zlacker

However, there is the estate tax.

If you're a billionaire who does the "take out loans against your unrealized cap gains" trick, then you, you know... can't sell your stock. So then your stock passes to your kids -- who, due to the stepped up basis, yes, do not have to pay cap gains on that stock.

But there's a 40% estate tax.

Estate tax generally isn't very relevant even to the ordinarily-rich, because it has an extremely high deduction (about $27M for a married couple), but for a billionaire it's absolutely relevant.

Now, sure, if you paid both the cap gains and the estate tax you'd pay that much more taxes, but if you compare a normally-wealthy person (pays 15-20% cap gains and 0% estate tax) and a billionaire (pays 0% cap gains and 40% estate tax), it's obvious that the billionaire, eventually, pays a much higher tax rate.

>>aether+(OP)
Right. In my opinion, the 'fair' and 'simple' thing to do would be to eliminate the estate tax, and the step-up basis. Then there would be no loop hole to borrow against unrealized gains (and no real point to do so), while still allowing wealth to be enjoyed by the family that generated it, requiring them to pay taxes in the same way everyone else does (simplifying the tax code).