Which argues in favor of the inheritance tax mentioned.
There could be other solutions too -- say, require a virtual wash trade at time of inheritance, so the capital gains from the parent's lifetime are taxed at time of death and the child gets the stepped up basis. Somewhat different than an inheritance tax, but at least not a giveaway.
The full value of the shares (original basis plus step-up [or step-down] in basis) is already part of the estate and so is already subject to the inheritance tax rules.
It's just that the exclusion amounts are fairly high, so in practice the tax owed is often $0.
Right, the point of the person you replied to was about the scenario where inheritance taxes are small or non-existent - they literally said step up in basis makes sense when inheritance is taxed meaningfully.
There could be other solutions too -- say, require a virtual wash trade at time of inheritance, so the capital gains from the parent's lifetime are taxed at time of death and the child gets the stepped up basis. Somewhat different than an inheritance tax, but at least not a giveaway.