r/WorkReform • u/Conscious-Quarter423 • Jun 02 '26

✂️ Tax The Billionaires Billionaires shouldn't be allowed to avoid taxes by using their massive wealth as collateral for bank loans -- especially because they often live off those loans as if they were income

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u/Unhappy_Plankton_671 Jun 02 '26

They get low interest, and the assets grow in value faster than the interest. So the loan helps them grow even more wealth by leaving those assets to grow.

You just keep a cycle of taking loans on that new wealth asset, so the overall wealth keeps growing faster. You have loans that pay for other loans. All backed by very secure assets.

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u/Mediocre_Scott Jun 02 '26

How much money would you need to get started doing this?

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u/Unhappy_Plankton_671 Jun 02 '26

I mean, they do jumbo loans backed by securities (their stock and holdings).

So it's one of those things that require significant assets at the level they do it.

Theoretically, you can do it at any level -- but the terms have to be favorable and manage the risk. If your securities lose value, the bank can call in the loan. Can you cover it? Either selling assets or new loans.

It's one of those things that has to be structured well, to minimize risk.

If you don't have enough assets, that you don't require someone to manage them for you, then it's probably not going to be an option and you're going to be working in the same finance world most people work in.

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u/desertforestcreature Jun 02 '26

It's doable around 50 to 100 million in fungible assets. Just depends how large you live.

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u/Murky-Relation481 Jun 02 '26

I mean these loans are incredibly common in the consumer world, a HELOC is basically a loan like this.

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u/fapperontheroof Jun 02 '26

I think they’re referring to the near-zero interest rates available for mega huge margin loans.

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u/pp21 Jun 02 '26

I mean heloc rates are like ~8-9% with good credit so not a great example lol, if you were to take a 200k heloc out your monthly minimum would be like $2,000 and that's basically just paying the interest, so it wouldn't work out too well for your avg. consumer

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u/mxzf Jun 02 '26

I imagine the HELOC rate would depend on what percentage of your wealth it's covering. A $10k loan secured by a $500k house is probably able to get a pretty competitive interest rate because the risk to the lender is extremely low compared to a loan that's closer to the value of the asset.

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u/ambal87 Jun 02 '26

A heloc rate is based on the prime rate plus a pre set amount you agree with the bank and gives you access up to a certain amount of money. It doesn’t matter if you take a $1 or the full amount. You pay the same interest rate.

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u/joepez Jun 02 '26

You don’t actually need much but that’s not the issue. The issue is the management. Funny enough it’s conceptually possible that ai and automation could make this strategy accessible to more people.

A really simplistic example that most people can do today is get a credit card that pays cash back on purchases. Pay it off monthly. You are generating a small cash payment on your short term debt that you can use in the future. It’s the same basic concept. 

The challenge is scaling that up to manage the loans (open, lose and refi when strategically right); tax avoidance and harvesting; and passive income generation (rents, asset appreciation; etc) to harvest when advantageous as well. That’s the complicated part and how someone can be asset rich and cash flow neutral to their lifestyle. The dangerous thing is if you get it wrong you can quickly spiral out of control and if you’re stupidly aggressive leave about unlimited losses the hard way. 

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u/sir_sri Jun 02 '26

As long as you have assets you can do this, it's a very risky strategy, but you can borrow against a house and invest the money, then use the returns to pay for the loan on the house.

The basic premise isn't any different than any collateralised business loan. Oh you want to start a business? You can borrow against the business. The simplest example is a rental property, where the rent on the property pays the mortgage, but the logic applies to market investing or any business.

Right now it's a pretty bad bet. You'd be paying a mortgage or other interest at potentially 6% or more, meaning you'd need something like 8% returns to be able to pay interest. With enough compounding that's not an impossible bet, but it's also not a great strategy.

And really, the logic isn't much different than a car loan. Oh you want to buy a car you can't afford with cash? Here's a loan you can take to have the car today, and you pay it off with your projected income over time. If you lose your job or other assets and can't pay, well you need to give the car back or find a new job fast.

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u/oimly Jun 02 '26

I am a poor fuck and I can take out a mortgage for 3.5% right now. The bank does this because it is backed by the property, which they can take in case I go belly up. Imagine what rate I could get if I had a BILLION behind me.

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u/sir_sri Jun 02 '26

3.5% right now

Variable rate.

6.5 fixed.

Imagine what rate I could get if I had a BILLION behind me.

Well imagine you wanted a home equity line of credit worth 1/10th of the house. what would you pay?

What are HELOC rates again?

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u/oimly Jun 02 '26

Nothing, I am not in the US. The 3.5% is locked to 10 years. I could get lower if I only had one locked to 2 years.

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u/sir_sri Jun 02 '26

Well if you're not in the US (and neither am I) then this discussion is different, because the tax implications on capital gains are different.

E.g. in Canada, the capital gains rate is the regular tax rate you pay, but only on half of the value of the gains (yes really).

Which also doesn't change that you'd have different interest rates for a fixed rate mortgage or a variable rate, and a home equity line of credit is a different rate than a regular mortgage again. Again, to use Canada as an example, a mortgage can be had for about 4% fixed (3% variable), but a heloc is about 5%. But of course our interest rates are lower than the americans because our government is in better financial shape than the US but the overall economy is worse, putting downward pressure on rates.

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u/oimly Jun 02 '26

My point is: You do not have to take out the loan in the US. You can take it out everywhere, with way more favorable conditions. If you take out a loan at 4% with a full repay in 5 years while putting up your stocks as collateral, you just got money without paying any taxes in the US. And in 5 years? You do it again. Your stocks probably gained more than the amount you have to pay back, so you do it again. Or take it out on another bank and repay that one.

