President Joe Biden’s budget proposal to “reduce mining activity” might eventually subject crypto miners in the United States to a 30% tax on their electricity expenditures.
The Department of the Treasury’s supplementary budget explainer paper, published on March 9, any business that employs resources, whether owned or leased, will be held accountable for an excise tax equal to 30% of the electricity expenses incurred in digital asset mining.
The proposal recommended that the tax be implemented from January 1st onwards, gradually phased in over a period of three years, with a yearly increment of 10%, until it reaches the maximum rate of 30% by the end of the third year.
The amount and type of electricity utilized and the value of that electricity must be reported by crypto miners. Crypto miners who obtain their electricity needs off-grid would still be subject to the tax and need to estimate the electricity expenses incurred by any “electricity generating plant.”
The Treasury justified the tax, citing the negative environmental effects caused by the energy consumption of crypto mining operations. Additionally, the operations increase electricity prices for others sharing the same grid, posing risks and uncertainties to local utilities and communities.
The Treasury believes that implementing an excise tax on electricity used by digital asset miners could potentially reduce mining activity, thus mitigating the associated environmental impacts and other adverse effects.
In a statement released on March 9, the White House confirmed claims that it intends to a tax plan for crypto transactions that, according to the administration, would generate $24 billion.
At present, the regulations enable individuals who invest in cryptocurrencies to sell their digital assets at a loss for tax-related purposes, a practice commonly referred to as tax-loss harvesting. The investors can then promptly repurchase the same cryptocurrencies.
Under the proposed new regulations, the tax laws governing crypto trading would align with those for stocks, disallowing the practice of tax-loss harvesting and immediate repurchase of the same cryptocurrencies, as it is prohibited under the wash sale rules.
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