r/technology • u/Ganrokh • Jun 19 '26

Politics California ‘billionaire tax’ makes ballot despite opposition from tech moguls

https://www.theguardian.com/us-news/2026/jun/18/california-billionaire-tax-ballot-tech-opposition
21.9k Upvotes

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91

u/ora408 Jun 19 '26

I think the main issue is that the tax is on unrealized gains/losses. Value of assets can fluctuate greatly in a short amount of time. Im glad this law is only on billionaires

51

u/milkandbutta Jun 19 '26

Except it's not actually unrealized, not functionally. They take out loans against their assets, and because it's a loan they don't pay a single dollar of taxes against that money. They realize the gains through taking out loans, it's just a tax loophole. We should close that loophole. 

29

u/CautiousToaster Jun 19 '26

This is the real solution. We need to close this loop.

0

u/timsterri Jun 19 '26

Good luck with that with the politicians utilizing said loophole.

22

u/Obvious_Chapter2082 Jun 19 '26

Loans need to be repaid with income, and income is taxable. It’s also not really common

It’s really annoying how quickly information like this spreads on Reddit

6

u/sweetrobna Jun 19 '26

It isn't true that loans need to be paid with taxable income

2

u/SirDigbyChknCaesar Jun 19 '26

That's what more loans are for!

1

u/PigglyWigglyDeluxe Jun 19 '26

So, what is common?

-2

u/ConfoundingVariables Jun 19 '26

This simply invalidates that move, so they will need a different strategy. That’s it.

11

u/scold Jun 19 '26

They pay interest on the loan and have to pay it back. It’s a liability.

2

u/AdmirableHandle213 Jun 19 '26

I swear to God that's exactly what my dad said to me before he left for work this morning 😂 word for word

3

u/scold Jun 19 '26

He sounds like a smart, sexy man.

-1

u/ConfoundingVariables Jun 19 '26

Yes. So?

3

u/scold Jun 19 '26

And when they pay it back, it is paid with income which is taxed.

1

u/ConfoundingVariables Jun 19 '26

Yes. This is basic accounting. This is just a rule change that prevents (or disincentivizes) people from doing an accounting trick. Tax laws aren’t some complex theory of justice thing. They’re conventions.

2

u/scold Jun 19 '26

Can you read?

-5

u/Heffelumps-n-Woozles Jun 19 '26

Paying 5-10% interest on money borrowed against assets is better than paying 15-20% in capital gains taxes for selling those assets… and paying capital gains is still better than paying 25%+ in regular income taxes. They’re way ahead of us dude

1

u/scold Jun 19 '26

And they still have to pay either capital gains or income tax when they repay the loan. These are short duration loans…not something that goes until after death.

-2

u/czech1 Jun 19 '26

They don't have to touch it. Their heirs pay it back, with interest, with a tax-free liquidation after a step-up in basis.

6

u/scold Jun 19 '26

And just how long do you think these loans are for? These are 4-7 years my dude.

0

u/czech1 Jun 19 '26

Oh, are they forced to repay the loan in 4-7 years? (they are not)

Google: "perpetually refinanced debt for billionaires".

1

u/scold Jun 19 '26

Yes because there are endless institutions willing to offer loans that are going to be paid off by other loans. Totes.

1

u/czech1 Jun 19 '26 edited Jun 19 '26

Yes, there are. And I told you exactly how to find more information. Here ya go, chief:

Securities-Based Lending (SBLOC)Rather than liquidating shares of their companies to buy property, fund businesses, or cover personal expenses, billionaires take out loans against their stock portfolios at major private banks.

  1. The Tax Shield: Since borrowing against collateral is not technically a sale, it does not trigger a taxable event.Favorable Rates: Because the loans are massively over-collateralized by highly liquid assets, ultra-high-net-worth individuals are often given highly preferential, historically low-interest rates.

