What is the "buy, borrow, die" tax strategy Gavin Newsom wants to ban?
Summary
California Governor Gavin Newsom wants to ban a tax strategy called "buy, borrow, die" that some wealthy people use to avoid paying taxes. This strategy lets rich individuals borrow money using their assets instead of selling them and paying taxes, and their heirs inherit those assets without capital gains taxes. However, experts say this method is not widely used by the richest families, who mostly grow wealth by holding onto assets without selling.Key Facts
- The "buy, borrow, die" strategy involves buying assets, borrowing money against them, and passing them on to heirs who get a stepped-up tax basis.
- Borrowing against assets avoids paying capital gains taxes because loan money is not taxable income.
- When heirs inherit assets, they pay no capital gains tax on the increase in value during the original owner’s life.
- Elon Musk and billionaire John Malone have used this strategy.
- Governor Newsom calls this a loophole that benefits only the richest Americans and wants Congress to close it.
- Analysis shows the strategy accounts for only 1% to 2% of economic income for the wealthiest 1%.
- Experts say most rich people increase wealth by holding assets and letting gains grow without selling, deferring taxes.
- Some states, including California, propose new taxes on unrealized gains to tax rich people’s total wealth, not just income.
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