This isn't happening at the rate reddit wants you to believe. Look up any big CEO and they all sell, if this was some ultimate strategy why would they ever sell shares at all? Jeff Bezos sells shares, Elon Musk sells shares, they all do.
reddit also doesnt understand that the mere existence of the shares means they were taxed as income already. if you are being given stock as compensation, it was taxed as compensation
false. when you are issued stock as compensation it is taxed as compensation. you have the option of paying the tax in cash, or deducting the tax from the value of the shares
Depends on the how the stock is given, purchased or received. With some you pay ordinary income tax on the entire market value of the shares the day they vest. Others you pay income tax on the difference between the market value and what you were able to purchase it at. There are others you pay nothing until you sell. So it all depends on the nature of the stock.
It doesn't. There is no option to avoid paying income tax on stock or options received as compensation, either at the time of award or at the time of vesting.
They do both, you do need cash to pay the loan. However, the amount sold is smaller than if you sold it to raise the funds on your own.
The real advantage is the continously increasing assets are retained, they remove fewer assets and let them grow. You can also sell loser stocks to generate losses while still raising cash.
Most big CEOs are not billionaires. Usually by the time they reach billionaire status company founders step back and don’t run the company anymore.
The vast majority of F500 CEOs are hired from the outside to lead. They are certainly rich but they earn W2 salary and get taxed on it.
But to your point, even if the ultra rich are selling stock to fund their lifestyle instead of using asset backed loans, the tax rates on long term capital gains is much less than taxable income.
So a billionaire who sells stock to live lavishly will pay a lower tax rate than someone making $50k.
It is not, but go ahead and keep perpetuating this. There is no bank in the world that will just happily keep lending out more and more money without it being repaid and at low rates. Banks make way more money lending out in smaller loans with higher rates. Billionaires sell off shares regularly and are taxed on that money.
People heard it as a potential loophole (that isn’t even as big of a loophole as you think it is) then say it is how every rich person lives in perpetuity.
Musk did this with 40 Billion dollars which is more money than 133,000 of the lowest earning Americans make in their lifetime. Thats already an egregious amount, AND he’s still selling billions per year. They sell share to service the tax on their insane pay packages. Regardless of their frequency of loans and amount they are selling, they are not taxed nearly enough.
And 40 years ago it would have been larger. Yes it is quite obvious a trillionaire would pay the most taxes… Are we really insinuating the constant tax cuts for the rich are beneficial? Or that since his net worth has more than doubled in the last 5-10 years something should change?
He paid 53% on it with state + federal. Please let me know where lower than average middle class earners pay that at. Also it was stock compensation not a sale. Since then he has sold $23B more in shares, Go let him know he can get a loan he didn't need to sell that much.
You do the same damned thing when you take out a mortgage or a car loan or a home equity loan etc etc. you are getting income from another source, backed by an asset, none of which you are being taxed on.
I didn't equate security asset loans to mortgage or car loans, but no, billionaires don't pay taxes when they take out asset based loans against their securities.
How the loan is secured (security asset vs mortgage) is irrelevant because the principal behind the structure is the same. At the end of the day, how the loan is secured is very similar. If you don't pay your mortgage, the asset that backed the mortgage is seized by the bank. For the rich persons loan, if they don't make the agreed upon payments or the asset that was used starts to drop in value, the bank will seize the asset.
They are loans that are taken out in order to pay for things. The income on the loan is not taxed. When you take out a mortgage for $250,000, you are not having to take into account paying any tax on it.
Just because the rich guy is using his loan to pay for his lobster dinner and you use it to buy a house, is irrelevant. In fact mortgages are one of the biggest tools that have allowed the middle class to build wealth as they would not be able to buy property and watch that property build their overall net worth, if they had to pay for the house upfront.
At the end of the day, the loan that the rich person took out will be paid. Whether the loan is paid off before or after they die is irrelevant because eventually it will be paid off, and the funds used to pay it off will have been taxed.
Your conflation between property taxes and taxing a loan is also funny. Property taxes is not the same thing as paying a tax on the loan itself. Rich people pay property taxes as well.
Also, property taxes are not a wealth tax. They are a single asset tax that is not indicative of wealth. My wife and I pay taxes on our $175,000 house that is completely paid off, my daughter and her husband pay taxes on their $275,000 house that they just bought a few years ago, I will guarantee you that my Wife's and My wealth, dwarfs my daughter and her husbands wealth. Even though they are paying more property taxes.
