Billionaires (and hypothetically trillionaires, though none exist yet) often appear unable to "pay off" debts not because they lack funds, but because their wealth is overwhelmingly tied up in illiquid assets like company stock or real estate—think Elon Musk's Tesla shares or Jeff Bezos' Amazon holdings. Selling enough to cover debts would trigger massive capital gains taxes (up to 37% federal plus state rates), potentially crashing the asset's market value in the process, and erode the wealth they've built. Instead, they use a strategy called "Buy, Borrow, Die":
- **Buy**: Accumulate appreciating assets (e.g., stocks) that grow tax-free until sold.
- **Borrow**: Take low-interest loans against those assets (often at 2-5% rates from banks eager to lend to the ultra-wealthy), using the cash for lifestyle, investments, or more assets—without triggering taxes, since loans aren't income.
- **Die**: Pass assets to heirs via a stepped-up basis, where the cost basis resets to current market value, wiping out unrealized gains and taxes for the next generation.
This keeps wealth compounding while minimizing taxes, but it means they're perpetually "in debt" on paper—sometimes billions worth—without liquid cash to settle it outright. Critics call it a loophole that lets the rich avoid progressive taxation, potentially raising over $100 billion in revenue over a decade if closed. For everyday folks, this isn't feasible due to higher borrowing costs and less collateral, highlighting wealth inequality in action.
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