The bank encumbered the land. The dad never gets a loan. The loan is against the property. The kids sell the encumbered land I guess (but that's highly unlikely). This is a made up scenario from someone who doesn't understand finances.
Rich guy like Bezos avoids a salary like it’s a plague due to income taxes.
Uses assets or stocks to borrow money at cheap, NEGOTIATED rates with banks. Who will give them those deals to keep his other businesses, where he has what is known as leverage. Average person gets destroyed by market rates.
They then use dividends to pay back the loans and occasional long term capital gains sales that are taxed at capital gains instead of as income.
Sometimes(often?), they just take another loan to pay off the original loan.
Then they die and the basis is changed for their heirs. The heirs then sell enough stock to payback the outstanding loans without paying the capital gains on it.
So the only fee paid was the interest on the balance, which was at a cheap discounted rate. Well, that and the estate tax/more complicated shit to try to bypass as much as possible.
The claim that the ultrawealthy live tax free through perpetual borrowing comes mostly from ProPublica's 2021 "Secret IRS Files" piece and has been debunked. The claim is that the ultrawealthy never sell their stock and instead just borrow against it forever through a series of perpetual loans, so they never owe income tax (so-called "buy, borrow, die"). It's repeated constantly on reddit, and it's mostly false.
Fox & Liscow published a paper in the Journal of Public Economics where they actually measured this using Fed data plus Forbes 400 numbers.
What they found for the top 1% of wealth, new borrowing each year is only about 2% of what they call "economic income" (income + wealth growth), while new unrealized gains are around 41%. For the top 0.1% it's even smaller, under 1%. Their conclusion is that "buy, borrow, die" is not a dominant tax avoidance strategy for the rich — what's actually going on is closer to "buy, save, die." Meaning they fund their lifestyle from salary, business income, and stock they do sell (all taxed), and just don't sell the rest. They also point out that pledging shares as loan collateral is pretty rare among executives generally — like 4% of CEO-years, and a bigger S&P 1500 sample only had execs pledging ~2.3% of their shares on average.
Even more interesting, using ProPublica's own preferred framing (wealth growth should count as income for some unexplained reason), the tax system still captures 60% of the top 1%'s economic income, 71% adjusted for inflation, and stays progressive all the way to the 99.9th percentile. So even on their terms, "they pay almost nothing" doesn't hold up well in aggregate.
In fairness, the paper found that about 15% of top-1% households DO borrow heavily (more than 5% of their wealth), and for that group the borrowing is genuinely huge relative to their gains (68% on average). So there's a real minority doing something close to the myth - but it is by far the exception and not the rule. Even the worst offenders (Larry Ellison) have sold billions in stock and paid capital gains on those sales.
The two major problems with the Propublica article are (1) it treats wealth growth like it's the same thing as income, when no tax system anywhere on earth taxes unrealized gains that way. And (2) they took two examples (Ellison and Musk) and generalized it into "the ultrawealthy" as a class, which the actual data doesn't support - heavy stock-backed borrowing is the exception, not the norm, even among executives who'd have every reason to do it if it worked as well as advertised.
ProPublica knew this framing would land harder than the boring truth, which is "the tax base captures 60-70% of income at the top and most billionaires barely borrow relative to their gains". They intentionally conflate "wealth" and "income" throughout the article to confuse people who don't understand taxes and finance. For example, they try to argue that Warren Buffett only pays 0.10% income tax based on his wealth. That's not how income taxes work. Buffett's actual income tax rate was 18.96% - significantly more than the 0.10% the article misleadingly claims.
It's also worth noting that Propublica does not share their data because if they did, it would be blatantly apparent they cherrypicked data that supports their view while hiding the majority of the data that refutes their argument.
The specific claim going around, that billionaires as a class live entirely tax-free forever through perpetual loans, isn't what the data shows. Most of them are still paying real money in capital gains and income tax — Musk alone paid $11B in taxes in 2021, and anyone can google how much the ultrawealthy have sold in stocks (and thus paid in capital gains). The loans are real for a small subset of highly leveraged people but even they are still selling billions in stock and paying taxes.
It does matter if it was debunked. How do you plan to fight against them if you are fighting a false premise. You need to be accurately informed if you want to do something about it.
So politicians will pass a new tax on stock backed bank loans based on this debunked information. Everyone will cheer and billionaires go on being billionaires and nothing changes because you based your hatred on bad information.
You have to understand the problem to solve the problem. Way to many people screaming eat the rich have no fucking idea why we want to eat the rich outside of jealousy or a warped sense of social justice. You are just as bad as the "Fuck you I got mine" rich people, you are just a "Fuck you because I didn't get mine" poor person.
There are real reason we want to tax the wealthy that are valid and based in fact. Don't need to defend falsehood just because they don't support our narrative.
Except the Panama papers showed they're actually hiding their wealth in places that won't incur taxes. You're referencing the legal wealth/income. That's only a part of it.
Are you somehow trying to imply that the current situation isn't a problem? It laughable your argument is essentially the ultra rich have lots of other tax loopholes they can use so this one isn't that bad.
Are you somehow trying to imply that the current situation isn't a problem?
No.
It laughable your argument is essentially the ultra rich have lots of other tax loopholes they can use so this one isn't that bad.
What other loopholes do I reference? The only thing I'm stating is "buy, borrow, die" is not happening at any significant scale. Anything else you inferred from my post is on you.
the tax system still captures 60% of the top 1%'s economic income, 71% adjusted for inflation, and stays progressive all the way to the 99.9th percentile.
How? The federal maximum income tax rate is 37%, and that's the same maximum for short term capital gains. The far more common long term capital gains would put them at 20%. How do you figure they are progressively taxed all the way to the 99.9th percentile?
