Biden’s policy on crypto taxation undermines his environmental goals

Profits earned by betting cryptocurrency shall not be treated as a taxable event. It only makes sense to tax such gains upon conversion to legal tender currency. To do otherwise undermines an environmental policy from the administration of US President Joe Biden.

The Internal Revenue Service appears to be strongly inclined to treat wagering winnings as immediate income. The penalties for running afoul of the IRS can be draconian. And taxing, or threatening to tax, betting winnings is bad policy – and, ahembad politics.

There are many good reasons not to treat betting winnings themselves as taxable events. The best reason is to bring the IRS back in line with White House environmental policies to combat climate change.

If the IRS will not administratively comply with the Biden administration’s clearly stated corporate policies, it is time for Congress to clarify the law and prohibit the taxation of unrealized gains.

Related: Biden is hiring 87,000 new IRS agents — and they’re coming for you

Deferral of gain for sale only postpones receipt of taxes from the Treasury. It does not cost the government a single thin satoshi. So, what’s up?

Crypto is legitimately subject to taxes in many ways. You pay taxes when you sell your crypto, or even exchange it for other forms of crypto. (Elsewhere, we’ve urged Congress to pass a moratorium on crypto-to-crypto exchanges, a topic beyond the scope of this article.)

Taxing wagering gains is antithetical to clearly expressed White House policy. It is also antithetical to generally accepted notions of good tax policy.

Uncle Sam doesn’t tax Jasper Johns as he turns a blank canvas into a multi-million dollar work of art. He is not taxed when he sends it to a gallery for sale at the stated price. He gets taxed when he gets the million dollar check for his latest masterpiece.

This obviously makes sense. Uncle Sam will not take a piece of a painting (or even a fraction of it) to pay taxes. How is an artist expected to pay the tax on a work in progress or a work that is only listed for sale? Taxing works of art while they are being made would be ridiculous!

Uncle Sam does not tax a building contractor while he is building a home, nor when he turns it over to a real estate agent for sale. The IRS collects taxes on sales.

This obviously makes sense. One can only guess at the value of an asset before it is sold, and even then one does not have the money to pay the tax until the sale proceeds are received. Moreover, the tax authorities do not “do windows” – or take lumber or other forms of payment of taxes. Taxing housing under construction would be absurd!

Taxing wagering gains while they are ongoing is frivolous and inconsistent with the treatment of other created assets. The IRS has put out a real Alice in Wonderland policy on this one. And taxing such gains does Americans, and America, real harm, driving wealth and good jobs offshore (against stated presidential policy)!

Still, perhaps the most compelling reason for the IRS to stop taxing capital gains—and if it doesn’t, for Congress to quickly fix this—is that President Biden has made reducing CO2 emissions a priority for his administration.

The IRS taxes wagering winnings upon occurrence (rather than upon sale or exchange of those winnings) undermines two of the administration’s top priorities: good jobs on land and fighting climate change. Bureaucracy trumps democracy? Shameful!

Support from Democrats on the Hill for their party leader to ban betting winnings taxation can be assumed. And there are certainly enough sophisticated Republican congressmen to pass a law prohibiting the taxation of betting winnings.

Related: Get ready for a swarm of incompetent IRS agents in 2023

So what (no pun intended) is at stake? Proof-of-work crypto uses much more energy, and generates much more emissions, than proof-of-stake. Per fact sheet from the White House Office of Science and Technology dated September 8, 2022:

“From 2018 to 2022, annual power use from global cryptoassets grew rapidly, with power use estimates doubling to quadrupling. […] Switching to alternative crypto-asset technologies such as Proof of Stake can dramatically reduce total power consumption to less than 1% of current levels.”

Taxing these gains before they are realized will also cripple the proof-of-stake movement.

To summarize, there are difficult practical problems with taxing an asset at its creation. People can only guess the value of an asset until it is sold. The tax authorities do not accept payment in kind (if it was even possible, so often it is not).

Many taxpayers do not have the actual money to pay the tax until they realize the proceeds from the sale. It is cruel and counterproductive to turn honest citizens into tax cheats and criminals via poor regulation. It will drive crypto, and accompanying jobs and value creation, out of the US. And delaying taxation until the sale delays, but does not cost the state any tax revenue.

Most of all, treating wagering gains as a taxable event undermines the Biden administration’s stated top priority of working on land and reducing CO2 emissions.

Stop treating betting winnings as a taxable event! If Biden and the IRS turn a deaf ear, Congress should take up the matter.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.