Ending the step-up would be a nightmare for taxpayers and tax preparers.
Most of my clients have no idea of the cost of investments they purchased, let alone the cost of investments they inherit. Or how the deceased acquired the investments that are inherited (purchase, gift, inheritance, employee stock ownership program, etc.). And there is the issue of dividend reinvestment to consider.
Per T.C. Memo 2003-259, if a taxpayer cannot provide proof of the cost basis of a stock or other investment sold it will be considered to have a "0" cost basis. So, if the taxpayer cannot properly identify the cost basis the entire gross proceeds will be fully taxable.
It could be OK if the deceased acquired all investments by purchase only and used the same brokerage for all investment purchases because the deceased’s broker could have all the cost basis information. Or if the deceased actually kept meticulous records of all investment acquisitions. But these situations would be the exceptions and not the rule.
And if there is no step-up in basis then the estate tax should be based on the original cost of investments and not the market value at date of death.
It seems I may be retiring at just the right time.