> Borrowing money against their stock holdings to fund their lifestyle. Loans are not considered income and are therefore not taxable, and the interest on the loans can sometimes be used as a deduction.

A loan should definitely be a taxable event and capital gains taxes should apply to rebase the value of the stock to the market value at the time the loan is taken out. Currently, very wealthy people use the loan dodge to avoid selling stocks and since the loan isn't paid off until death (usually), estate taxes wave their hands and any gains in the stock price go away, so that the next nepo generation gets to repeat the same dodge.

Borrowing against illiquid assets should be considered a taxable event. Seems like this would entirely fix the loophole.

So every small business loan should be a taxable event?

You pay taxes when you are paying off your loan...

Only if you pay it off with taxable income.

If you have a lot of assets you can just refinance your loan with more debt.

This makes no sense. How is lender going to make money?

They still charge interest but at a rate lower than the tax rate of earning it as income.

Really? What taxes?

Rather, you pay taxes on the income you use to repay the loan. Plus you pay the interest on the loan.

This basically defers the taxes to a later date and charges you interest for 'em. Which might be worthwhile, depending on how quickly and reliably your capital is growing.

If you don’t receive income then it obviously shouldn’t be taxed. Otherwise you’d be taxed on owning a car or a house, despite not selling it.

I think the claimed issue is that these people do receive income from those assets indirectly. My understanding is that if your assets are worth much more than the amount you're borrowing then a bank is happy to keep giving you loans, which you use like income, that incur compound interest until you die, your estate must settle up the loans, and the estate gets to pay capital gains against the basis when you died, not the basis when the shares were first created and worth $1 each.

> If you don’t receive income then it obviously shouldn’t be taxed

Right, but you're ignoring the loop-hole OP mentioned where you borrow un-taxed money then deduct it. Kill the loop holes.

There is no tax loophole. The only thing they are getting is higher leverage against borrowing, and the only difference would occur if that individual would go bankrupt in that the entity that they borrowed from wouldn't need to pay income tax.

So the only way to pay less tax is to surrender all your assets.

Or die and pass it to your children. Buy, borrow, die. Kill the step up basis loophole.

No it doesn't work that way. If you pass on the stock options, you pass on the tax burden.

I'm not sure if "options" is the relevant word in your post, but it does seem like capital gains tax is significantly reduced in inheritances? Here's an example source that says the cost basis gets reset to its value at approximately the deceased's death [1], and gains relative to that cost basis are likely much smaller (and thus a much smaller tax burden) than those relative to their initial acquisition price possibly decades earlier, no?

[1] https://www.fidelity.com/learning-center/life-events/cost-ba...

Even according to you article, fair market value at the time of transfer is subject to same tax. Can you phrase what exactly you are trying to say?

I included options because that's how ultra wealthy get their wealth from and it has market value of 0 so company could give lot of them.

Also anyone can get majority of your earning in stocks, not just ultra rich. Companies want to pay in stocks, and it's a win win for both, if there is a loophole.

My understanding is that it's not subject to the same tax it would have been as income, since the federal estate tax only applies to value above ~14 million per individual. So, my understanding is that a married couple can pass 25 million in stocks to their heirs and pay nearly no taxes on it because it's under the estate tax threshold and the capital gains cost basis got reset on their death. But not everyone can do this because you need enough assets or other business the bank wants to handle for them to be happy lending you money for years, and only people with a lot of assets have either of those things.

(I'm happy to be wrong about this, since it seems unfair, but AFAIK this is how it works?)

It is not so obvious, some countries have a wealth tax in addition to the income tax.

You do pay taxes on cars and houses

I heard from a medium reliable source that this loophole wasn't as popular as the zeitgeist implies. I'd love to know how true that is and if so, how the rich finance themselves.

I heard 3 people have more wealth than the bottom 50% globally. Wtf is the point

> Ultra-wealthy individuals legally minimise their tax liability by ...

- And: lobbying their congressmen for tax cuts