To me, the loophole seems to be 'Now his widow can sell those shares without paying any income tax on the appreciation before his death. She would have to pay taxes only on the increase in value from the time of his death to the time of the sale. '

Why doesn't the widow need to pay taxes on the increase from the original cost basis to time of sale? What is the reasoning for resetting the cost basis to 'value at time of death', when no taxes are paid at that time?