I think people take issue with the taxes loophole. They have GAINED from the VALUE of their stocks, but they don't pay taxes on that. It should be law if you realize value from stocks you pay capital gains on those stocks. So if a loan is collateralized by $1,000,000 worth of stock value taxes should be paid on $1,000,000.

The trouble is that a bank is not lending against the nominal value of the stock as collateral. That number is almost entirely fictional. Taxation of capital gains at time of sale is less a loophole than a reflection of the difficulty of assigning a fair price to assets that are not perfectly liquid.

Also, you'd totally gut retail home equity lending as collateral damage, with disastrous social policy consequences.

I wouldn’t exactly call it a loophole as such. And you can’t just Willy Nilly tax loan values.

Any asset a bank is willing to take is collateral has the same issue, it’s just very pronounced in this instance.

If you take your idea at face value, anyone who borrows against their property to renovate/upgrade would be up for tax.