But if you liquidate the loan payment every month, but the portfolio grows greater than the loan interest you are “making money” (not really until you actually covert to $)

If you liquidated the full loan amount up front, you get all of the tax now, and you lose leverage

Edit:

Let’s make an example. You have a 10MM portfolio.

You wanna buy a thing for a million dollars.

You sell like 1.3MM to cover tax.

Or you get a 10 year loan for 1MM with your 10MM portfolio.

Interest on the loan is 7%.

If your portfolio averages greater return over the life of the loan, you “make money”.

Here is an example product.

As you get higher the rates can come down a liiiitle bit, but they are very much tied to the federal funds rate as much is I’ve seen them.

Gaining in value isn’t an issue with avoiding taxes and, I suppose, eventually will result in more taxes being paid.

To make matters worse, theres a concept called "step up in basis" such that if structured correctly, the inheritors can pretend the cost basis of their portfolio is the current market value. So the parents shield the gains from taxes in life, pass on the portfolio, and the kids reset the tax obligation to zero.

"The concept of step-up in basis is actually quite simple. A trust or estate and its beneficiaries, or payable on death beneficiaries, get a step-up in basis to fair market value of the asset so received. That value is stepped up to the fair market value of the asset as of the date of death of the Decedent. This is true even if the beneficiary of the asset so transferred is a spouse of the Decedent." https://www.axley.com/publication_article/step-up-in-basis/

Not an expert, but having heard of it before & doing some research.. I'm sure there are more details, but if mere mortals like me understand it, I am sure the tax lawyers have even more esoteric methods now.

Being paid salary by employers, we can't structure our compensation to the most tax efficient forms.

The guys (almost always guys) at the top structure their pay to forms like stock or pass-thru or carried-interest, or whatever tax arb of the decade. Then they carry it forward, use trusts, borrow against stocks, and then hand it off to their kids when they die w/o tax.

They probably own enough houses, and have control of their schedule that they can stay out of CA/NY for 183 nights/year and avoid high state income tax too (while mandating RTO to high tax city/states for the rest of us).

Kind of a millionaires vs billionaires (or even decamillionaires) thing.

my tax is basically 0 every year, down from closer to 52% marginal in California (effective 40%)

if I was doing the same with W-2 income there would be almost nothing I could do

IIUC, the very wealthy have limited exposure to step up in basis because they use trusts.

Everyone else doesn't want to owe taxes when selling a house at market value they, e.g., inherited from a recently deceased loved one.

The policy is not insane. It's sufficiently popular that no politician touches it.

But stepping up the basis is insane and indefensible. It’s a heads I win tails you lose approach.

Basically you’re saying oh we know there are capital gains here but they are not realized so it’s not time to tax them yet and then the person dies they say just kidding those capital gains never happened.

It’s nonsense. Tax them at whatever rate makes sense if you want but don’t make a complete mockery of the concept of basis.

By creating different classifications of income and constantly tweaking the rules, we setup entire tax evasion industries catering to those who have control of their income streams & money to pay advisors.

There's lots of BS that estate tax exemptions are there to protect small farmers, but they constitute something like 0.002% of estate tax payers.

In the absence of a government monopoly on violence and functional government services, a highly paid business exec will need to live their life more like a mafioso or warlord. There's places in latin America where even what Americans would call "upper middle class" people need to hire security and worry about kidnapping and extortion plots.

Add to that things like rule of law, so that the government strongman can't suddenly declare your business anti-patriotic / illegal (China) & take your cash / put you in jail.

Then you have things like - copyright, trademark, etc systems that allow you & I to develop ideas as IP and the government allows us to protect it in court so that we can reap the benefits.

So no, I don't think "tax is theft" and that we should live in some Mad Max world.

People who denigrate high trust society & rule of law do not understand how messed up living in low trust societies is.

Nor am I thoroughly impressed with the idea that we need a permanent overclass who is able to pass wealth down untaxed across generations, especially given all the trust fund underachievers I've met in my life in NYC.

All capital gains taxes are heads-govt-wins. The step up is simply not applying that insanity, for once, at death. That is, it's marginally sane.

The problem with that idea is that it’s wrong.

Suppose you have exactly 1 million and must pay 1 million in taxes on year 0. That means you’re left with 0$.

Now suppose you can defer exactly 1 year, so you owe 1 million + taxes on your interest in year 1. Taxes on that interest are < 100% so you now have > 0$. That’s equivalent to lowering your tax bill even if nominally you eventually pay more.

But what happens if you can avoid paying taxes for say 10 years or 100? Delay long enough and for all practical purposes the actual tax disappears.

With 7% interest you end up paying the same tax as initial liquidation in 10 years so it’s not perpetual. And you eventually pay tax on the gains so even though you made money, the government eventually gets their money and ends up with a larger total.

All useful forms of tax deferment are tax cuts, otherwise people wouldn’t use them.

https://www.financialsamurai.com/how-do-millionaires-and-bil...

This strategy could cut your tax burden if you hold short term assets into long term category.

You could also strategically take losses as well which could also reduce tax burden.

I borrowed just shy of a million dollars to buy my house. That money sure wasn't income...