A tax strategy known informally as "buy, borrow, die" is the latest flashpoint in the debate over wealth inequality after California Gov. Gavin Newsom last week called on lawmakers to eliminate what he describes as a loophole for the ultra-rich.
The strategy gets its name from what boils down to a three-step approach to lowering taxes. First, wealthy investors buy appreciating assets like stocks, real estate or art. Next, they use the assets as collateral to borrow money to fund their lifestyles, thereby avoiding any sales that would trigger income taxes. Finally, when the owner dies, those assets are passed on to heirs on a "stepped-up tax basis."
Because loan proceeds aren't considered taxable income, a borrower can use the debt without triggering capital gains taxes.
Death provides another tax benefit — known as "step-up in tax basis" — because heirs generally inherit those assets at their market value at the time of the owner's death. That wipes out capital gains taxes on any increase in the value of the assets over the owner's lifetime.
The loophole has been employed by Tesla CEO Elon Musk, who became the world's first trillionaire last month with the initial stock sale of SpaceX, and cable billionaire John Malone, according to the Wall Street Journal. In a June 26 post on Substack, Newsom described the strategy as a "tax-free lifestyle loan" only available to the richest Americans and urged Congress to close the loophole.
"The wealthy have their own private tax code full of loopholes and exemptions that most people have never heard of, and they're counting on politicians in Washington to maintain it and keep quiet," Newsom wrote in a June 26 post on Substack.
However, a recent analysis from the nonpartisan Tax Policy Center found the strategy isn't widely used by the nation's richest families. Based on the annual borrowing of the top 1% of U.S. households for net worth over two decades, the strategy accounted for 1% to 2% of their economic income.
"The 'billionaires exploit buy-borrow-die more than anyone else' narrative isn't well supported," Adam Michel, director of tax policy studies at the nonpartisan Cato Institute, told CBS News. "The super-rich generally consume less than their taxable income, so they don't need to borrow against gains."
As a result, this approach to evading taxes represents a "limited problem," he added.
etc, and more ...
https://www.cbsnews.com/news/california-gavin-newsom-billionaire-tax-buy-borrow-die-ban/
who thinks Gavin is starting his presidential campaign in 2026 ?
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Crnr2Crnr ·
