I think it is useful to point out that the conditions under which those loans make any sense are incredibly narrow. It is far from the norm because it doesn’t pencil out in pure financial math. Wealthy people are not stupid, and the notion that this is being widely used as a tax avoidance measure tacitly makes that assumption. Studies seem to indicate that the prevalence is so low as to round to zero. There are many practical reasons to do it at the margin as a cashflow management exercise but not as a way of generating tax-free income.

The interest on those loans is taxed as income which feeds back into the model.