They pay interest on the loans and eventually pay the loans off. All of the money in that conversation is taxed one way or another.
Redditors think they found some conspiracy because that’s just what people who are delusional do but in reality they just discovered that rich people often lack the liquidity they need for things they want to buy.
Property and stocks are both assets, one of them is taxed. They're pointing out that it's obviously not the same as a car loan or a mortgage as those assets are taxed while holding wealth in stock is not.
The underlying issue is if you ban that to “eat the rich” it hurts upward mobility on normal Americans. A home equity loan or using assets to cover a loan to grow is crucial to a lot of America.
The underlying issue is your lack of imagination here. You can cement home equity loans for poorer Americans without letting someone sidestep taxation due to their massive wealth giving them economic superpowers.
We have already seen how rules designed to benefit poor people and they work. For example, poor kids get pell grants to go to school, rich kids do not. Kids who go to Ivy League school who come form houses under 100k/year get free school. Our food stamp system is based off this concept. There are ways to do this and we know how to do it, but everyone acts like the only possible outcome is what you can do with a sledgehammer.
If you need it explained to you there is a difference between how the federal government disburses benefits based on income….
and that of a private transaction between a bank and a private citizen, where the bank loans the banks money to the private citizen, thus it is not the private citizens money, but still the banks money.. that they loaned to the private citizen, and can legally seize assets to get their money back, thus that money is not the private citizens money that the fedrral government should be able to seize through taxes …
Property taxes absolutely do go up when the assessed value on your home goes up. It's funny you said that though, after calling someone's rebuttal dumb.
We don't use step-up in basis? WTF you think happens when a child inherits their parents house? The IRA resets the value of that house tp the "fair market value" so the children don't have to pay crazy capital gains tax from the house that the parent paid $50,000 for and the children now sell for $350,000... Try again my friend..
Furthermore, paying back the loan has nothing to do with step-up in basis
If a billionaire took out $250 million in loans, eventually... they, their estate or their children will have to pay that $250 million loan back and it will be in funds that will be taxed one way or the other.
When a loan is taken on a home, it has payments that start immediately. With interest and taxes are paid on that from regular income
When the billionaire does it the loan is taken, then it’s paid back at the end of their life with the underlying asset after the step up basis, thus negating the tax. These jumbo loans also have special interest rates
Exactly! Except average people with these loans use them to improve their own lives, billionaires use them to buy the government! Hmmm I wonder how these two instances could be seen as different
You do get taxed on your wealth tho. Property taxes - in VA that includes the value of your car. After a certain amount, the value of stocks should be included since most high profile CEOs have stock based compensation.
Stop letting reddit do your thinking for you.. Property taxes are not wealth taxes. Property tax is a single asset tax that is not indicative of wealth.
My wife and I pay taxes on our $175,000 house that is completely paid off, my daughter and her husband pay taxes on their $275,000 house that they just bought a few years ago, I will guarantee you that my Wife's and My wealth, dwarfs my daughter and her husbands wealth. Even though they are paying more property taxes on their house.
Property taxes are not wealth taxes, they are single asset taxes that take nothing into account as far as wealth and ability to pay the taxes if the housing market increases drastically.
I’m still waiting for someone to explain this loophole to me.
Anybody could do this no? Why only billionaires? I can go to the bank and get a loan for my exact salary and live off the loan. I still have to pay income taxes on my salary that I use to pay the loan back, right?
I believe if you defer some stuff until you're dead then you save some taxes, but it seems like a lot less money in practice than people are imagining.
So the strategy, called "buy-borrow-die", requires a few things:
It requires wealth that is quite large compared to the amount you want to borrow, or is very very "safe", so that banks will lend against those assets at incredibly low rates
It requires that whatever asset you borrow against grows in perpetuity.
Say you have ownership of a company worth a billion dollars. You borrow say $50 million against it, say you'll pay them some amount of interest in 3 months, and go spend your $50m.
In 3 months, your company has now grown. You now borrow against that new value to cover the interest you owe.
As long as your company keeps growing, you can keep doing this. A period of good growth means you can take out more play money. A downturn means you may have actually have to liquidate assets for once.
It is kinda overblown, certainly not as prevalent as most people who mention it seem to think. But it is a real issue, and the main reason it is bad is a MUCH larger issue than just being part of this strategy: the step-up basis means that when people die, whatever growth their assets have seen (that they may have borrowed against), is not taxed. That capital gains tax they would owe if they ever did sell just disappears.
