Biden's cryptocurrency gamble
President Biden is supporting crypto language in the Infrastructure bill that could harm the environment, and he knows it. Then why is he supporting it? $$$
Man, the Covid news is exploding this morning. But, to spice things up, today I’m writing about Cryptocurrency and the Infrastructure bill instead.
You might have heard that the Infrastructure Bill got held up — it was supposed to be done last night — because of a controversy over some language in the bill dealing with cryptocurrencies. It’s awfully complicated stuff, but in a nutshell, the Infra bill claims to pay for itself, in part, by pulling in $28 billion in taxes on cryptocurrency transactions that are currently owed but not paid. So they’re not new taxes, but rather, enforcement of existing taxes.
I’ve gotten interested in crypto of late, and I’ve been shocked at how shabbily most crypt exchanges — i.e., places you go to buy and sell crypto, akin to using Schwab or Fidelity or Vanguard to buy and sell stocks — treat tax reporting. When you buy and sell stocks, federal law requires your brokerage (Fidelity, Vanguard, Schwab, etc.) to keep track of your transactions, and at the end of the year to notify you and the federal government of the details of those transactions in a manner which makes it easy for you to pay your taxes (by tracking your capital gains and losses). Most crypto exchanges, however, do NOT provide you with that tax info, nor do they provide it to the feds, so you’re left with a whole pile of paper at the end of the year, trying to figure out each individual transaction’s impact on your taxes. It’s a mess, and it’s no wonder some people are underpaying their taxes on crypto transactions. (Robinhood, however, appears to do this the right way — treating crypto like stock in terms of the tax data they provide you at the end of the year.)
So what the language in the Infra bill was supposed to do was force these crypto brokers to report the transactions to the feds so they could make sure you pay the taxes you owe.
What the language actually does is define everyone and their brother as “brokers,” in a way that’s entirely unworkable. So, the crypto community, along with a bipartisan group of Senators, has been trying to fix the language. Only to be stymied at the last minute by the Biden White House. You see, the Congressional Budget Office just said the other day that the Infra bill will in fact NOT pay for itself. So the White House is understandably freaking, and trying to preserve every drop of money they can get to pay for the legislation. And, in my humble opinion as someone who has written and helped pass congressional legislation, the Biden folks are worried that if they fix the crypto language, CBO will “score” the bill as bringing in even less month. So, the White House wants to stick with the bad language.
Another wrinkle to all of this: Biden’s position will worsen the environmental impact of crypto by de-incentivizing more energy-efficient currencies. You may recall that in the last few months there’s been a lot of concern over Bitcoin being super energy-intensive. Well, the “compromise” bill language (drafted by Senators Sinema, Warner and Portman) that the White House is pushing will punish currencies like Ether (Ethereum) that are potentially 11,000 times more energy efficient than Bitcoin, while giving Bitcoin a pass!
Another concern of people who know crypto much better than I, like Mark Cuban, is that the White House language will stymie innovation on the cryptocurrency blockchain. Very complicated, but think of it like the early Internet. Whatever your position on it, and where it’s heading, you don’t want to get the rules wrong.
Having worked in the Senate, I know that when money comes into play, the substance goes out the window. The fact that fixing the crypto language in the Infrastructure bill could cause CBO to claim that the bill brings in less tax revenue — when CBO is already saying the bill won’t pay for itself — is enough to get the White House to simply throw good sense out the window, and keep even bad language if it helps sell the bill as paying for itself.
Considering this is Congress’ first big effort at regulating the Cryptocurrency industry, it would have been nice to get it right.
PS Senators Wyden, Lummis and Toomey have an amendment that fixes the problem, but still insures that everyone pays their crypto taxes. The final vote on all of this could be Saturday, August 6.