• President Joe Biden proposed a budget that includes a 30% tax on electricity costs for crypto miners.
• The tax would be implemented over three years, with 10% added each year to reach the maximum of 30%.
• The Treasury claims this is necessary due to the negative environmental effects of crypto mining and potential harm to local utilities and communities.
Biden Proposes Tax on Crypto Mining Electricity Usage
The United States Department of Treasury released a supplementary budget explainer paper which proposed an excise tax equal to 30 percent of electricity costs used in digital asset mining. This tax would be phased-in at 10% per year over three years, starting after Dec. 31, and would cover both on and off-grid sources.
Justification for the Tax
The Treasury provided reasoning behind the decision for this new tax, claiming energy consumption from crypto mining operations has negative environmental effects, increases prices for those sharing the grid with these operations, and creates uncertainty and risks to local utilities and communities.
Other Changes in Biden’s Budget
In addition to this proposed taxation scheme, the White House also confirmed reports that it’s looking into ending a tax strategy for cryptocurrency transactions that it estimated could raise $24 billion. Currently, investors can sell digital assets at a loss for tax purposes (known as “tax-loss harvesting”) before immediately buying back those cryptocurrencies – similar rules already exist surrounding stocks under wash sale rules.
Potential Impact of Tax Change
The implementation of this new taxation scheme could potentially reduce mining activity along with its associated environmental impacts and other harms by making electricity usage more expensive for miners. On top of that, cryptocurrency traders may need to adjust their strategies if they want to avoid paying additional taxes when selling digital assets at a loss through “tax-loss harvesting” strategies.
Conclusion
President Joe Biden’s proposed budget includes a 30% excise tax on electricity costs used in digital asset mining in order to reduce its associated environmental impacts as well as potential harm caused by these operations on local utility grids and communities. Additionally, changes are being considered which would limit “tax-loss harvesting” strategies related to cryptocurrency trading activities by bringing them in line with existing stock regulations surrounding wash sales rules.