ASHFALL INSTITUTE | SUBDUCTION ZONE
Building Bridges — Episode Four
THE LOOP
P. A. Moore
Ashfall Institute | Subduction Zone
Written under the collaboration disclosed in Time Is a Wheel and We Are the Ground. Concept, argument and judgment: P. A. Moore. Research and composition: Claude Opus 5.
Everybody wants to argue about the tax rate.
I’d like to skip that argument, because I don’t think it’s where the money is, and because I think the people who benefit most from the current arrangement are quite happy for us to spend the next decade shouting about percentages.
The largest fortunes in this country are not taxed lightly. They are very largely not taxed at all, and the reason isn’t the rate. It’s that no taxable event ever occurs.
Let me show you the mechanism, because once you’ve seen it you can’t unsee it, and it takes about ninety seconds.
Suppose you own ten billion dollars of stock in a company you founded.
You have an income tax problem only if you sell. Selling realizes a capital gain, and a capital gain is taxable. So you don’t sell.
You need money to live on. So you go to a bank and borrow against the shares. The bank is delighted — you have collateral it could sell in an afternoon, so the interest rate is very low, lower than the return on the shares themselves.
A loan is not income. You have received ten million dollars and owe tax on none of it, because legally you haven’t gained anything. You’ve incurred a debt.
You live on the loan. The shares keep appreciating. When the loan comes due you refinance it, or borrow more, against a larger position.
You do this for forty years.
Then you die.
And here is the part that matters.
Under a provision called stepped-up basis, your heirs inherit those shares valued at the price on the day you died — not the price you paid. The forty years of appreciation, the entire gain, is erased for tax purposes. Not deferred. Erased. Nobody ever pays it.
The estate settles the loans. The heirs hold the stock, with a fresh basis, and can start the cycle again.
It has a name in the trade. Buy, borrow, die.
It is not a loophole in the sense of an oversight. It is three provisions of the tax code, each defensible alone, which in combination mean that the largest concentrations of wealth in American history can pass through a lifetime without generating a taxable event.
I want to be fair about the counterargument, because there is one and it isn’t stupid.
Unrealized gains aren’t real. Stock can fall. Taxing a paper gain means taxing money someone doesn’t have, and forcing sales to pay it. That’s a genuine problem and any proposal that ignores it deserves to fail.
Fine. So don’t tax unrealized gains.
There are two narrower changes that answer this without inventing a wealth tax, without valuing anything that isn’t already valued, and without touching anybody’s rate.
One. Treat large borrowing against appreciated assets as a realization event.
If you borrow ten million dollars against stock you’ve never paid tax on, that’s the moment. You’ve converted paper into spendable money — you told the bank the gain was real enough to lend against. Above a high threshold, that counts as realization. Below it, nothing changes, and this affects almost nobody. It doesn’t touch your house or your retirement account.
Two. End stepped-up basis at death above a threshold.
The heirs inherit the shares and the original cost basis. The gain isn’t taxed at inheritance — it’s taxed when they eventually sell, like everyone else’s. Nothing is taken early. The escape hatch is simply closed.
Neither of those is exotic. Neither requires a new agency or a new theory of property. Both close a loop rather than raise a rate, and that distinction is the whole of my argument, because a rate is a fight about fairness and a loop is a fight about arithmetic.
Arithmetic is easier to win.
Now — the third mechanism, and this one connects directly to the buildings.
Accelerated depreciation.
When a business buys equipment, it deducts the cost against income as the equipment wears out. Reasonable. But the schedule is set by statute, and for certain assets the code allows the deduction to be taken far faster than the equipment actually depreciates — in some periods, all of it in the first year.
A data center is one of the most capital-intensive structures ever built. Servers, switchgear, cooling plant, transformers. Billions of dollars of equipment, replaced on a short cycle.
Which means an enormous deduction, taken immediately, against income earned elsewhere.
So the building that isn’t paying local property tax because of the abatement is simultaneously reducing federal tax liability through depreciation, on equipment whose electricity costs are being socialized across residential ratepayers.
Three separate subsidies, from three levels of government, arriving at the same building, none of them counted against the others, and none of them appearing in the press release about four hundred jobs.
Nobody designed that. That’s the honest part. Each provision was written for a defensible reason, at a different time, by people who weren’t thinking about the others. It stacked.
But it has stacked, and somebody should say so out loud during an election.
Now the objection that will be made, and it’s the serious one.
Capital is mobile. Tax it here and it goes there.
That’s true, and I said as much in the first episode about the states. A state that ends its abatement alone doesn’t collect the money — it loses the project. The same logic runs internationally.
But we have already solved this once, and recently.
For decades, countries bid corporate tax rates down against each other in exactly this way. Everybody knew it was a race to the bottom. Nobody could stop unilaterally, because the first to stop would simply lose the companies.
Then, in 2021, more than a hundred and thirty countries agreed to a global minimum corporate tax rate. Not a maximum. A floor. The point wasn’t to raise anyone’s taxes — it was to remove the incentive to undercut.
It isn’t perfect and implementation has been uneven, but it happened. The thing that was supposedly impossible because of capital mobility was done by agreement, within living memory.
The domestic version is an interstate compact, or a federal floor beneath which abatements cannot go, or a condition attached to federal energy and permitting support. Any of those breaks the prisoner’s dilemma the same way: by making it impossible to defect profitably.
That is a hard political lift. I’m not going to pretend it’s around the corner.
But it is a solved category of problem, and I’m tired of hearing it described as a law of nature.
One last thing.
There is an argument, made sincerely, that people who build valuable things deserve to keep what they build. I agree with that more than you might expect. I have no interest in punishing anyone for succeeding, and a tax code designed around resentment produces bad law.
But that argument requires the system to work the way people think it does.
The teacher pays on every dollar the week she earns it. The electrician pays quarterly. The nurse’s overtime is taxed at her marginal rate before it reaches her account. They pay on realization because they have no alternative — their gain arrives as money, immediately, and the code sees it.
The distinction between them and the fortune that never realizes anything is not effort, and it isn’t merit.
It is liquidity.
And a tax system that falls entirely on the people whose money moves, while passing over the people whose money doesn’t have to, is not a system that rewards contribution.
It’s just a system that catches what it can reach.
Next time: the shape of the buildings — and why we keep rebuilding in ash and floodplain with materials we know will burn and rot.
Sources: “Buy, borrow, die” — the mechanism is described in the academic literature on realization-based taxation; see also ProPublica’s 2021 reporting on IRS records. Stepped-up basis: IRC §1014. Bonus depreciation: IRC §168(k). OECD/G20 Inclusive Framework, Pillar Two global minimum tax, October 2021.
Building Bridges is a fourteen-part series. Previous: Episode Three — Who Pays, and Who Is Allowed to Read the Contract. Next: Episode Five — The Shape of the Buildings.
P. A. Moore is the pen name of Pamela King, philosopher and artist. Available through the Ashfall Institute.