Biden Wants 30% Crypto Mining Tax, But Can It Work?
President Joe Biden has proposed a tax of up to 30% on cryptocurrency mining to deter economic and environmental concerns, but experts say the plan would be difficult to implement.
Important takeaways
- President Biden wants to tax up to 30% of crypto miners’ electricity costs in three years as part of his proposed 2024 federal budget.
- The White House said the tax was aimed at allaying environmental and economic concerns.
- The tax will mostly affect bitcoin miners, as other major crypto networks use proof-of-stake (PoS) instead of proof-of-work (PoW).
- Critics of the tax proposal say miners could easily move offshore to avoid taxation.
The White House wants to make miners pay
Introduced in President Biden’s 2024 federal budget, the Digital Asset Mining Energy (DAME) Excise Tax proposal would tax up to 30% of crypto miners’ electricity costs – in 10% increments spread over three years starting in January 2024. The tax, which is expected to raise about $3.5 billion over 10 years, is aimed at combating climate change.
“For now, cryptomining companies do not have to pay for the full cost they impose on others, in terms of local environmental pollution, higher energy prices and the effects of increased greenhouse gas emissions on the climate. The DAME tax encourages companies to start paying more attention to the damage they are causing to society,” wrote the President’s Council of Economic Advisers (CEA) in a statement on Tuesday.
The CEA estimates that crypto mining in the United States consumed as much electricity in 2022 as all of the country’s home computers or residential lighting.
In particular, Biden’s proposed cryptomining tax will affect bitcoin more than the rest of the crypto market, as it is the only major crypto network that uses proof-of-work (PoW) as its underlying mechanism for achieving consensus. Other networks, such as Ethereum and BNB Chain, use an alternative method known as proof-of-stake (PoS), which uses much less energy.
However, the crypto industry claims that a large proportion of crypto mining is dependent on sustainable energy sources.
While proponents of cryptocurrency claim improving financial inclusion, security and transparency as its benefits, the CEA said crypto’s “broader social benefits have yet to materialize.”
Challenges in Implementing Crypto Mining Tax
Of course, a key problem with any crypto-related tax policy is that this industry is a global phenomenon. If US crypto mining taxes are too high, miners may move to a more favorable jurisdiction. Especially as the limited supply of bitcoin increases competition among miners and the rewards for mining bitcoin decrease.
While the administration’s plan acknowledges the risk of miners moving overseas, it does little to ensure that mining isn’t shuffled between states in search of the lowest tax rates,
Castle Island Ventures founder Nic Carter tweeted. New York, for example, banned bitcoin mining that uses carbon-based energy last year. Among countries, China banned crypto mining in 2021.
“To ensure that cryptomining is not simply pushed from one community to another, a national policy is needed,” the CEA said.
