed.

Close the gap

Step-up lets enormous capital gains escape income tax entirely, undermining horizontal equity between wage earners and asset holders. Treating death as a realization event — or carrying basis forward — restores integrity to the income tax.

Equal treatment of labor and capital income
Revenue from untaxed gains
Disincentive to hold assets purely for the basis step-up

Narrow exemption-based reform

Wholesale repeal could force sales of family farms, small businesses, and homes where original basis is poorly documented. A high exemption that captures only the largest estates avoids those harms while still closing the gap at the top.

Family-business continuity
Recordkeeping burdens for heirs
Targeting the largest accumulations

Preserve step-up

Inherited assets are already subject to the estate tax above a threshold. Repealing step-up adds a second layer of tax, imposes severe recordkeeping burdens on grieving families, and risks forced sales of illiquid family businesses.

Avoiding double taxation
Compliance burden on heirs
Protecting illiquid family assets