Our tax system requires most Americans to pay taxes on every paycheck, while allowing others to access wealth tax-free by borrowing against appreciated assets. This strategy can indefinitely defer—or even eliminate—tax obligations that would apply to everyone else.
No need for taxable income. While most Americans pay taxes on every paycheck, individuals with substantial assets can minimize tax liability by taking little or no W-2 income.[10]
Borrowing instead of selling. Rather than selling assets and triggering capital gains tax, individuals can fund expenses by taking out loans using their appreciated stock as collateral.[12]
No sale = no capital gains tax. By borrowing against assets instead of selling them, individuals can access substantial funds without triggering any capital gains tax obligations.[13]
The final step: inheritance. When assets pass to heirs, they receive a "stepped-up basis" to current market value. This effectively erases unrealized gains that accumulated during the original owner's lifetime, allowing significant appreciation to escape taxation entirely.[14]
Real-World Example:
In 2022, Elon Musk financed his $44 billion Twitter acquisition partly with $13 billion in loans secured by Tesla stock.[11] Under current tax law, this transaction generated no capital gains tax liability despite effectively monetizing stock appreciation. If these loans remain outstanding at death, heirs would receive the stock with a stepped-up basis, and the appreciation that occurred during Musk's ownership would never be taxed.
Tax Inequality: Billionaires live tax-free by borrowing against their stock instead of selling it or taking income. They access billions for personal spending without paying a dime in capital gains tax, while ordinary Americans pay taxes on every paycheck.
Constitutional Solution: Our proposal is grounded in well-established tax principles like substance-over-form, constructive receipt, and economic substance doctrines.
Preserves Investment: This reform doesn't raise capital gains tax rates for anyone or tax unrealized gains. It simply ensures that when billionaires use stock wealth for personal enjoyment, they pay tax like everyone else.
Prevents Tax Escape: Eliminates the step-up in basis for stock used in tax-avoidance loans, ensuring gains aren't permanently untaxed when passed to heirs.
Important note: Our proposal does not increase capital gains tax rates for anyone. It only ensures that when wealth is effectively used as income through large loans, it's taxed once—just like income is for everyone else.
You take out loans over $10 million secured by publicly traded stock
You use those loans for personal consumption (not business investments)
You're using this strategy specifically to avoid paying income or capital gains tax
For the vast majority of Americans:
This proposal will have no impact on your taxes. It doesn't raise tax rates, create new taxes on unrealized gains, or affect ordinary investment strategies. It only addresses a specific tax avoidance strategy used primarily by those with assets worth hundreds of millions or billions of dollars.
Loans over $10 million, secured by publicly traded stock, and used for personal consumption will be treated as constructive sales, triggering capital gains tax.
If the loan is later repaid by selling stock, taxpayers receive a credit for tax already paid, ensuring no double taxation occurs.
Stock-backed loans over $1 million must be reported to the IRS with declarations of intended use and line-item breakdowns of how funds are spent.
Step-up in basis is denied on stock used in loans taxed under this proposal. Original basis is retained by heirs, ensuring gains aren't permanently untaxed.
Tax-free refinancing is allowed only under specific conditions, including no new cash withdrawals and limited refinancing frequency.
Tax applies even if personal use is disguised through trusts, shell companies, related parties, or offshore structures. The IRS may recharacterize transactions to preserve economic substance.
From Gregory v. Helvering (1935)[1]: Tax outcomes are determined by the economic reality of a transaction, not its legal form.
From 26 CFR §1.451-2(a)[2]: Income is considered received when it is made available to the taxpayer, even if not physically received.
From IRC §7701(o)[3]: Transactions must change the taxpayer's economic position in a meaningful way and have a substantial non-tax purpose.
Recent decisions, such as Moore v. United States (2024)[4], support broader interpretations of income when wealth is accessed. These doctrines empower Congress and the IRS to treat large, personal-use loans secured by stock as constructive realizations.
The tax avoidance strategy explained
The strategy begins with investing heavily in assets that grow in value over time, like stocks, real estate, and private businesses.
Example: Elon Musk
Holds the majority of his wealth in Tesla and SpaceX shares, which have appreciated dramatically over time without triggering any tax liability until sold.[10]
* Assuming 10x growth every decade
No taxes paid on this growth until assets are sold
Our proposal denies step-up in basis on stock used in these large personal-use loans. Original basis is retained by heirs, ensuring gains aren't permanently untaxed.
This reform doesn't raise rates. It simply ensures that when individuals use stock wealth for personal enjoyment, they pay tax like everyone else. It preserves investment incentives while stopping tax-free spending and intergenerational tax escape.