If you lowered the estate tax exemption to $50,000—-just enough to avoid having to value personal property—-then the step up basis rule would be fine. But at $11MM it’s a major loophole.
"sorry, I know you've spent the last 10 years living with your aging mother in her home, but now that she's passed away you'll have to sell it to pay the 40% in its value in estate taxes" -- not so attractive. :)
No one likes paying taxes. But the status quo you are advocating for is a major loophole. It allows for significant amounts of capital gains to never be taxed at all. That inappropriately favors capital over labor.
I regret repeating the double taxation point, I agree it's the weakest point-- plus, if we want to double tax as a matter of policy, we can do that. Step up really just avoids a logistic mess.
I think regardless of where you think taxes on inheritance should be, we're much better off with the step-up. If we're not collecting enough decrease the thresholds or up the rates (and if we're overtaxing earned wages as a result-- provide a method to exempt some of those from estate taxes, it's an easier accounting issue that not having the step up in basis).