It doesn't get taxed when sold at a gain (because it's exchanged per 1031 or similar tax code provisions). If it does, it's often subject to super-advantaged treatment over and above long-term capital gains (think Qualified Small Business Stock or the like).
But it's often not sold at a gain and sometimes never will be; see various carveouts allowing for basis step-ups upon certain transfers (which might be within a family or a network).
But why even bother selling at a gain and paying even those favorable cap gains rates? Much more favorable to take out a loan against the asset for some spendable cash. You can even deduct the interest payments.
None of what I've described even requires an offshore vehicle, which parent rightly describes as usually perfectly legal -- although if you do have the right kind of setup you can keep deferring taxes for, practically speaking, forever. (It does require that there be enough money in play to make the significant overhead worth it, of course.)
"[L]ocal state income tax"? Not if you live in WA and a good number of other places.
And you really, really can't count sales tax as part of the taxes on investment income. Not least because the stuff one typically "spends" the bulk of investment returns on is, in turn, other investments, which are not taxed as sales items.
Throwing in sales tax seems disingenuous, as that is applied the same regardless of your source of income.
So does income, so you're quite literally making no point. His point is that income is taxed far higher, you can't disagree with him and not address that fact.
If you think this is true then clearly you've never tried seriously investing money. It gets taxed on its way to becoming cash (capital gains taxes if you simply sold at a gain). Then local state income tax. Then taxed again once spent (sales tax). Not to mention fees.
Even if your money is offshore -- which isn't illegal -- the IRS simply has to ask you about offshore accounts. You'd be smart not to lie to them.