A few hours ago, President Joe Biden released his annual budget proposal. The president outlined his policy priorities for the coming year. With respect to the digital asset industry, the proposal touched upon cryptocurrency mining. Specifically, Biden has called for a 30% tax on all electricity used to mine Bitcoin and other cryptocurrencies.
The excise tax would be phased in over three years at a rate of 10% in the first year, 20%
in the second, and 30% thereafter.
Also Read: President Joe Biden Proposes $5.5 Trillion Tax Increase Plan
Tax proposal intends to “reduce” mining activity
This means any firm using computing resources, whether owned by it or leased from others, to mine Bitcoin and other assets would be subjected to the 30% tax. Through this initiative, the administration intends to “reduce mining activity.” Notably, the current law does not provide tax rules specifically addressing digital assets. However, there are certain exceptions when it comes to the rules, related to broker reporting and cash transactions.
Outlining the reason for the change, the proposal mentioned,
“An excise tax on electricity usage by digital asset miners could reduce mining activity along with its associated environmental impacts and other harms.“
The proposal highlighted that computational effort and the large amount of energy required were major drawbacks. Additionally, it pointed toward the negative environmental effects and risks to local utilities.
Firms engaged in cryptocurrency mining would be required to report the “amount and type of electricity used” as well as the “value” of that electricity, if purchased externally. On the other hand, firms that lease computational capacity would be required to report the “value of the electricity used by the lessor firm attributable to the leased capacity.” That would serve as the tax base.
Also Read: President Biden Calls to Double Capital Gains Tax