Gavin Newsom wants to ban the "buy, borrow, die" tax strategy. Here's what it is.

Key Points:

• California Gov. Gavin Newsom has called for closing the "buy, borrow, die" tax loophole, a strategy used by some ultra-rich individuals to avoid capital gains taxes by borrowing against appreciating assets instead of selling them, and passing those assets to heirs with a stepped-up tax basis.
• The strategy allows wealthy investors to use loan proceeds tax-free and avoid capital gains taxes on inherited assets, but analysis from the Tax Policy Center suggests it accounts for only 1-2% of the top 1%’s economic income, indicating limited use among billionaires.
• Experts argue that the main way the ultra-rich build wealth is by holding onto assets and allowing unrealized gains to compound without triggering taxes, rather than extensively borrowing against their wealth.
• As billionaire wealth grows, some states have introduced new taxes on high earners or assets, but Newsom advocates for a federal billionaire’s tax to prevent wealthy residents from relocating and to address wealth concentration nationally.
• Proposed federal measures, like Sen. Elizabeth Warren’s wealth tax bill, face legal and political challenges, with some experts suggesting raising ordinary and capital gains tax rates as a more feasible alternative to taxing unrealized gains.