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US Debt Ceiling Deal Protects Bitcoin Miners from 30% Tax

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The recently announced agreement on the US debt ceiling between President Joe Biden and House Speaker Kevin McCarthy has revealed that certain proposed taxes, including the Digital Asset Mining Energy (DAME) excise tax, have been blocked.

The DAME tax would have imposed a 30% tax on cryptocurrency mining firms, with the aim of addressing the environmental and societal concerns associated with crypto mining operations. The tax would be put into effect the next year and phased in gradually over three years at a rate of 10% a year to achieve the desired 30% rate by the end of 2026.

Pierre Rochard, VP of Research at Riot Platforms, raised questions about the fate of the DAME tax proposal, noting that Bitcoin mining was not mentioned in the bill known as the “Fiscal Responsibility 5 Act of 2023.” Congressman Warren Davidson (R-OH-08) responded via Twitter, confirming that blocking proposed taxes was indeed a victory.

 

The debt ceiling agreement, still subject to congressional scrutiny and debates, is a 99-page bill designed to suspend the nation’s debt limit until 2025, preventing a federal default and introducing spending restrictions.

The Digital Asset Mining Energy tax was initially suggested in March, targeting both Proof-of-Work (PoW) networks like Bitcoin and Proof-of-Stake (PoS) networks like Ethereum, irrespective of their differing energy consumption levels.

Under the proposed tax framework, miners would be required to disclose information such as electricity consumption, the source of electricity (including renewable or non-renewable), and its corresponding value. The disclosure requirement would extend to off-grid power generation, including the use of wasted natural gas.

The Biden administration maintains that imposing financial constraints on miners is necessary for the well-being of American communities and the environment, as outlined in a recent White House report. However, the proposal has faced criticism from crypto advocates who argue that the environmental argument is being selectively used to suppress disruptive technologies.

A call for taxation from the White House Democrats

This tax needs to be understood in the context of the Democrats in the government’s belief in higher taxation all across the board, and cryptocurrency is their latest target.

A White House fact sheet reads:

Crypto investors are currently not subject to the same rules of the road that investors in stocks or other securities have to follow, allowing them to report excessive losses. For instance, in contrast to a stock or bond transaction, a cryptocurrency investor can sell a coin at a loss, claim a significant tax loss to reduce their tax bill, and then repurchase that same coin the very next day.

In order to collect $24 billion, Biden claimed that the tax code would need to be changed “to apply to crypto assets just like they apply to stocks and other securities.”

Because of the United States’ ambiguous regulatory policies regarding cryptocurrencies, which have prompted some crypto firms to expand internationally, engage attorneys, and cancel deals—possibly hindering the market itself—the United States is mocked across the world. So far, the industry has been contracting.

In response to criticism about the lack of monitoring over the shuttered cryptocurrency exchange FTX, Gary Gensler, the chairman of the Security and Exchange Commission, has stepped up his battle against cryptocurrency companies that the SEC believes are peddling unregistered securities this year.

Criticism of the DAME tax

Democratic presidential candidate Robert F. Kennedy Jr. took to Twitter, comparing Bitcoin mining to video games and criticizing the environmental pretext to protect elite power structures.

Republican Senator Cynthia Lummis also spoke out against the proposal at the Bitcoin 2023 conference, emphasizing the importance of a thriving Bitcoin mining industry for national and energy security. Lummis expressed confidence that the proposed energy tax would not come to fruition.

In conclusion, the debt ceiling deal has effectively blocked the DAME tax, providing relief for Bitcoin miners and drawing mixed reactions from different quarters.

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