Recap: Wealth is the sum of all assets, minus liabilities and debt. Assets are specific items of value one owns. Liquid assets are cash or “cash-equivalents” - items easily converted into cash without significant loss of value - such as bank accounts, money market funds and stocks (less so for stocks owned by billionaires – see explanation below).
Illiquid assets are investments or properties that cannot be quickly converted into cash without a significant loss in value or a lengthy, complex selling process. Examples of illiquid assets include real estate, private equity, venture capital, collectible art, and restricted securities*. Selling illiquid assets quickly is hard because these assets rarely have a ready pool of buyers and would likely require slashing prices, leading to substantial financial loss.
So where would billionaires get the cash to pay a wealth tax? Mostly from their liquid assets, which comprise around 31% or their asset holdings, on average (Altrata, 2024, Cato Institute, 2025). See Post I of this series for more details.
Method: I’m ultimately interested in how a billionaire wealth tax would impact the US economy and American people. To answer that question, even tentatively, requires answering a lot of other questions. My method will be to ask AI a question, review AI sources to confirm accuracy of response, and then tweak the AI summary for brevity, neutrality and relevance, occasionally incorporating AI information from related inquiries. I’m using AI in this series, because it does a decent job of capturing the gist of the source material. However, I don’t assume AI’s source material reflects the whole range of expert opinion on these issues.
First Question : What do billionaires use their liquid assets for?
Billionaires use liquid assets—cash, money market funds, and short-term securities—primarily to maintain flexibility, capitalize on investment opportunities, and manage risk. They use this "dry powder" to buy distressed assets during market downturns, fund new business ventures, make luxury purchases, and secure loans. Billionaires also fund non-profits and private foundations, with over 11 of the 25 largest US foundations controlled by billionaires as of late 2024. Some buy private jets for travel security and to save time, especially when attending multiple meetings across the country on the same day or over a few days.
Key uses for liquid assets include:
Capitalizing on Opportunities: Holding cash allows them to quickly purchase undervalued assets, such as real estate or stocks, during market dips.
Borrowing Against Assets: Instead of selling stock (which triggers capital gains tax), they use shares as collateral for loans to access cash.
Strategic Investments: Funding private equity, hedge funds, or new business ventures.
Risk Management & Flexibility: Acting as a buffer against market volatility and providing funds for emergencies or large, sudden expenses.
Lifestyle & Acquisitions: Purchasing luxury items like yachts, art, or properties.
Sources: SmartAsset (2025), Yahoo Finance (2024), Forbes, 2025, Yahoo Finance, 2022, Medium (2021), SmartAsset (2026), Inside Philanthropy, 2026.
Take-Away: It looks like billionaires use a good chunk of their liquid assets as a source of funding the growth of their own companies as well as for future investments. If they were subject to a wealth tax on all their assets but had to paid the tax out of liquid assets, the value of their liquid assets would go way down, as would their ability to grow their companies and fund new investments.
Next Question: If billionaires had to liquidate 5% of their wealth to pay a wealth tax, how would that impact their companies?
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* Restricted securities include stocks and bonds that are prohibited by law or contract from immediate public resale. Restricted securities are typically held by company insiders, such as billionaires, with their wealth concentrated in one or a few companies.
Next Post: If billionaires had to liquidate 5% of their liquid assets to pay a wealth tax, how would that impact their companies?