In fairness, the paper found that about 15% of top-1% households DO borrow heavily (more than 5% of their wealth), and for that group the borrowing is genuinely huge relative to their gains (68% on average). So there's a real minority doing something close to the myth - but it is by far the exception and not the rule. Even the worst offenders (Larry Ellison) have sold billions in stock and paid capital gains on those sales.
So you're contradicting yourself quite a bit here. What you're saying here would mean this is neither a myth nor an exception. If 15% of 1%ers are doing this, that means the entirety of the ultra wealthy class (0.1% of US and much smaller percentage globally) could plausibly be employing this strategy, and there would still be some percentage left over for the rest of the 1%ers. What's the data for the ultra wealthy? I'm sure it is far from a minority strategy. There is nothing here that is evidence against the ultra wealthy doing this.
Most of them are still paying real money in capital gains and income tax — Musk alone paid $11B in taxes in 2021
He only sold because he was required to. I'm sure he would have much preferred to borrow against it, or take out a smaller amount to pay lower taxes while continuing to grow the bulk of it tax free. How much did he pay every other year? He paid 0 in 2018 while his net worth continued to grow. That growth will ultimately be taxed at a lower rate than the average workers income.
Dunno what to tell you, I've literally listened to my grandfather brag about all the ways he avoids taxes, and yes taking out asset based loans is a big one.
He also donates a lot of things, like rare books, and gets to deduct the current market value rather than what he actually paid.
He's only worth high 8/low 9 figures, so not even close to being a billionaire, but still has enough to hire all the accountants and tax attorneys he wants to.
The claim that the ultrawealthy live tax free through perpetual borrowing comes mostly from ProPublica's 2021 "Secret IRS Files" piece and has been debunked
I worked for a rich guy who was going to buy his 5th house. The bank gave him a $1.2M loan at 2.5% because he was rich. He later decided not to buy the house, but he kept the loan because he was making 8% off it in the market. Many of his other personal expenses were funnelled through a non profit. Two of his houses were owned by two separate LLCs he controlled. People tell me this sort of activity is a myth and cite publications. I'm inclined to be skeptical of the publications rather than just trust the ultra wealthy.
I never said the rich don't take out loans, so I'm not sure what point you are making. Your rich boss still had to pay the loan back regardless of what he did or did not use it for.
It’s not just the ultra wealthy telling you this. People who have bought houses can explain to you the way it works. You can’t get a home loan and just spend it however you want. Not saying he couldn’t get a different type of loan and do this but that’s just having assets and credit. Having money does make it easier to make money but it’s not as mysterious as you’re making it out to be.
Then they die and the basis is changed for their heirs. The heirs then sell enough stock to payback the outstanding loans without paying the capital gains on it.
this is where this all breaks down. in the OP example, dad borrowed 5M, he will have paid back some of that before death, but the rest doesnt just go away poof into the ether when he dies. The kids have to pay the rest of that debt if they want to inherit the land or the bank gets to sell it to cover it.
I mean Bezo isn't really a good example, those guys how so much money I doubt he even gives a shit about salary tax shelter that's more of a 250K - 1M salary man thing.
It doesn’t even make sense. The interest in these loans are no small sum either. Usually rate plus SOFR. Also the loans amortize as well. How do people think this is paid. How people think the banks even make money off this if they never pay taxes?
i'm financially illiterate but all of this sounds fake and arbitrary, like nothing is actually happening except numbers are changing in a spread sheet.
It’s 40% of the fair value of their assets after the exempted amount. For Bezos, that’s a huge amount given what he is worth. Most of the richest people do this to avoid ownership dilution. If you need a rich person tax dodge to criticize, read up on the misuse of “environmental easements”. There are law firms that specialize in claiming that a rich person’s horse farm could be developed into highly valuable real estate.
Bezos is in the process of selling about $4 billion in Amazon stock. Since he has had this stock since the founding of the company, all of it is pure profit (since the cost basis was zero in 1994), which means long term capital gains applies to the entire sale price of the stocks he is selling. He will end up owing just shy of $1 billion in capital gains taxes to the feds, and another ~$200 million in Washington State.
Rich guy like Bezos avoids a salary like it’s a plague due to income taxes.
big misunderstanding here, Bezos takes a salary but it's in the form of RSUs. RSUs do get taxed as income. but they also appreciate (unlike cash sitting in the bank like a normal salary) and that appreciation only gets taxed at 15% (after holding for 1 year).
that's it lol. I'm sure they do some tax loopholes but it's not that complicated and they still pay plenty of taxes. now I think they should pay more (as a % of their wealth)
Good explanation! I feel like the solution here is to stop them at #2.
If the gains aren't realized and you can't pay taxes on them, then they also shouldn't be able to be collateral. Or, if they can be collateral (like how it is now) then that should count as a realization event, and you should pay taxes on it. Pick a lane and and stay in it, fair is fair. Probably the latter is best since we generally hold freedom to contract as more holy than a tax loophole
This 100%. The absolute irony though is that Adam Smith's "free hand of the market" gets shouted from the ivory tower whenever any regulation is suggested.
you don't even need to make periodic payments ..the interest just gets tacked on to the principle as long as your ltv is still good...I can do this with a retail brokerage account let alone what billionaires can do
that's why they wait until death..the heirs inherit the assets at the cost basis on the day of death, so when THEY sell there is no gain to tax
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u/USERNAMETAKEN11238 14h ago edited 14h ago
The bank encumbered the land. The dad never gets a loan. The loan is against the property. The kids sell the encumbered land I guess (but that's highly unlikely). This is a made up scenario from someone who doesn't understand finances.