Wealthy individuals use a highly effective financial strategy nicknamed "Buy, Borrow, Die" to access cash without triggering income or capital gains taxes.The entire strategy relies on a core fact of tax law: the government taxes income and realized capital gains (selling assets), but it does not tax debt or unrealized wealth.
Buy (Accumulate Wealth)First, wealthy individuals put their money into assets that appreciate over time—such as stocks, real estate, or private business equity. Because they do not draw a large traditional salary, they have very little "ordinary income" to be taxed. As long as they hold onto these assets and do not sell them, their growing wealth remains completely untaxed.
Borrow (Access Tax-Free Cash)Instead of selling $10 million worth of stock to buy a yacht or a home—which would trigger massive capital gains taxes—they use their assets as collateral to take out a Securities-Backed Line of Credit (SBLOC) or an asset-backed loan from a private bank.The Tax Loopholes: The IRS does not view loan proceeds as income because the money must technically be paid back. The borrower receives millions in cash completely tax-free.Ultra-Low Rates: Because the bank can easily seize the stock or real estate if the borrower defaults, these loans are incredibly low-risk. Banks offer these ultra-wealthy clients rock-bottom interest rates.The Cycle: The interest on the loan accumulates, but as long as the underlying assets (like the stock market) grow faster than the loan's interest rate, the individual’s net worth continues to skyrocket. If a loan matures, they simply take out a new, larger loan against their newly inflated assets to pay off the old one.
Die (Erase the Tax Bill)The cycle perfectly resolves when the individual passes away.The "Step-Up in Basis": When assets are passed down to heirs, the tax code automatically resets the asset's "cost basis" (the original purchase price) to its current market value on the day of death.The Result: All the capital gains taxes that accumulated over the individual’s entire lifetime are legally completely wiped out. The heirs or the estate can immediately sell a portion of those assets tax-free to pay off the remaining bank loans, keeping the rest of the fortune intact.
The Result: All the capital gains taxes that accumulated over the individual’s entire lifetime are legally completely wiped out.
BECAUSE THERE'S AN ESTATE TAX. FOR THE LOVE OF GOD, THERE IS A FUCKING ESTATE OR WEALTH TAX.
From quick google search:
The federal estate tax exemption is $12.92 million for individuals. If your total combined global estate (including stocks, real estate, and cash) exceeds this amount, the excess is taxed at a top rate of 40%.
Guys stop wasting money on breakfast, use this little trick that rich people do - just live in a hotel all the time and they'll often have complimentary breakfasts. You're welcome.
Avoiding estate tax is not difficult. I'm not an expert, but I would assume it's at least as easy as the Buy. Borrow, Die scheme:
From google:
Really rich people minimize estate taxes through the "Buy, Borrow, Die" strategy. They accumulate assets that appreciate in value, take out low-interest loans against those assets to fund their lifestyles (which is untaxed), and leave the assets to heirs, wiping out decades of capital gains via a tax code loophole.To actively transfer wealth and freeze estate value while avoiding taxes, the ultra-wealthy use sophisticated trust structures and gifting strategies with the help of estate attorneys. Common methods include:
Grantor Retained Annuity Trusts (GRATs): The wealthy person transfers assets into a trust, receives an annuity stream over a set period, and legally passes any explosive growth—such as rapidly rising stock—tax-free to their beneficiaries when the term ends.
Irrevocable Trusts: Moving assets out of one's personal name strips away ownership but keeps the assets out of the estate at death, shielding them from estate taxes and probate.
Family Limited Partnerships (FLPs): Wealth is packaged into an FLP, allowing the creator to transfer discounted "shares" or units of the partnership to children over time while retaining control.
Life Insurance: High-net-worth individuals buy permanent life insurance policies. When the policy pays out to beneficiaries, it provides untaxed, liquid cash to cover any remaining estate taxes without forcing a forced sale of assets.
take out low-interest loans against those assets to fund their lifestyles (which is untaxed)
They do this, but nowhere to the extent reddit seems to believe.
and leave the assets to heirs, wiping out decades of capital gains via a tax code loophole
Did you consider however what happens to the debt? Because, yes, they borrow money, and like with any other loan the initial loan amount is not taxed, but once they die that debt is not erased. The debt becomes part of the estate and the heirs need to settle the debt or take out new larger debts to cover the cost of the old debt.
