Buy, Borrow, Die

There's a three-word strategy that explains how billionaires avoid taxes. It's called buy, borrow, die.

Buy: you put your money into assets — stocks, real estate, businesses. They grow in value, but you never sell. If you don't sell, you don't owe income tax. Your wealth can grow by billions and the IRS gets nothing.

Borrow: Need cash? Don't sell — that would trigger a tax bill. Instead, borrow against your assets. Banks will lend you millions at low interest when you've got a billion in collateral. And borrowed money isn't taxed.

Die: When you pass away, all those gains you never paid taxes on disappear, thanks to something called the stepped-up basis. Your heirs inherit everything at today's value, tax-free. And the cycle starts over.

ProPublica found that Jeff Bezos paid zero federal income tax in 2007 and 2011. Elon Musk paid zero in 2018. Not because they broke the law — because the law was written this way.

President Biden proposed closing this loophole. Even with his own party in control of Congress, it couldn't get done. You pay taxes on every paycheck. They found a way to never get one — and nobody in Washington has been willing to change it.

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What is buy, borrow, die? The strategy was described by tax law professor Edward McCaffery and popularized by ProPublica's 2021 investigation "The Secret IRS Files." Wealthy individuals accumulate assets (buy), borrow against them to fund their lifestyles without triggering taxable events (borrow), and upon death, the stepped-up basis provision (IRC Section 1014) resets the cost basis to current market value, eliminating all unrealized capital gains (die). The cycle then repeats for the next generation. (ProPublica, June 8, 2021; CBPP)

The ProPublica IRS Files. ProPublica obtained IRS data covering thousands of the nation's wealthiest people over more than 15 years. Key findings: Jeff Bezos paid zero federal income tax in 2007 and 2011. Elon Musk paid zero in 2018. Michael Bloomberg paid zero in multiple recent years. George Soros paid zero three years in a row. The 25 richest Americans saw their wealth rise $401 billion from 2014-2018 but paid a combined effective tax rate of just 3.4%. (ProPublica; Boston Globe; Snopes)

Borrowing against wealth. ProPublica reported that Musk pledged approximately 92 million Tesla shares as collateral for personal loans. Oracle CEO Larry Ellison had a $10 billion credit line secured by Oracle stock. Because borrowed money is not income, these loans generate no tax liability — even though they function exactly like income for the borrower. (ProPublica; CBPP)

The stepped-up basis loophole. IRC Section 1014 resets the cost basis of inherited assets to fair market value at the time of death. All unrealized capital gains accumulated during the original owner's lifetime are permanently eliminated. The provision was drafted in 1927 by Treasury Secretary Andrew Mellon — the son of one of the wealthiest families of the era — who "loathed the inheritance tax." (NBC News; Americans for Tax Fairness)

Biden's proposal to close the loophole. In April 2021, President Biden's American Families Plan proposed eliminating stepped-up basis for gains over $1 million ($2 million for couples), combined with raising the capital gains rate from 20% to 39.6%. The plan included exemptions for family farms and businesses where heirs continued operating them. Despite Democratic control of the House, Senate (50-50 + VP), and White House, the proposal was dropped during Build Back Better negotiations. The Inflation Reduction Act (August 2022) did not include it. The STEP Act (Sensible Taxation and Equity Promotion Act), a standalone Senate bill, also never advanced. (White & Williams; Center for Rural Affairs; Georgetown Law)

A Patriotic Millionaire's perspective. Eric Schoenberg, a member of the Patriotic Millionaires, told NBC News that he inherited more than $10 million in the 1990s from his grandparents' shares of a family tech company. He supports eliminating the stepped-up basis: "I did nothing to earn this money... the least I can do is pay taxes on it." (NBC News)

Related PM scripts: The Stepped-Up Basis (PM Script 5) covers the "die" step in more detail. Who Actually Pays (PM Script 10) covers the broader tax rate inversion.