Biden targets crypto wealth for $11 billion in new tax revenue
President Biden wants to go after crypto wealth as a way to help close the budget gap, figuring Uncle Sam could net $11 billion in new income through 2032 by modernizing accounting rules around the asset class, according to his budget proposal released March 28.
Why it matters: Giving crypto investors access to some of the same flexibility investors in older asset classes enjoy could signal the administration is inching toward welcoming blockchain firms into the mainstream financial system.
Details: The administration would raise revenue on crypto "primarily by adding these types of assets to the scope of existing reporting requirements," according to Ernst & Young's Tax News Update.
- The proposed rules target offshore tax evasion by imposing cross-reporting agreements with foreign financial jurisdictions on crypto holdings much like those already in place for traditional investment assets.
- Another key change is shifting taxation of crypto to a mark-to-market system, which means that when the value of the underlying asset goes up, it is treated as actual income.
- This option can work advantageously for traders, Shehan Chandrasekera, Cointracker's head of tax strategy, tells Axios.
- Not all digital assets will qualify for the treatment, only those determined to have adequate trading activity, as CoinDesk notes.
Context: Currently, crypto investors are limited to using capital gains taxes, which only allows them to claim $3,000 in losses, Chandrasekera explained.
Yes, but: It's only a budget proposal, and these things get mangled in the legislative process.
- It remains to be seen whether the administration sees crypto as a cash cow or a driver of domestic competitiveness.
What we're watching: Elsewhere in Congress, lawmakers have come together to make crypto taxation less stressful by exempting small transactions, as the IRS already does with foreign currency.
Stepping back: Last year, the digital asset industry fought bitterly with Congress over similar issues, as it considered broad new language as part of the infrastructure bill, and lost.
Bottom line: No one said joining the mainstream financial system would be free.