Either the rock gets sold and the income is realized and the taxes are paid then, or the rock ends up being worthless and the loan margin called for possession of the rock and the remaining value is taxed as income. Either way the taxes get paid in the end.

Tax deference is not tax avoidance.

I have the rock, it is now worth 1 billion dollars. I take out a 50 million dollar loan from the rock and put it into the stock market, which lets say has 2% average real returns over interest (probably low if i have 1 billion in collateral).

I pass the rock on to my children and die 20 years later. The 50 million is now worth 74 million.

Both the rock and 74 million are stepped up to their current value when I pass it on to my children. The children repay the loan with their 50 million and now have 24 million and the 1 billion dollar rock still, tax free.

How is that not tax avoidance?

Your issue here is the cost-basis step-up on inheritance, not anything to do with loans.

I was just explaining how tax deference can be tax avoidance.

That's the key one.

The tax code, today, in practice, already frowns very much on tax deference, and tries to inhibit it when possible. The AMT-schedule is purposely designed to pull tax forward, and precisely discourage strategies for tax deference e.g. to counter the abuses that would arise by using stock-based (or cult rocks) compensation to avoid income tax.

Property tax (which is a wealth tax) is another way to siphon off tax on unrealized wealth.

AFAIK neither of those things would stop the scheme I just described.

I'm not disagreeing with you. I only added that, from a tax collector perspective, tax deference and tax avoidance are on the same spectrum, and they will seek out mechanisms to make deference impossible. I gave an example of one of these mechanisms at the federal level (AMT) and one at the municipal level (property tax). But yes, doesn't mean there are other strategies to defer ("avoid") taxes still left.

So taking the avoidance vs deference analogy. If I borrow money for car, house, boat, plane tickets, but never have to pay it back where does that leave my obligations?

You do have to pay back eventually though. Why are you assuming the loan never comes due or is margin-called?