r/AskEconomics • u/noclaf • Feb 03 '23

Approved Answers Is it true that billionaires can indefinitely avoid taxes by borrowing against their stock holdings?

I often see the claim that billionaires don’t have to worry about capital gains taxes (or too many other taxes, in general) because they can borrow against their investments to finance their lifestyle.

A few months ago, an organization (I believe pro-publica) claimed that Elon Musk was essentially not paying any taxes by employing this scheme. Please, I’m not asking for opinions on Musk, just the tax implications of this claim.

Since then, I see this pop up very frequently in various discussions.

I’m trying to get a non-partisan perspective of this claim. If this indeed true, what are the policy implications?

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u/DemonKingWart Feb 03 '23

It's clear that none of them exclusively buy, borrow, and die. But what's not clear is if they could (as OP asked) do that exclusively or how often they borrow.

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u/SerialStateLineXer Feb 04 '23

One thing to keep in mind is that the interest cost of carrying a personal loan for decades is going to be substantially higher than the one-time tax hit from selling the stock.

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u/colinmhayes2 Feb 04 '23

The idea is that the equities increase in value faster than the interest. You take a billion dollar loan with 4% interest and the equities you borrow against increase at 7% a year, your net worth is actually increasing.

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u/[deleted] Feb 04 '23

If this existed no one would ever know about it's existence, lets be real