United States President Joe Biden has put forward a proposal in his next year’s budget to impose a 30% tax on the electricity consumption of cryptocurrency mining operations.
The proposal is part of the “Fiscal Year 2025 Revenue Proposals,” aiming to broaden the tax base to include digital assets, which are currently only covered under broker and cash transaction reporting guidelines. The administration plans to levy an excise tax on firms engaged in digital asset mining, covering both owned and leased computing resources.
Crypto mining companies will be required to document the quantity and type of electricity consumed, with a specific focus on the value of electricity if it is purchased from external sources. Additionally, entities that lease computational capacity must report the electricity value provided by their lessors, which will be used to calculate the tax base.
The implementation of this tax is slated to occur in phases, starting at 10% in the first year, escalating to 20% in the second year, and settling at 30% from the third year onwards. This phased approach also applies to companies generating their own electricity or those obtaining power “off-grid,” who will face a 30% tax on the estimated costs of their electricity consumption.
The proposal has sparked a debate within the crypto community and beyond. Pierre Rochard of Riot Platforms has critiqued the proposal, suggesting it aims to hinder Bitcoin’s growth and facilitate the introduction of a Central Bank Digital Currency (CBDC). According to Rochard, the tax would apply universally, even affecting miners who utilize renewable energy sources, raising questions about the proposal’s fairness and intentions.
U.S. Senator Cynthia Lummis has publicly opposed the tax, arguing that it could significantly impact the cryptocurrency industry’s development in the United States. She shared her concerns on X, indicating that while the government’s recognition of cryptocurrency in the budget suggests a positive outlook on the industry, the proposed tax rate could potentially cripple it.
The Biden administration has previously attempted to introduce a 30% tax on electricity for crypto miners, first proposing it in the 2024 budget on March 9, 2023.
The tax is part of President Biden’s wider agenda to regulate and generate revenue from the digital asset market. This includes measures such as enforcing wash trading rules and enhancing reporting requirements, which are projected to generate significant revenue. According to government estimates, these measures could contribute over $42 billion to the national treasury over the next decade.
Specifically, integrating digital asset transactions with wash sale and mark-to-market rules is expected to bring in over $1 billion and $8 billion, respectively, by 2025, contributing substantially to the national budget. Additionally, the proposed excise tax on crypto mining is projected to reduce the national deficit by around $7 billion within the same timeframe.
Despite its potential for revenue generation, the proposal faces opposition from Congressional Republicans, who criticize the budget’s focus on increased spending. A joint statement by Speaker of the House Mike Johnson and other Republican leaders condemned the budget as a continuation of the administration’s “reckless spending,” warning it could accelerate America’s decline.
This budget proposal and the discussions surrounding it arrive at a time of intense political activity following Super Tuesday and President Biden’s recent State of the Union Address. The proposal, therefore, not only reflects fiscal policy considerations but also sits at the intersection of political debate and the evolving regulatory landscape for digital currencies.