Taxing the rich is suddenly all the rage among many of the Democratic party’s highest profile politicians. Some favor wealth taxes. Others support a near-doubling of the top tax rate on ordinary income. And most Americans do think the rich are undertaxed. But there is a better, more politically realistic way to address the problem: Tax inherited wealth more efficiently.

Today, we do so very poorly through the estate tax. Only estates above $11.4 million (or twice that for married couples) are subject to the tax that tops out at 40 percent. But the exemption is so large that fewer than 2,000 of the very wealthiest estates will pay it this year, according to Tax Policy Center estimates. And tax planning allows many estates with far more than $22 million to reduce or even escape tax.

Congress could lower the exemption and raise the rate, as Sen. Bernie Sanders (I-VT) has proposed. But in recent decades lawmakers have gone in the opposite direction, consistently raising the exemption. What else could they do?   

They could start by no longer giving heirs of large estates a way to avoid tax on trillions of dollars of capital gains.

The problem is a provision of the law called stepped-up basis at death. It works like this: If I bought a share of stock years ago for $10 and sell it today for $100, I will owe capital gains tax on $90. If I bought the same share of stock for $10 and die before I sell it, my heirs are allowed to reset the value (or basis) to the $100 price on day I died. Thus, if they eventually sell for $100, that $90 the stock appreciated over my lifetime is entirely tax free.

Congress could replace this provision with an alternative called carryover basis. Under that method, the cost basis of that share of inherited stock is the same $10 as it was during my lifetime. It is a far better way to tax assets than a direct wealth tax proposed recently by Sen. Elizabeth Warren (D-MA).

Here are a few reasons why:

It is easier to administer. The US already uses carryover basis (or fair market value) for gifts, and the law seems to work relatively smoothly. In the past, critics argued that it was impractical to calculate cost basis for, say, long-held stock or privately-held companies. But third-party reporting and improved technology have made it much easier to figure basis for marketable securities. And while valuing a privately-held business is never easy, it is manageable when assets are transferred–and certainly less complicated than with a wealth tax, where a firm would have to be valued annually.

It is a relatively modest change to existing law. Because carryover basis already applies to gifts, expanding it to estates would be done by adding to the familiar chassis of capital gains taxation. By contrast, a wealth tax is unfamiliar to most Americans. Indeed, Congress adopted carryover basis for estates in 1976, though it delayed and then repealed the change before it took effect. A later voluntary version was in effect—very briefly– in 2010.

It taxes only inherited wealth, not earned wealth. One criticism of a wealth tax is that is does not distinguish between the assets of trust fund babies and those who became rich through hard work and risk-taking. Carryover basis does not directly tax entrepreneurs at all, though it may change their behavior if they are motivated by leaving bequests. It does tax their heirs, but only when they sell appreciated inherited wealth. 

Still, the idea has shortcomings. It likely would raise far less revenue than Warren’s wealth tax, especially in the 10-year budget window. The Congressional Budget Office estimates it would pick up about $100 billion over a decade, largely because revenues are generated only when inherited assets are sold. Rutgers University business professor Jay Soled and colleagues project that imposing carry-over basis for marketable securities only would raise a similar amount.

Other variations could raise at least twice that. The Obama Administration proposed a version that exempted the first $100,000 in accrued gains ($200,000 per couple) and raised the capital gains tax rate to 28 percent. The Treasury Dept. estimated that plan would raise $210 billion over 10 years. 

Still, heirs would not pay capital gains taxes until they sell their inherited assets, which may not happen for decades. There are ways to address that issue as well.

For example, former TPC visiting fellow Lily Batchelder has proposed replacing the estate tax with a tax on lifetime inheritances exceeding $2.3 million. Heirs would pay ordinary income tax on their inheritance plus a 15 percent surtax. Another option is to close the loopholes that riddle the estate tax. For example, Sanders would eliminate various trusts and other tax avoidance techniques that allow inherited wealth to go untaxed for generations.   

There are merits to those proposals as well, but any of them would be a heavy political lift. In the meantime, if Congress thinks the rich are undertaxed, it could at least make sure that increases in asset values during a decedent’s life do not go tax free.