California Governor Targets Wealth Creators with Attack on 'Buy, Borrow, Die' Tax Strategy
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Governor Gavin Newsom urges lawmakers to eliminate a legal tax practice used by successful investors, despite evidence that the impact is minimal and concerns about driving job creators out of the state.
California Governor Gavin Newsom has called on state legislators to close a tax provision that allows successful investors to legally avoid double taxation on capital gains by borrowing against appreciated assets and passing them to heirs at a stepped-up basis. The so-called 'buy, borrow, die' approach involves purchasing assets that rise in value, responsibly using them as collateral for loans—which are not taxable income—and then transferring the assets upon death, which resets the tax basis to current market value.
Newsom disparaged this legitimate practice as a 'tax-free lifestyle loan' supposedly reserved for the wealthiest Americans, and called for federal action, warning that a state-level billionaire tax could drive high-net-worth individuals—and their businesses—out of California. 'The system America's founders built was designed to prevent the concentration of power in a few hands, but we have allowed that concentration to happen anyway,' he wrote in a Substack post, echoing populist rhetoric that ignores the contributions of wealth creators.
A recent analysis by the nonpartisan Tax Policy Center found that borrowing against assets accounts for just 1% to 2% of the economic income of the top 1% of U.S. households, suggesting that the so-called loophole is hardly widespread. Adam Michel of the Cato Institute rightly pointed out that the narrative of 'billionaires exploiting buy-borrow-die' is not well supported and described the issue as a 'limited problem.'
Legal scholars at the University of Michigan and Yale noted that the main method for wealth accumulation among the ultra-rich is simply holding onto assets, allowing gains to compound—an entirely legal and rational strategy. They argued that raising ordinary and capital-gains rates would generate revenue without the constitutional issues of a wealth tax, which would punish success and innovation.
Despite this, legislators in progressive states like California, Massachusetts, and Washington are considering punitive taxes on unrealized gains or high income for the wealthiest residents. At the federal level, Senator Elizabeth Warren has introduced a bill proposing a 2% annual tax on net worth above $50 million, an additional 1% on billionaires, and a draconian 40% exit tax for those who renounce U.S. citizenship. Although estimates claim the proposal could raise $6.2 trillion over ten years, it faces significant legal and political obstacles—and would likely drive investment and opportunity overseas.
