Billionaire investor David Friedberg has strongly criticized the popular narrative that taxing the ultra-wealthy will solve California's enormous budget problems. He argues that even massive one-time taxes on billionaires would fail to address the state's projected funding shortfalls for healthcare and education.
The Math Simply Doesn't Add Up
Friedberg explained the harsh financial reality during a conversation with AI czar David Sacks and venture capitalist Chamath Palihapitiya. California faces an estimated $1.5 trillion in long-term obligations. Even if the state implemented a 5% one-time tax on all 200 California billionaires, whose combined wealth totals $2 trillion, it would raise only $100 billion.
"Taxing billionaires doesn't solve the problem. Spending does," Friedberg stated bluntly. "Even if you confiscated billions from every billionaire, it wouldn't fix government debt. This debate pretends revenue is the issue — it's not. The real crisis is uncontrolled spending and liabilities already baked into the system."
The 'Buy, Borrow, Die' Strategy
Friedberg revealed how billionaires legally avoid paying substantial taxes through what he called the "Buy, Borrow, Die" strategy. He shared these insights in a video that Ian Miles Cheong posted on X, formerly known as Twitter.
"It's totally reasonable to say billionaires aren't paying their fair share — but the uncomfortable truth is why," Friedberg explained. "Ultra-wealthy individuals don't live on income, they live by borrowing against assets. No sale, no capital gains, no tax. That's the loophole nobody wants to say out loud."
The Real Problem: Asset-Backed Borrowing
According to Friedberg, the core issue isn't income tax but rather how billionaires access their wealth without triggering taxable events. When wealthy individuals borrow against their appreciating assets, they can maintain luxurious lifestyles without selling those assets and incurring capital gains taxes.
"The issue isn't income tax — it's asset-backed borrowing," he emphasized. "When someone can live tax-free by borrowing against billions in untaxed assets, the system is broken. If policymakers were serious, the fix is simple: tax borrowed money tied to unrealized gains."
A Different Approach Needed
Friedberg suggested that policymakers interested in closing this tax gap would need to implement a completely different approach. Instead of focusing on traditional income or wealth taxes, they should consider taxing borrowed funds that are secured by unrealized gains.
This proposal targets the specific mechanism that allows billionaires to access wealth without triggering taxable events. However, implementing such a tax would require significant legislative changes and likely face strong opposition from wealthy individuals and their advocates.
Broader Context
The discussion about billionaire taxes comes amid growing concerns about California's business environment. Recently, David Sacks commented that "California has become a hostile work environment for founders." This sentiment reflects broader tensions between the state's progressive tax policies and its need to retain business leaders and entrepreneurs.
Friedberg's comments highlight the complex relationship between wealth taxation, government spending, and economic growth. While many advocate for increased taxes on the ultra-wealthy to fund social programs, Friedberg argues that the mathematical reality makes this approach insufficient for solving California's deep financial challenges.
The debate continues as California grapples with how to fund essential services like Medi-Cal healthcare and public education while managing enormous long-term liabilities. Friedberg's perspective adds a controversial but mathematically grounded voice to this ongoing discussion about wealth, taxes, and government responsibility.
