Yale Budget Lab, “Buy-Borrow-Die": Options for Reforming the Tax Treatment of Borrowing Against Appreciated Assets:
Designing a potential extension of the Tax Cuts and Jobs Act (TCJA) is the central tax policy question facing Congress in 2025. Because a straightforward extension of the TCJA would come with a fiscal cost of more than $4 trillion over ten years, lawmakers and policy experts have expressed interest in incorporating additional revenue-raising provisions into an extension package—often with a focus on areas where fundamental reform would be beneficial.
One such area is the so-called "buy-borrow-die" strategy, a tax planning technique which allows wealthy Americans to pay low tax rates on consumed income, a tax planning technique which allows wealthy Americans to pay low tax rates on consumed income, creates horizontal inequities, and distorts portfolio allocation decisions. Buy-borrow-die has attracted growing attention from economists, legal scholars, and politicians seeking ways to reform how capital gains are taxed in the US.
In this report, we:
- Explain how the existing tax code gives rise to the buy-borrow-die strategy
- Explore three reform options and highlight policy design tradeoffs
- Estimate the revenue potential and distributional impact of each reform
- Measure the tax advantage for borrowing under current law and each reform
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