[cowvin]

One thing to note is that the wealthy will never pay any capital gains tax on their stock holdings.

While they are alive, they simply take out low interest loans against their stocks.

When they die, they pass on their stocks to their children taking advantage of the step up in basis: (https://www.investopedia.com/terms/s/stepupinbasis.asp)

So now their kids possess a ridiculous amount of stocks and will never need to pay any capital gains on them.

So yes, rich people who make a lot of money in unrealized capital gains are vastly underpaying taxes on their income. We should close the step up in basis tax loophole.

[credit_guy]

Aren’t you omitting something here? Like the fact that the step up in basis happens after the inheritance tax is paid?

If I buy stock for $10 million and in 40 years it appreciates to $70 million (an average 5% annual growth), and then I die, my kids will pay inheritance tax on the $60 million capital gain. Then the new basis will become $70 million. What exactly do you propose it to be?

[kozd]

If they want to step up the basis, shouldn't they have to pay capital gains taxes on the difference?

The estate tax's average effective rate of 17 percent (2017) is below the capital gains rate.

[JoshuaDavid]

That honestly sounds like the step up in basis is the issue here, especially if it's uncapped, rather than the lack of taxation on unrealized and possibly non liquid gains.