Not income you earned, not profits you cashed out—but wealth that exists only on paper.  That is the central tension behind proposals to tax unrealized gains, often described as a form of wealth tax.  Supporters see it as overdue modernization.  Critics see it as an invitation to economic distortion.  Both sides are right—just not in the same ways.

At its core, the debate is not about whether the wealthy should pay taxes.  It is about when wealth becomes real enough to tax—and what breaks when you ignore that distinction.

Unrealized Gains vs. Wealth Taxes: A Critical Distinction

Although often used interchangeably in public debate, unrealized gains and wealth taxes are technically distinct concepts.

• Unrealized Gain refers to the increase in value of an asset—such as stocks, real estate, or a privately held business—that has not been sold.  Until the sale, the gain exists only on paper.
• A Wealth Tax applies to the total value of assets owned, regardless of when they were purchased, whether they appreciated, or whether they generate income.

When policymakers discuss taxing “unrealized gains,” they usually propose a targeted wealth tax on appreciation, aimed primarily at high-net-worth individuals whose wealth is concentrated in appreciating assets rather than in wages.

The motivation is clear: some of the wealthiest individuals in the world legally avoid capital gains taxes by never selling assets, instead borrowing against them and holding until death, when the tax basis is reset.  This strategy, often summarized as “Buy, Borrow, Die,” is lawful, rational, and increasingly controversial.

The Intended Consequences: Why Advocates Support the Policy

Proponents of taxing unrealized gains argue that the current tax system is ill-suited to a modern economy in which wealth is often passive, compound, and untethered from labor.

1.  Closing the “Buy, Borrow, Die” Loophole

If wealth can fund a lifestyle, advocates argue, it should also fund taxes.  By taxing appreciation annually, governments can collect revenue that would otherwise be lost under stepped-up basis rules.

2.  Reducing Extreme Wealth Concentration

Unrealized gains taxes are typically framed as applying only to ultra-high‑net‑worth households.  The goal is not to tax savings, but to slow the compounding advantage of vast portfolios that can grow tax-free for decades.

3.  Generating New Government Revenue

Supporters argue that taxing unrealized gains creates a revenue stream that avoids raising income or payroll taxes on middle-class workers, thereby making it politically attractive and rhetorically powerful.

4.  Modernizing the Definition of “Income.”

In a digital economy, value creation no longer looks like a paycheck.  Founders may hold billions in equity while reporting modest incomes.  Advocates see unrealized gains taxes as an update to a 20th-century tax code for a 21st-century economy.

“If wealth confers economic power today, the tax system should acknowledge that reality.”

The Unintended Consequences: Where Theory Meets Friction

Economists tend to agree on one thing: taxing unrealized gains may solve one problem by creating several others.

1.  Liquidity Crises and Forced Selling

A founder may be “worth” $5 billion on paper while having little actual cash.  An annual tax bill forces a choice: sell shares, borrow more, or surrender control.  Forced selling can depress share prices, harm other investors, and inject volatility into markets—including retirement accounts.

2.  Valuation Nightmares

Public equities are easy to price.  Everything else is not.

How do you annually value:

• A family-owned manufacturing company?
• A minority interest in a private Partnership's?
• Art, collectibles, intellectual property, or land with development potential?

The result is a constant cycle of appraisal disputes, litigation, and compliance costs, disproportionately benefiting lawyers, accountants, and consultants rather than the public treasury.

3.  Capital Flight and Behavioral Distortion

Wealth is mobile.  People are, too.

High‑net‑worth individuals may change residency, relocate businesses, or structure ownership to avoid exposure.  The tax base shrinks precisely where the tax is meant to expand, creating a self-defeating feedback loop.

4.  The Refund and Volatility Problem

Markets move both ways.

If an investor pays tax on a $10 million unrealized gain in year one, then suffers a $15 million loss in year two, what happens next?

• Does the government issue refunds?
• Allow carrybacks?
• Absorb massive revenue volatility?

Governments are not structured to underwrite market risk, yet an unrealized gains tax effectively forces them to do so.

Taxing unrealized gains means socializing upside risk without fully acknowledging downside exposure.

Comparison: Realized vs. Unrealized Taxation

The existing system is imperfect, but it aligns taxation with liquidity.  Unrealized taxation breaks that alignment.

The Deeper Question: What Is “Income,” Really?

At its heart, the debate over unrealized gains is philosophical.

Is income:

• What do you earn?
• What do you receive?
• Or what you could access if you chose to sell?