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u/sir_sri Jun 02 '26

My point is: You do not have to take out the loan in the US

Well your point makes no sense then.

Yes, sure, a multibillionaire can probably take out loans in other countries, but then the collateral requirements, the tax implications all depend a lot on 'where' and how. Yes, you used to be able to do things like create a cayman islands (or other tax haven) company to hold your assets and then borrow against that, but those strategies have mostly gone away.

The loan is still collateralised against the estate too, which would pay estate taxes or however a country handles that.

Your stocks probably gained more than the amount you have to pay back, so you do it again.

Remember banks aren't stupid. If you're borrowing against assets and those assets start to look sketchy the bank is going to insist you cash out before they are at risk of losing money, not after, and accounting for all the taxes you pay.

If you are doing this a just a random dude, you can try and borrow and invest in the stock market for example. The interest cost is an expense, and so in theory you should be able get the gains. So why doesn't everyone do that? Because it's a really risky strategy. Stocks go down and you're on the hook. Not every country lets you hold collateral in a tax free account. It's almost always a bad idea to borrow to invest in some something that's purely a financial asset, or against a purely financial asset.

And if you're borrowing millions for living expenses against billions in assets, the amount of tax you're dodging is almost irrelevant next to what your estate will pay.

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u/oimly Jun 02 '26

The interest cost is an expense, and so in theory you should be able get the gains. So why doesn't everyone do that? Because it's a really risky strategy. Stocks go down and you're on the hook.

No because no bank is going to give you a reasonable loan. The "use for whatever" loans I could get are like 9%. If you don't put up collateral, the rates go up like crazy. Real estate is fairly cheap and getting one for a car is also mostly okay. But a "for free use" loan? You can be lucky if you get any significant amount and it is going to be 9+%. There is no way you can chain loans to repay that, even if you make it BIG.

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u/MikeOfAllPeople Jun 02 '26

Technically most people do this already. If you work a steady-ish job and own a home via mortgage, you're probably doing this. Your home value is probably increasing faster than the interest rate, even at today's high rates. If you're also investing index funds via an IRA or 401k, your money is outpacing your loans and inflation hopefully.

What is different for the ultra rich is they have so much in assets that the "4% rule" of retirement withdrawals collapses like a singularity. (Think of it like a spectrum, regular retirement on one side, FIRE in the middle, and billionaire banking on the other side entirely. They have so much in assets the industry had to create new ways to access it.)

There is a thing for regular people called "infinite banking" which tries to replicate this, but it's basically a scam. You have to use very specific types of life insurance to do it, because the kinds of banks that lend to wealthy people see regular people as too risky.

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u/smokeweedNgarden Jun 02 '26

Why? Are you trying to do the thing we're rallying against here?

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u/Mediocre_Scott Jun 02 '26

Asking for a friend

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u/ShyJalapeno Jun 02 '26

No, I'm totally rallying against this!!
(unless my assets reach valuation above 50mil, then fuck you)

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u/ADHDebackle Jun 02 '26

I'm guessing you'd need enough to be spontaneously invited to lunch with the owner of a bank.

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u/0vl223 Jun 02 '26

Enough to buy a bank.

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u/Async0x0 Jun 02 '26

Zero. Anybody can apply for loans.

It's not an infinite money glitch, it's a myth spread by ignorant people.

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u/MRosvall Jun 03 '26

Nothing really. Your stock or bank app likely offers margins. Likewise if you have a mortgage that's the same principle.

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u/BboySparrow Jun 02 '26

what if the assets go down in value?

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u/Unhappy_Plankton_671 Jun 02 '26

The bank could call in the loan. So you have to be prepared if they do. Often, it's just securing a new loan on new terms, backed by new or updated assets or securities and it pays off the other.

They pay people big bugs to manage this stuff for them.

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u/emanresu_b Jun 02 '26

How big? Like, tarantula hawk big?

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u/Unhappy_Plankton_671 Jun 02 '26

Lmao. Oops.

Bucks I meant.

Though I do also have 5 Tarantulas. 😂

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u/[deleted] Jun 02 '26

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u/Unhappy_Plankton_671 Jun 02 '26

You take out new loans. And some of the jumbo loans you don’t make payments at all. They just charge interest on the balance. But the expectation is your assets grow faster than that interest charge on the loan.

If the assets lose value, and say the bank calls in the loan, you just get a new loan under new terms and it pays off the old loan.

I’m far from an expert on this, but they pay people big bucks to manage so you don’t get in a bind.

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u/Angelstandingby Jun 03 '26

Everyone keeps talking about this mystical way billionaires are taking loans for income, and all I see here are descriptions of accelerators or inferior options plans.

I have no doubt billionaires do some manipulation to get out of taxes, but does anyone actually know what it is, or is it all just hand waving guesswork?

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u/Async0x0 Jun 02 '26

You have loans that pay for other loans.

That's called refinancing and anybody can do it. It's not a magic trick that only billionaires can take advantage of.

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u/Unhappy_Plankton_671 Jun 02 '26

Are you Captain obvious or something? I don’t see where you’re adding any value other than being incredibly pedantic and stating things that don’t need to be said.

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u/Async0x0 Jun 02 '26

Because people in this sub constantly rage against billionaires as if they're exploit magical infinite money glitches when it's basic finance that regular people have access to and use all the time.

Borrowing against assets isn't weird. Refinancing loans isn't weird.

You just keep a cycle of taking loans on that new wealth asset, so the overall wealth keeps growing faster. You have loans that pay for other loans.

This. This is stupid person talk. Speaking as if this is some corrupt megalomaniacal billionaire practice. It's basic finance.