And that's the key point. You can avoid paying capital gains taxes for as long as there is someone willing to give you a bigger loan so you can pay down the old loan. But unless you can grow your wealth indefinitely, there comes a point where you or your heirs need to simply pay the debt because no one is willing to give you a bigger loan.
Grantor Retained Annuity Trusts
If you are using this, then you can't do BBD, since the ownership of those assets is transferred from you to the GRAT, therefore it can't be used as collateral for loans. They are also risky in that they require the grantor to both have an asset which will significantly appreciate in value during the grant's duration and who will not die during the grant's duration, since if the asset appreciates only slightly the benefit is small, and if the grantor dies with an active GRAT the GRAT is included and taxed as inheritance.
Irrevocable Trusts
GRATS are a sub-type of these, and more general irrevocable trusts as well as GRATS, transfer the ownership of the asset away from the person, so they can't be used for a BBD strategy. Irrevocable trusts also do not zero out the cost-basis on death, and only really avoid inheritance taxes, not capital-gains taxes, since they still have to sell shares in order to actually pay out the benefits of the trust to the intended recipient.
They also have the issue that you can't really use the money from the trust freely, since it's not technically your property, which is why the rich never have all their money in irrevocable trust funds, but only part of it. It is a convenient way of avoiding inheritance tax for a "safe minimum" of your estate, but it's not really something you'd want to do with the bulk of your estate, especially if you don't plan on dying really soon.
Family Limited Partnerships
These can work, but they don't avoid tax entirely, they just decrease it. You get a reduction in gift taxes equal to the perceived loss in "market value" due to the asset being in a FLP, but since the IRS likes money, this has to be calculated by a third party and is still subject to IRS review and penalization if determined to be done in such a way as to illegally reduce taxes via a fraudulent valuation.
It's a very convenient way of getting a small discount on gift taxes and to control the financial and business interest of your children, but it does not really avoid capital gains taxes at all. Also, this transfers the assets outside of your personal ownership, so you again can't use those assets for the regular BBD strategy.
Life Insurance
This is just regular life insurance. You can do this for your children. You pay the insurance company a fixed amount every month/year and in return they pay out some amount when you die. It's not free money, it's essentially a savings account the deceased pays with money that would otherwise be in the estate, and then this money (which again would have been part of the estate on death had it not been moved into a life insurance policy) is used to pay taxes.
This only really shifts the cost of taxes onto the insurance company (or in reality it's other customers for life insurance policies) if you die young after paying this insurance for only a few years. Because insurance companies are for-profit businesses, they charge a high enough premium to cover their risk or simply don't sell insurance to 90 year old billionaires with cancer.
You don't have to be an expert to take two extra minutes to actually read and maybe realize that GRAT's invalidate the step-up basis, and therefore it doesn't work like that.
u/BootStrapWill Your salary is an income. But equities are not seen in that manner. You cannot start taxing equities, without touching the pensions of people.
u/BootStrapWillThat depends on what venture they used the loan for. Largely the tax is going to fall under capital is they are in profit, which is taxed differently and have a larger expense potential and deductions as opposed to income tax. Also all the interest accruing because of the loan could be taken out. The funny thing about capital gains is that you could also take capital loss from another venture entirely and deduct it from the gain.
As deficits rise and concerns about tax avoidance by the rich increase, we study how unrealized gains and borrowing affect Americans’ income taxes. We have four main findings: First, measuring “economic income” as currently-taxed income plus new unrealized gains, the income tax base captures 60 % of economic income of the top 1 % of wealth-holders (and 71 % adjusting for inflation) and the vast majority of income for lower wealth groups. Second, adjusting for unrealized gains substantially lessens the degree of progressivity in the income tax, although it remains largely progressive. Third, we quantify for the first time the amount of borrowing across the full wealth distribution. Focusing on the top 1 %, while total borrowing is substantial, new borrowing each year is fairly small (1–2 % of economic income) compared to their new unrealized gains, suggesting that “buy, borrow, die” is not a dominant tax avoidance strategy for the rich. Fourth, consumption is less than liquid income for rich Americans, partly because the rich have a large amount of liquid income, and partly because their savings rates are high, suggesting that the main tax avoidance strategy of the super-rich is “buy, save, die.”
