But are the assets liquidated? If ownership of assets just transfers to heirs, then they'll just pay the tax whenever they cash out.
Suppose I own $1 million worth of Bitcoin I mined back in the day. If I sell the day before I die I’ll owe $200,000 in long term capital gains taxes. But if I die, leave those coins to you, and you sell them the day you inherit them for the same $1 million, you owe no capital gains taxes.
Edit: if this is surprising, it should be. The step up basis is insane.
If you inherent cash, that cash has already had taxes paid for that. It shouldn't be taxed again like some "death taxes" propose to do. If you inherit stock, then sell it, the basis date for that stock should be the date it was bought, not the date you received it.
It only gets complicated with capital assets. And your proposal works for simple stock holdings.
Consider, if you are the beneficiary of a retirement account, you already have to withdraw percentages every year. So that is covered? Or not?
Right and I don't think gifts should be taxed either. It's already been taxed.
At some level, most (all?) money has already been taxed. Some entities can write off expenditures as a deduction. Most of us can't.
Consider, my income had already been taxed. Why do I have to pay sales tax on purchasing something?
Edit: and in case you fix on sale's tax being different from income. Payroll for businesses comes out of profit. Which comes from that same transaction. So, somebody's income is ultimately funded from a sales made with money that had been taxed.
So I'll give you $200k as a gift and you gift me your house "as a gift" ;)
E.g. if I win a car in a contest or get paid in stock for working, I have to pay income tax on the current value when I receive it.
Basis step up is extremely pragmatic, because it can be extremely difficult to establish the cost basis of a dead persons assets.
It's offset by the estate tax -- change your figures to $20 million and the situation is substantially equalized.