A budget proposal by U.S. President Joe Biden aims to “reduce mining activity” with a 30% tax on electricity costs linked to the cryptocurrency mining process
The latest budget proposal by President Joe Biden contains a few positions regarding digital assets. In particular, it appears that U.S. crypto miners could eventually be subject to a 30% tax on associated electricity costs.
As explained by the Department of the Treasury supplementary paper, the tax would not be deducted in its full size from the very beginning, but rather be phased in at 10% per year over three years. In simple words, miners would pay 10% tax in the first year, 20% – in the second year of operations, and 30% tax starting from the third year.
The energy costs under consideration cover electricity generated from both on and off-grid sources. The tax would apply to any crypto mining firm, whether it is using its own or rented equipment.
For tax purposes, crypto miners would also have to regularly report on the “amount and type of electricity used as well as the value of that electricity.” If they acquire their electricity off-grid, the mining companies would still be required to estimate the electricity costs generated by any “electricity generating plant.”
That adds undesired bureaucracy issues to the already beleaguered crypto mining industry resorting to consolidation as it fails to reach profitability amid the bear crypto market along with the wider economic downturn and rising energy costs.
The proposal would be effective starting next year if implemented.
To justify the tax, the Treasury used the following arguments: the energy consumption of crypto mining operations “has negative environmental effects,” it increases prices for those sharing a grid and creates “uncertainty and risks to local utilities and communities.”
At the same time, we know of numerous examples when crypto mining was used to benefit the local communities such as powering rural settlement in Kenya or presenting a perfect use case for the excess energy generation of Tokyo Electric Power Company Holdings (TEPCO).
Reportedly, the White House also aims to bring crypto trading tax rules in line with stocks, which would no longer allow crypto investors to sell digital assets at a loss for tax purposes.