Step-Up in Basis: Policy Perspectives on a Longstanding Tax Loophole

Bridget J. Crawford, Crystal Lichtenberger, Kaitlin Maguire & Gigi McQuillan

ABSTRACT

This essay offers three different and conflicting perspectives on the income tax step-up in basis for property acquired from a decedent under I.R.C. § 1014. Arguments in favor of repealing this longstanding tax loophole include increased revenue, elimination of the tax preference for income from capital versus labor, and minimizing tax considerations on economic investment decisions. Arguments against repeal include political infeasibility, administrative convenience, and incentives for middle-class investment. These divergent perspectives are concrete examples of robust tax policy analysis guided by simultaneous commitments to multiple principles. Those commitments include familiar ones like efficiency and administrability, but also equity and the real-world, human consequences of tax rules.

---