Here’s the Mayor of San Jose, CA making this erroneous claim:
I’ve heard from folks who are quite wealthy who acknowledge that they can borrow against their assets and never pay taxes on them – they can pass them on, tax-free, to their heirs,” Mahan said.
California has proposed a 5% tax on the wealth of billionaires and as above, citing the false claim of “they pay no taxes” (see details on that, below).
To pay the wealth tax, the billionaire would likely have to sell assets and pay Federal and state capital gains tax on the capital gain. For billionaires, this tax would likely be 23.8% (Federal) + 13.3% (California) for a combined capital gains tax rate of 37.1%.
If, hypothetically, their tax bill was $100 million, they would have to sell $137.1 million, pay 37.1 million in capital gains taxes, and then pay $100 million to the State of California. Thus, it’s not even a 5% tax – more like an 7% tax. The wealth tax itself (e.g. $100 million) would not be “deductible” on other taxes.
A complication is that the shares they own are often – still – in privately held companies and the shares do not trade on the open market. Many may be paper billionaires with much real assets (Elizabeth Holmes of Theranos was a paper billionaire at one point before her company crashed and she was sent to prison.)
Another complication is how to value assets that are not traded – like homes, land, art works?
Finally, it is reported that several billionaires representing half of the potential tax target left California before the end of 2025. This removes their income – permanently – from California forever. They will no longer be paying the 13.3% California income tax. The effect is that merely proposing this tax may now result in California collecting even less in the future.
While CA Gov Newsom says he is opposed to the CA wealth tax, he favors a Federal wealth tax. Norway is one of the few countries that enacted a wealth tax – and it resulted in the government collecting less tax revenue than before, as the wealthy moved to other EU nations. It also ended entrepreneurs from starting new, large businesses, in Norway.
As of January 2026, just 41% of California voters support the wealth tax (down from 55%). Exclusive | California voters hate the ‘terribly drafted, illegal’ billionaires’ tax, new poll shows | New York Post
Despite their failure, activists continue to push the wealth tax meme:
- Oxfam proposes wealth tax on anyone with $1 million or more in assets – Coldstreams
- Climate: To stop the ClimateCrisis, must tax wealth – Coldstreams
- Economy: Inflation is a wealth tax on everyone – Coldstreams
Some countries, like Sweden, ended their wealth tax because it did not work as expected.
UPDATE: A new economics paper finds “Buy, Borrow, Die” is barely used it all – and most policy changes on addressing it would have little impact on tax collections:
- Paper: The Role of Unrealized Gains and Borrowing in the Taxation of the Rich by Edward G. Fox, Zachary D. Liscow :: SSRN – “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.”
- Author’s commentary, on X: Zachary Liscow on X: “NEW PAPER! (w/ Ed Fox) We study 1) how much the wealthy borrow, quantifying “buy-borrow-die” for the first time, and 2) how much unrealized gains impact their taxes. The results changed (some of) our thinking on how to tax those at the top. 🧵 w/ findings ⬇️ https://t.co/mdCttAs7UI” / X
- Proposed solution: UnrealizedGainsandTaxesKeyFactSheet.pdf
- The process is “enormously complicated” and takes years to implement, says a “wealth attorney”: Buy, Borrow, Die – Explained : r/BuyBorrowDieExplained
Do the super‑rich “have no income” and “live off loans”?
The strategy exists — it’s called “Buy, Borrow, Die.” It’s widely documented in financial reporting and tax‑planning literature.
But the internet version (“the rich have no income and pay no taxes”) is a distortion. The real version is more nuanced.
The summary is – they own assets that appreciate in value (which is not guaranteed). They take out loans against those assets (like taking “cash” from your home’s appreciated value by taking out a loan against the home). This enables “cashing out” (sort of) without selling the assets, and hence, no capital gains on the sale of the asset. However, they still need other income to make loan payments.
They can use the “cash out” to make investments – without having to make a capital gain tax payment.
Real estate investors have long done this. Buy a property, then borrow against the appreciated property to buy another property. Repeat over time. But use the property’s income generation (which is taxable) and other income sources to service the loans.
They are not living a tax-free life – they are minimizing taxes by borrowing against appreciated assets and using those proceeds to buy other investments without having to cash out and pay a capital gains tax.
They still need to generate real, taxable income in their life in order to make the loan payments.
The Internet claim that the wealthy live off of loans and pay no taxes is false.
1. What the strategy actually is
The wealthy do three things:
1. Buy
They buy appreciating assets (stocks, real estate, businesses).
2. Borrow
Instead of selling assets (which would trigger capital gains tax), they borrow against them — often at very low interest rates.
- Wealthy individuals borrow against assets to access liquidity without selling.
- Morgan Stanley reports over $68 billion in these asset‑backed loans among wealthy clients.
- This avoids realizing taxable gains, which is why the strategy is attractive.
3. Die
At death, heirs receive a step‑up in basis, wiping out unrealized capital gains.
This is the “die” part of “buy, borrow, die” described in the sources.
In effect, they defer capital gains – the assets may be passed on to charity, foundations, or heirs. If the heirs sell assets in the future, they will then pay capital gains on future appreciation.
2. Do the wealthy really have “no income”?
No.
This is where the myth breaks down.
Even the ProPublica analysis shows the wealthy do have income — just not much taxable income relative to their wealth growth.
They often have:
- Dividends
- Interest
- Business income
- Real estate income
- Trust distributions
- Pass‑through entity income
They structure their finances so that most of their wealth growth is unrealized appreciation, which is not taxed.
So the claim “they have no income” is false. The accurate version is:
They minimize taxable income and avoid realizing capital gains.
3. Loans require cash flow
Loans must be serviced. Interest must be paid. Lenders require collateral and repayment capacity.
So where does the cash flow come from?
Sources of cash flow for the wealthy:
- Dividends from stock portfolios
- Rental income
- Business profits
- Trust income
- Royalties
- Interest income
- Selling small portions of assets (still triggering some tax)
- Or simply borrowing more (if asset values rise)
The wealthy do not live in a world where they never generate cash.
They simply structure their finances so that:
- Taxable income is minimized
- Borrowing provides liquidity
- Appreciating assets provide collateral
This is why the strategy works — but only for people with large, stable asset bases.
4. Why the strategy works only for the ultra‑wealthy
To make “borrow instead of sell” work, you need:
- Huge asset base (tens or hundreds of millions)
- Low loan‑to‑value ratios (often 10–20%)
- Stable, appreciating collateral
- Access to private banking
- Cash flow from other sources
A normal person cannot do this because:
- Their assets are too small
- Their income is needed for living expenses
- Banks won’t lend cheaply against volatile or small portfolios
- They can’t absorb market downturns
This is why the strategy is concentrated among the top 0.01%.
5. So is it “tax evasion”?
No — it’s legal tax avoidance, explicitly permitted by the tax code.
These are “legal strategies built directly into the tax code”.
- The wealthy “aren’t relying on hidden loopholes” but on standard planning tools.
- “Buy, Borrow, Die” is a “time‑tested way to build and preserve wealth”.
Bottom Line
✔️ The strategy is real
✔️ The wealthy do borrow against assets to avoid realizing taxable gains
✔️ They do not literally have “no income”
✔️ They still need cash flow to service loans
✔️ The strategy works only because they have massive appreciating assets
✔️ It is legal tax avoidance, not evasion
Loans don’t eliminate the need for cash — they just eliminate the need to sell assets and trigger taxes.