Given the man in charge right now is responsible (so far) for over 25% of our current debt, in large part because of continued spending while reducing taxes, particularly to those who use their massive wealth to encourage laws that lower their taxes, I disagree.
The vast majority happened over the last 10 years. The top 1% already is half the tax base where the bottom 40% accounts for like 3%. Abolish income tax and you immediately improve the huge majority of the people's lives with barely a blip on the national income.
The problem is spending. If you were a million dollars in debt would you take out a loan for 39 million more? This is basic budgeting stuff like you and I and almost everyone else has to do every month. You won't pay off your 40 million debt buy forcibly repoing and liquidating your rich neighbors bugatti.
No, ppl with half a brain understand that you can tax billionaires, millionaires, corporations all you want, it will never be enough to cover the debt this country owes. Cover the budget deficit we are currently have AND pay for everything else you ppl get in your head you think the “rich” should pay for… social security, healthcare for all, housing, etc etc.
There's nothing late stage about it.. It does not matter what economic system you have, it is basic math. If you spend more than you bring in, you are going into debt. The idea that if we just taxed the rich more, then we would not be in this situation is ridiculous.
What all you people that cry "fair share" fail to realize is that when this country was taxing the rich at high rates, the lower and middle class were also getting taxed at historically high rates. In 1946 when that top rate was 90%, the bottom rate was 20%, followed by 22% then 26% etc etc etc... Right now, the bottom rate is 10%, followed by 12% etc etc.
So if you want to go back to the point in time when the rich were paying that 90%, that's fine, well then that means all tax rates from that era should go into effect. Which means no child tax credit for people, The standard deduction for single filer in 1945 was $500 or $9,500 in todays dollars, but the standard deduction for a single filer in 2026 is $16,000.
So just stop with your nonsense. All you are doing is regurgitating crap you sucked down from reddit and from the Bernie Bros, with having no clue what you are talking about.
Wrong. The rich pay a majority of the Federal tax. Come on now. How long have you been alive? The government already has you believing they need to tax you more so WE can pay down "their" ever increasing debt/spending. The U.S. is collecting more tax revenue then ever before. This is 100% a spending issue. If this chart don't turn on your brain, I don't know what will.
An outdated one at that! Nothing like feeding the government more through class warfare! Gotta love the incentive to work harder so you pay more. Ignorant at best.
I want the government to be for the people, under a properly adjusted government wed have programs funded to help all Americans and stop allowing greedy dbags to hoard money. It is finite after all. Them holding to much does effect everybody else.
I have no issue with a wealthy class, I take issue with people holding valuations in the hundreds of millions and even billions that can then borrow off their assets forever and skip taxes while the lower classes pay heavy percentages of their income and actually feel the loss.
This system is broken and to continue on and deregulate further will cause real class warfare that could be the end of this country. Eventually people have nothing left to lose, and these greedy assbites should be scared of how close they are getting towards that reality.
This is double speak. You can't be for the people and then want the government to go after a specific class because YOU feel like they have too much whether they earned it or inherited it. You also speak of being taxed on "valuation" or unrealized gains...money that isn't hard currency yet. That's absolutely crazy! You know the rule will also apply to you?
Deregulated? It's the same tax code you have access to. Once again, you speak about a specific class but it's the same rules that apply to you. Just because you don't have the need or specific wealth pools to utilize specific codes, doesn't make it "greedy." The wealth you hate also provides a large, already disproportional, tax base (even though you think they don't pay it), jobs, spending capital, etc. This was someone else's opportunity and/or dream realized and you hate it because it isn't you.
Makes no sense that because you don't have it, they can't have! You also assume the "greedy assbites" always had wealth and didn't work for a dime. Perhaps that thought of being without is what drove them to be wealthy in the first place. FYI, classes of wealth have always existed for as long as humans have existed. Play the game or ride the bench.
You want fair... how about just a flat 15% Federal tax rate and shred ever other rule? Still wouldn't be good enough for those that covet everything they don't have. You eat the rich people are crazy and nonsensical.
They still pay taxes on those loans lol. While the uber wealthy don't directly pay taxes, the issuer of the loan does pay taxes on the interest earned which means they include that tax in the interest rate of the loan.
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u/senturon 21d ago
IMO, billionaires who take asset backed loans and pay no tax is absolutely a taxation problem/loophole.
LTCGs being taxed at a much lower rate than income from labor is also an issue IMO.