Biden’s budget proposal for 2023 aims to tax cryptos

By Raffaele Redi

The White House has detailed its plans to modernise cryptocurrency rules

US President Joe Biden has released a $5.8tn budget proposal for 2023 that includes a billionaire tax provision and plans to modernise cryptocurrency rules.

In the budget, which makes up a major part of Biden’s legislative agenda, is a new tax on America’s richest households. Under the scheme, called the billionaire minimum income tax, households worth more than $100m would face a 20% minimum tax.

In addition, the Biden administration announced a range measures that included taxes on share buybacks, an increase in defence spending – prompted by the Russian invasion of Ukraine – and the application of accounting and tax reporting rules to cryptos, following an increase in institutional adoption.

The budget, which precedes the US mid-term elections, is also setting aside billions of dollars for the law enforcement, investment in affordable housing, plans to tackle America’s supply chain disruptions, drugs and mental health issues, and gun violence.

Only some of the proposed projects are expected to survive the budget’s passage through Congress, while others will become less draconian or smoothed out by the legislative process.

However, Biden’s 2023 budget proposal could be an indication of the future that crypto investors in the US will face.

The taxation on cryptos beyond 2022

Crypto enthusiasts and investors will have nothing to worry about for 2022 at least, as the budget’s proposed changes to the crypto tax reporting rules will only come into force in 2023.

Previously, the debate on crypto regulation in the US stalled when Mark Zuckerberg abandoned his plan to issue the ‘Diem’ crypto token after Meta sold its crypto branch Novi to Silvergate.

Instead, the eye of lawmakers switched to stablecoins – in light of the Federal Reserve’s report on Central Bank Digital Currencies (CBDCs) – and on the environmental impact of the Proof-of-Work (PoW) protocol, following environmental groups like Greenpeace lobbying for a ban on the energy-intensive PoW technology used by crypto miners.

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However, a move to Proof-of-Stake (PoS) technology could undermine the value of bitcoin (BTC), resulting in huge losses for institutional investors who have jumped on the crypto bandwagon if the US won't adopt the European approach to the issue.

A tax blow in 2023?

The budget’s plans to modernise the rules for digital assets suggest that around $48m could be raised by the US Treasury from reporting by certain financial institutions and digital asset brokers for purposes of exchange of information. Another $50m could be raised by requiring taxpayers to report their foreign digital asset accounts.

Finally, $4.8bn could come from amending the mark-to-market rules for dealers and traders to include digital assets, mainly freezing the value of cryptos in the corporate balances at their current market value.

The whole provision for the period 2023-32 amounts to around $11bn, indicating that the White House could further crackdown on crypto in the future.

Fed gives blessing to a crackdown

Whether both Congress and the Senate will agree to the proposed fiscal measures on crypto are unknown. However, Federal Reserve chair Jerome Powell recently seemed to give his blessing to a crackdown on crypto.

The Fed chair speaking at an event organised by the Bank for International Settlements (BIS) said that the “same activity, same regulation” rule applies to crypto.

As Elliptic analysts explained: “In essence, this regulatory principle means that if two things perform the same task, they will be regulated in the same way. This means that emerging technologies like NFTs or digital assets will be regulated like the incumbent financial instrument they most closely resemble.”

The report added: “While procedures like this often aim to achieve fairness, they become more difficult to apply when technologies are developing much faster than what regulators can keep up with.”

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