Once taxation moves from realized events to hypothetical valuations, the tax system becomes predictive rather than transactional.  That shift has consequences—not only economic but also constitutional, administrative, and cultural.

Conclusion: A Powerful Tool with Sharp Edges

Taxing unrealized gains is not inherently irrational.  It is an attempt to address real asymmetries in wealth accumulation and tax avoidance.  But it is also a blunt instrument applied to a delicate system.

The policy promises fairness, but risks volatility.  It promises revenue, but invites avoidance.  And it promises simplicity in rhetoric while delivering complexity in execution.

The challenge is not whether wealth should be taxed, but whether taxing wealth before it exists in cash ultimately erodes the very stability on which taxation depends.

In economics, as in medicine, every intervention has side effects.  The question policymakers must answer is whether the cure is milder than the disease.

“Buy, Borrow, Die”

What Is the “Buy, Borrow, Die” Strategy?

“Buy, Borrow, Die” is a legal wealth preservation strategy used primarily by very high-net-worth individuals to minimize or permanently avoid capital gains taxes.

It relies on three core features of the U.S. tax code:

•   Capital gains are taxed only when assets are sold
•   Loans are not taxable income
•   Assets receive a “step‑up in basis” at death

Put simply, the strategy allows wealthy individuals to live off their wealth without ever selling it—and therefore without triggering income or capital gains taxes.

Step 1: Buy (Acquire Appreciating Assets)

The individual accumulates assets expected to grow significantly over time, such as:

• Public stocks
• Private companies
• Real estate
• Venture investments

Key point:

As long as the asset is not sold, any increase in value is an unrealized gain, which is not taxable.

Example:

• Buy stock for $10 million
• Stock grows to $100 million
• No tax is owed unless the stock is sold

Step 2: Borrow (Live on Loans, Not Income)

Instead of selling assets to fund living expenses, the individual borrows against them.

Common methods:

• Securities-backed lines of credit
• Margin loans
• Private bank lending secured by equity or real estate

Why this matters:

• Loan proceeds are not considered taxable income
• Interest rates for wealthy borrowers are often very low
• Assets continue to appreciate while serving as collateral

Example:

• Borrow $5 million against the stock portfolio
• Use a loan for lifestyle, investments, or business ventures
• No capital gains tax triggered

In effect, wealth becomes spendable without ever becoming taxable income.

Step 3: Die (Step‑Up in Basis Eliminates the Tax)

At death, U.S. tax Law generally provides a “step‑up in basis.”

What that means:

• The asset’s tax basis resets to its market value at the date of death
• All prior unrealized gains are wiped out for tax purposes

Example:

• Original purchase price: $10 million
• Value at death: $100 million
• Heirs inherit with a $100 million basis
• If they sell immediately, capital gains tax = $0

Any outstanding loans are typically:

• Paid off by the estate, or
• Refinanced by heirs

Why the Strategy Is So Powerful

Buy, Borrow, Die converts economic power into tax-free cash flow.

This is why some billionaires report relatively modest taxable incomes despite enormous net worth.

Why It’s Legal (and Rational)

Nothing about the strategy violates tax Law:

• Capital gains taxes apply only upon realization
• Loans are not income
• Step‑up in basis is explicitly written into the tax code

From a financial perspective, it is rational optimization rather than evasion.

Why It’s Controversial

Critics argue that:

• The ultra‑wealthy can fund lavish lifestyles while paying little tax
• Wage earners are taxed immediately, while asset holders are not
• Large amounts of wealth may never be taxed at all

Supporters counter that:

• Assets are illiquid and risky
• Borrowing creates leverage and downside risk
• Estate taxes already address intergenerational wealth transfer (in theory)

How This Connects to Unrealized Gains Taxes

Proposals to tax unrealized gains are direct responses to “Buy, Borrow, Die.”

The logic:

If wealth can be borrowed against and spent, it should be taxed before death—not erased by it.

The problem:

• Taxing unrealized gains introduces liquidity, valuation, and volatility risks that do not exist under the current system

Bottom Line

“Buy, Borrow, Die” is not a loophole in the traditional sense—it is the natural outcome of how capital gains, lending, and estate rules interact.

The real policy question is not whether the strategy exists, but whether:

• The tax code should continue to favor realization over valuation, or
• Governments should tax wealth before it becomes cash

That debate sits at the center of modern discussions about wealth taxes, unrealized gains, and the future of capital taxation.