Low lending rates and rising stock prices give ultra-rich Americans a special advantage: they can use loans to finance their lifestyles and thus minimize their tax burden. The “buy, borrow, die!” Strategy is not a pipe dream, it is lived practice. Bank executives reported this summer that wealthy clients borrowed more money than ever before. A large part of the loans were secured with securities. By borrowing, bank customers who need cash avoid selling securities in bull markets. Because then a capital gains tax would be payable on the price gains.
For the borrower, the calculation is easy. As long as the prices of their securities rise faster than the interest on loans, they win without having to pay taxes. The strategy is not without risk: share prices can fall, lending rates rise. The American public is currently discussing the tax strategy of the entrepreneur Elon Musk. The boss of Tesla and SpaceX receives stock options instead of a salary. At first glance, it tastes like that tax-minimizing strategy of the rich.
But Musk's stock options must be taxed the moment he exercises them. Musk's Twitter campaign obscures the fact that he apparently needs cash to pay off a handsome tax bill in the coming year. However, Musk's financing strategy does not provide an example of the fact that the income from unrealized gains must be taxed if they accrue to the particularly wealthy.
Regardless of Musk, it turns out that under the prevailing market conditions, the rich in the USA have a tax-saving option that is not available to normal wage earners.
You decide when and whether to pay income tax through appropriate securities management.
In addition, with appropriate constructions, heirs are largely spared taxation.
Even if you have good reasons against a wealth tax, it is difficult to overlook the imbalance in America's tax system in favor of the rich.