> There are probably better ways to handle this, but "delete it and replace it with nothing" is not one of them.
Why not? Why do I care about someone being deprived of a portion of some investment his great-grandfather made?
If I get money from some relative who invested in stuff and then you get money from working really hard in a way that someone thought valuable so they gave you money for your work, why should you pay taxes on that money while I don't pay taxes on the money I got from my dead relative?
Are we trying to incentivize people to be born to families that already have money or something? Like are we afraid that if we don't do this, we'll be creating incentives for people to get born into poor families instead?
> Why do I care about someone being deprived of a portion of some investment his great-grandfather made?
Because they only get deprived of it if they sell it, so that gives them more incentive not to sell it, but selling it may be more economically productive, and then you lose the positive externalities of the more productive investment and the tax revenue it would have generated, which could by itself plausibly be more than the loss from the step up in basis.
In general the problem is that capital gains taxes when implemented simplistically create a lot of perverse incentives (tax on productive investment is economically undesirable in general and some of the edge cases are especially ugly), and then the tax code gets full of warts that try to reduce the bad incentives/consequences instead of rethinking the structure of the tax.
> If I get money from some relative who invested in stuff and then you get money from working really hard in a way that someone thought valuable so they gave you money for your work, why should you pay taxes on that money while I don't pay taxes on the money I got from my dead relative?
Your dead relative already paid the taxes on any money earned in the equivalent way. Capital gains are on asset appreciation, which is an industrial-sized can of worms.
Why not? Why do I care about someone being deprived of a portion of some investment his great-grandfather made?
If I get money from some relative who invested in stuff and then you get money from working really hard in a way that someone thought valuable so they gave you money for your work, why should you pay taxes on that money while I don't pay taxes on the money I got from my dead relative?
Are we trying to incentivize people to be born to families that already have money or something? Like are we afraid that if we don't do this, we'll be creating incentives for people to get born into poor families instead?