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The proposed budget of the Biden administration has a clause that would impose taxes on the electricity usage of cryptocurrency miners.
Tax To Discourage Crypto Mining
U.S. President Joseph Biden’s proposed budget for the fiscal year 2024 is to be up for voting by the House soon. Reportedly, besides increasing taxes on the wealthy, the budget also proposes taxing cryptocurrency miners. The proposed tax would be implemented after December 31, 2023, and would be phased over three years at a rate of 10% a year. Therefore, by the end of the third year, there will be a 30% tax on electricity used for cryptocurrency mining. According to sources, the idea is to discourage mining activity.
A section from the budget proposal reads,
“Any firm using computing resources, whether owned by the firm or leased from others, to mine digital assets would be subject to an excise tax equal to 30 percent of the costs of electricity used in digital asset mining.”
Effect On Different Crypto Mining Operations
The proposal also included directions on how the tax would affect different channels of cryptocurrency mining and their individual reporting requirement. For example, the firms that mine crypto themselves by purchasing electricity from external sources would be required to report the amount, type, and total cost of electricity they use. On the other hand, the firms that lease computational capacity would need to report the value of the electricity used by the lessor firm in accordance with the leased capacity. Finally, even firms that produce their own electricity or acquire power off-grid would also be affected by this excise tax and would have to pay upto 30% of the estimated electricity costs. This includes firms that use the output of any particular electricity-generating plant.
Reducing Risks To Local Utilities
The excise tax on crypto electricity costs is considered an approach to discourage the high energy consumption of crypto mining operations, which are said to have negative environmental impacts. The United States Treasury has claimed that the high energy consumption increases electricity prices for other firms sharing a grid with the crypto mining firms and thus creates uncertainty and risks to local utilities and communities.
The Treasury Department claimed,
“An excise tax on electricity usage by digital asset miners could reduce mining activity along with its associated environmental impacts and other harms.”
Other Budget Proposals For Crypto
The news about the excise tax comes close on the heels of the other proposed budget changes that could affect the crypto market soon. The Biden administration has recently revealed that it is looking to double crypto gains taxes. If approved, this would spell more trouble for the down-on-their-luck crypto investors who have already had a tough 2022. Furthermore, the budget has also proposed imposing wash sales rule on crypto as a part of the administration’s roadmap for reducing crypto risks.