Newsom targets billionaire tax loophole, backs federal buy-borrow-die crackdown

Gavin Newsom used a June 26 proposal for a national “billionaires’ tax” to press a broader crackdown on the ultra-rich tactic known as “buy, borrow, die.” He said wealthy people should not be able to borrow against stock portfolios to finance luxury lifestyles without paying tax. He argued the fight belonged in Washington because the tax system that enables the strategy was built at the federal level, not in California.

A billionaire buys and holds stock, borrows against that portfolio instead of selling shares, and uses the loan proceeds to live on while deferring capital-gains tax. Under current federal law, gains are generally taxed when assets are sold, while inherited assets usually get a step-up in basis at death that resets the taxable value to fair market value and can wipe out taxes on appreciation built up during the owner’s lifetime. Tax Policy Center specialists consider buy-borrow-die real even if the larger shelter is the step-up in basis itself.

Supporters of closing the loophole argue the strategy lets the very wealthy turn paper gains into untaxed spending power. Critics contend proposals aimed at it would be hard to enforce, could distort investment behavior, and might simply push the richest households into new financial structures. The Tax Policy Center says the top 1% borrow relatively little compared with the size of their unrealized gains, a sign that much of the benefit comes from the tax treatment of inherited wealth rather than borrowing alone.

Newsom’s comments came as California’s own billionaire tax fight moved ahead. The ballot measure would impose a one-time 5% tax on the wealth of California billionaires and, by supporters’ estimate, raise about $100 billion. Ninety percent of the money would go to health care and 10% to K-12 education. The initiative survived efforts to keep it off the November 2026 ballot, and the state attorney general filed the official ballot title in 2025.

SEIU-UHW backs the tax to help finance health care, while Newsom opposes it. California’s Legislative Analyst’s Office has warned that billionaires may change their behavior in ways that could reduce state income-tax revenue as the state faces Medi-Cal funding pressure and a roughly $352 billion budget for 2026-27.