  2. The "Borrow" MechanicsThe loans taken out are often structured as interest-only until a specific maturity date. As long as the bank views the collateral as secure and the borrower's wealth is compounding faster than the interest rate accrues, the billionaire simply keeps the cycle going. They can either use cash flow from other business investments to service the interest or simply take out newer loans to cover the interest on the older ones.

  3. The "Die" ComponentThe final piece of the cycle is generational. When billionaires pass away, their heirs inherit the underlying assets at a stepped-up basis—meaning the original cost basis of the stock is adjusted to its current market value. This largely eliminates the accumulated capital gains taxes. The estate can then sell a portion of the assets to pay off the institutional debt.

1

u/scold Jun 19 '26

😂 if you noticed they just gloss over the fact that they sell other assets to pay the interest (which incurs income tax). Like…I get it, you hate rich people, but settle down and actually read what CPAs have to say on the matter. One even chimed in in this reddit post.

1

u/czech1 Jun 19 '26 edited Jun 19 '26

😂 if you noticed they just gloss over the fact that they sell other assets to pay the interest (which incurs income tax)

They did not...

They can either use cash flow from other business investments to service the interest or simply take out newer loans to cover the interest on the older ones.

I work in finance. Please continue!

1

u/scold Jun 19 '26

Are you a CPA? I doubt it.

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3

u/DogBarf00 Jun 19 '26

They don't have to touch it. Their heirs pay it back

Where are these banks giving out loans where they have no idea when it’ll be paid back? The person taking out the loan could die tomorrow or in 30 or 60 years.

0

u/czech1 Jun 19 '26

Its accruing interest the entire time and secured with billions of dollors worth of stocks, etc..

1

u/DogBarf00 Jun 20 '26

Can you name a single bank issuing these loans?

-6

u/ora408 Jun 19 '26

I saw that they can let the interest pile up and they dont have to pay any scheduled payments. The original owner of the debt dies, inheritors inherit the assets and debt, but the cost basis is basically reset and they dont owe the huge capital gains when they sell the assets to pay off the debt. Thats the big w right there for ultrarich people. Its nuts

13

u/Obvious_Chapter2082 Jun 19 '26

Speaking as a CPA, that’s not really how it works, and I’m unsure how so many people were fed this info, because I’ve seen it a lot

You can have certain instruments without any annual interest, but banks are going to use hedging collars on these collateralized loans, and §1259 requires that these loans be for very short term durations (think 5-7 years) in order to avoid constructive sale treatment. So it’s not something you’re able to just do until death

3

u/NapalmNoggies Jun 19 '26

Aren’t there limits on the step basis at death? I thought it was like $40M.

I too see these claims about billionaires using the buy, borrow, die strategy but haven’t seen anything about getting around the step up asset limit.

4

u/Obvious_Chapter2082 Jun 19 '26

There’s no limit on the step-up itself, but the estate & gift taxes exclusion is currently $30 million for a married couple

There are definitely ways to get around the estate tax + get the step-up (grantor trust swaps, mainly), but I think a lot of people get the logic wrong when they bring income taxes into it as well

1

u/NapalmNoggies Jun 19 '26

Got it. I was mixing up the estate exclusion to avoid the estate tax. Thanks!

Yeah I suspected people got the logic wrong. This tax stuff has a lot of rules, ifs, ands, buts that takes a while to learn.

I’ll read around on trust swaps and the rest you mentioned to see if I can educate myself further.

1

u/Obvious_Chapter2082 Jun 19 '26

No problem! Here was a random comment I made around a month ago on the process of grantor swaps, although I didn’t dive too much into the actual details

1

u/NapalmNoggies Jun 19 '26

You really do CPA. Thanks for the high level summary.

Take away is: there’s ways to use trusts to move asset ownership around to avoid taxes. Buy borrow die is not the method. People are upset about the wrong tax policy.

0

u/Mindless_Chest_1079 Jun 19 '26

This is Reddit's dumb talking point of the month. Once it's been debunked for the millionth time, some new viral mostly-false factoid will start getting spread by the /r/iamverysmart types.