> Just like anyone else, he has to pay back what he borrows, he immediately owes an equal debt. And that requires actual income, which gets taxed.

In theory, maybe, but in practice that is not what happened over the past decade(s). Instead our retirement funds are paying it back.

When the market grows it makes the collateral worth more, which lets the holder keep refinancing the debt instead of selling assets and realizing taxable gains. As long as the assets appreciate faster than the debt grows, the borrowing can effectively roll forward for decades. Eventually the estate pays the debt out of the assets themselves, but this is not necessarily out of taxable income earned during the person's lifetime. The US markets has seen exceptional genuine growth, but the trillions of 401(k), IRA, etc money flowing in to them over the last 40 years is no small consideration.

> Well, why does something have to be done about this, exactly?

The something here is what's required to have a functional tax system. Without addressing this situation I do see an argument that we have one. How important that is to one is another question.