Isn't it income? If someone hands me money above a certain amount, whether it's my parents, my boss, or some random rich wacko who thinks I'm just that cute, I get taxed on it. Why would that change just because the giver is dead?

1. Gifts are not taxed until they reach a certain amount because, double dipping ($11,000/yr). Over that it's subject to a tax for the same reason as all the other double dipping taxes-- because they can tax it. But generally gifts are not considered taxable.
2. Wages are not taxable to the employer.

ETA: I made a mistake: the basis is not taxable to you.

if someone hands you a necklace of huge expensive diamonds or a racehorse or mansion or something and you have to sell it to pay the taxes on it

That's still looking like income to me. As I understand it, if I win a Ferrari on a game show, that's seen as taxable income. Why should that change if I was given the same car by a person who'd just died?

What it is, apparently, is if your parents (say) bought a bunch of IBM stock in the 60s (say), when you inherit the stock certificates, you pay taxes on today's value of the stocks even if you don't sell them. (Right?) Which to me sounds like bullshit. Do you pay again when you sell them?

Right, and you pay the capital gains when you sell them. I.e., I buy a stock for $60K. I die and you get the stock, now worth $300K. You pay estate taxes on $300K. You later sell them for $450K. You then pay cap gains tax on $150K.

Without the estate tax I think you would pay taxes on 450K-60K, or 390K, when the stock is eventually sold.

1. Gifts are not taxable until they reach a certain amount because, double dipping ($11,000/yr).

I thought that inherited income (however we're defining that--houses, cars, piles of gold doubloons) wasn't taxed until it reached a million.

Gifts are not inherited income as far as the tax law is concerned; it applies to gifts while the giver is still living.

I buy a stock for $60K. I die and you get the stock, now worth $300K. You pay estate taxes on $300K.

Inheriting is expensive, especially if the market crashes the day after you pay tax.

You pay estate taxes on $300K. You later sell them for $450K. You then pay cap gains tax on $150K.

Oh, OK. That's not as bad as I thought.

Randomly, I am extremely pleased with my current ability to understand this stuff.

Oh, and in other taxable news, prizes are totally taxed, so don't go on The Price Is Right and win a car if you're broke.

As I understand it, if I win a Ferrari on a game show, that's seen as taxable income.

Yes, and this also seems odd to me. But the unrealized gains thing moreso. Say you inherit a car that th deceased bought new for some fairly trivial amount of money but kept in pristine condition and pased on to you, who would like to keep it for the sentimental value of thinking of all the love and care deceased person lavished on it. But it's now worth $2 million and you don't have the cash to pay the taxes. I can see where that would upset people.

Gifts are not inherited income as far as the tax law is concerned; it applies to gifts while the giver is still living.

Right. And I was saying that gifts above a certain amount are taxed ($11,000 is it?) and inherited inccome above a certain amount is taxed, (I think someone mentioned a million dollar limit, but I wouldn't swear to it). Since I figure an inheritence is just a gift you get when the giver is beyond having a use for it, I'm not seeing the difference an estate tax makes, aside from lower exempted amounts for gifts from live folks.