If the issue is that people are dying leaving behind significant wealth but not documenting this, just make the estate tax 100% on any assets missing documentation like this. I'm sure the lawyers would figure out the rest.
That isn't really the main concern. It's really a question of alienability.
If your great grandfather invested in something a hundred years ago and now 99% of its value is appreciation (or inflation), you may or may not want to continue investing in it. If you do, the step up in basis doesn't really matter because you're not going to sell it anyway.
But if you now think it's a mediocre investment, you may be inclined to sell it and invest in something else. Except that you won't if you'd lose a significant proportion of its value to taxes. This is a problem with capital gains taxes in general, but it's especially a problem for anything held intergenerationally (i.e. for a very long time) because not only will the appreciation be large, the inflation by itself would represent most of the value of the "gain". So the step-up in basis is a stupid hack to avoid this and let children make different choices than their parents and grandparents without being punished by the tax code.
There are probably better ways to handle this, but "delete it and replace it with nothing" is not one of them.
> 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.
Brokers have been required to track costs basis information since 2011. That doesnt really help for assets purchased before then, so estate executors would need to find records for transactions before then. The IRS will generally assume a costs basis of zero until proven otherwise.
