Impacts of recent Capital Gains law proposal

[pbspelly]

Originally Posted by Exhibitman

As to the former, the justification is that the government has already had its bite at that money via the unified tax credit. When you die right now you can pass the first $11.7 million tax-free. After that you pay estate tax. The asset has already been 'taxed' when it passes, with valuation at fair market value, so the idea was that the G doesn't get a second bite at the asset at the decedent's basis when the heir sells it.

As to the latter, it is total BS: there is no reason other than good lobbying on the part of the rich for earned income to be taxed at a higher rate than any other income. The idea of investment being encouraged is crap; no one who builds a business does so based on taxes, except the accountants who file them.

So the government has already had its first bite, but only if the estate is worth more than $11.7 million. Otherwise there is no bite at all, right? Maybe they should eliminate the step-up basis unless the asset was taxed as part of an estate that exceeded $11.7 million. The main argument against an estate tax is that the decedent already paid taxes on those earnings or property during his or her lifetime. So it isn't fair for the government to tax the same thing twice. But that wouldn't apply for unrealized capital gains, right? Taxes have never been paid on that, and with the step up basis, they never will. I'm sure there are complications and stuff I am not seeing, but it seems to me that this is a loophole.