Federal bill would tax the rich taking out asset-backed loans

Mortgages, student loans, auto loans and business loans are excluded from the bill.

“The Pay Your TAB Act closes a loophole the ultra-wealthy use to avoid paying taxes on fortunes 99% of Americans can’t imagine,” Friedman told The Center Square via email on Thursday. “They don’t sell the stock. They borrow against it, and a loan isn’t counted as income. My bill taxes those loans at 23.8%, the exact rate they’d owe by selling, while protecting mortgages, business loans, car loans and student loans that hardworking families actually carry. It’s simple, it’s fair, it’s constitutionally sound, and it can be enforced the day it’s signed.”

Friedman was not available for an interview for further comments.

According to a 2025 study from the University of Michigan and Yale University, the top 1% of income earners in the United States do utilize a “buy, borrow, die” strategy, although loans make up a small part of their cash income. A more popular strategy is “buy, save, die,” in which wealthy individuals have so much cash savings that they utilize savings more than loans to pay their expenses. 

Friedman’s bill attempts to close the “buy, borrow, die” loophole that wealthy families often use to avoid paying income taxes and capital gains taxes from interest, dividends or the sale of stocks, bonds, artwork and other investment assets. Under this strategy, wealthy families take out loans, which are not considered taxable income, against their investment assets. They then hold their assets until their death, transferring ownership of those assets to their children or heirs, who get those now-appreciated assets tax-free, according to an information sheet about Friedman’s bill.

Since those wealthy individuals don’t pay taxes on their assets or the loans they use to live on, this bill aims to collect revenue that the federal government wouldn’t get otherwise. The 23.8% tax rate on those loans matches the top long-term capital gains tax rate and the net investment income tax.

If the asset that backed the loan is later sold, the sale of that asset can be considered a capital loss in an effort to avoid taxing the same asset twice, according to Friedman’s office.

Supports consider the legislation a way to require wealthy Americans to pay their fair share of taxes. But Wayne Winegarden, an economist with Pasadena, Calif.-based Pacific Research Institute, said the bill could overcomplicate an already complex tax system.

“It’s going to create all sorts of additional costs, not just on taxpayers, but on the banks and other organizations that are going to have to keep track of it,” Winegarden told The Center Square on Thursday. “It opens the door, ironically, to more loopholes in future Congresses.”

Orphe Divounguy, The Center Square’s chief economist, said one person who borrowed against their investments and experienced a decline in value of their assets would be just as liable for the tax as someone who gained value in their investments.

“One would be much worse off than the other,” Divounguy said. “So there’s maybe a fairness angle here to consider that maybe the representative hasn’t really thought about.”

The Center Square reached out to Republicans in Congress, as well as economists at the University of California, Berkeley, taxpayer-focused organizations and wealthy residents of California for this story. None responded before publication time on Thursday.