California Governor Gavin Newsom has called for a national tax on billionaires, taking direct aim at a tax-planning technique known as “buy, borrow, die” that allows some of America’s wealthiest people to fund their lifestyles for years without paying income tax on their gains.
According to CBS News, the strategy involves three steps: wealthy investors buy assets such as stocks, property or art that are expected to rise in value; they then borrow against those assets as collateral to cover living costs, since loan proceeds are not treated as taxable income; and, when the owner eventually dies, the assets pass to their heirs at their market value at the time of death, wiping out any capital gains tax that would otherwise have been owed on decades of growth. The Wall Street Journal has reported that the approach has previously been used by cable billionaire John Malone, as well as Tesla chief executive Elon Musk, who last month became the world’s first trillionaire following the initial stock sale of SpaceX.
Newsom set out his position in a Substack post published on 26 June, describing the manoeuvre as a “tax-free lifestyle loan” available only to the very richest Americans, and calling on Congress to shut it down. He argued that the wealthy operate under “their own private tax code full of loopholes and exemptions that most people have never heard of,” and said politicians in Washington had long been relied upon to protect it quietly. Alongside banning the practice, he proposed a national minimum tax on individuals worth more than $100 million, modelled on what he called a “modern Buffett Rule” — the principle that the very wealthiest should pay at least the tax rate borne by their own employees, according to CBS News and CNBC.
The timing has drawn scrutiny. CNBC reported that Newsom, widely regarded as a likely contender for the Democratic presidential nomination in 2028, made the proposal even as he confirmed he intends to vote against a separate, state-level billionaire wealth tax due to appear on California‘s ballot in November. That measure, backed by the healthcare union SEIU-UHW as part of the Billionaire Tax Now Coalition, would impose a one-off 5 per cent levy on the assets of the roughly 250 billionaires living in the state. Newsom has argued a state-by-state approach risks pushing wealthy residents out of California and that the money would not go toward the priorities he favours, telling readers that the fight to raise taxes on the wealthy “is not one we should be fighting state by state.” Critics, including California congressman Ro Khanna and commentator David Sirota, have pointed out that Newsom’s federal plan is a minimum income tax rather than a wealth tax, meaning — unlike the measure he opposes at home — it would not reach the unrealised investment gains that make up the bulk of most billionaires’ fortunes.
Despite the political attention the “buy, borrow, die” strategy has attracted, the evidence suggests it may not be the primary driver of the wealth gap. An analysis by the nonpartisan Tax Policy Center, examining two decades of borrowing by the wealthiest 1 per cent of US households, found the strategy accounted for only 1 to 2 per cent of their economic income. “The ‘billionaires exploit buy-borrow-die more than anyone else’ narrative isn’t well supported,” Adam Michel, director of tax policy studies at the Cato Institute, told CBS News, adding that the very rich generally spend less than their taxable income and therefore have little need to borrow against their gains. He described the practice as a “limited problem.” University of Michigan law professor Edward Fox and Yale law professor Zachary Liscow, writing for the Tax Policy Center on 15 June, concluded that the ultra-wealthy more typically build fortunes simply by holding onto appreciating assets — since US tax law does not tax capital gains until an asset is sold — allowing gains to compound untaxed for years. “The dominant tax strategy of the super-rich isn’t some exotic loan-against-stock scheme,” they wrote, noting that the wealthy instead save a large share of their taxable income while their unrealised gains grow.
That growth has been substantial. The progressive Institute for Policy Studies has calculated that the United States’ 905 billionaires held a combined $7.8 trillion as of September, up more than 25 per cent on the previous year. Newsom’s Substack post also pointed to a looming $124 trillion intergenerational transfer of wealth over the next two decades, which he warned could entrench what he called “a permanent American aristocracy of inherited wealth” unless inheritance rules are rewritten.
Momentum for taxing the wealthy differently has been building at state level. Massachusetts has applied a 4 per cent surtax to residents earning more than $1 million a year since 2023, and Washington state introduced a comparable tax on high incomes earlier this year. At federal level, Democratic Senator Elizabeth Warren introduced a bill in March that would impose an annual 2 per cent tax on the net worth of households and trusts above $50 million, with a further 1 per cent levy on billionaires, alongside a 40 per cent “exit tax” on anyone worth more than $50 million who renounces US citizenship to avoid it. Economists Emmanuel Saez and Gabriel Zucman of the University of California, Berkeley, have estimated the plan could raise $6.2 trillion over a decade. However, the Tax Policy Center has noted that taxing unrealised gains is likely to face constitutional challenges, and Fox and Liscow argue a simpler alternative — raising ordinary and capital-gains tax rates on top earners — could raise significant revenue without the legal uncertainty of a wealth tax.
The proposal has drawn mixed reaction from within the industry it targets. Amazon founder Jeff Bezos told CNBC that if the practice amounts to “a true loophole,” it should be closed. Not everyone in the technology sector has been as receptive: writing on X, Trump administration adviser David Sacks accused Newsom of aligning himself with the “DSA-adjacent” left rather than striking a deal to head off the California ballot measure, predicting political fallout ahead of November’s vote.
