On Thursday, United States President Joe Biden unveiled his 2024 budget proposal. In the budget, the U.S. Treasury Department has proposed a 30% excise tax on the cost of powering crypto mining facilities.
According to the proposed budget, a provision in the Treasury’s “Green Book” would create a phased-in excise tax based on the costs of the electricity used in crypto mining, imposed on the companies “using computing resources” to mine cryptocurrencies. The Green Book explains the revenue proposals in the President’s budget and serves as a guidepost to Congress for tax legislation by describing current law (adjusted baseline), proposed changes, the rationale from a policy perspective, and Treasury’s revenue projection.
Additionally, the mining companies would be required to report how much electricity they use and what type of power was tapped. Sources reveal that the tax would be rolled out over the next three years, increasing by 10% annually. The provision explicitly makes the case that this type of tax may lower the overall number of mining machines in the U.S.
The official document highlighted the negative effects of mining on the environment. It stated:
The increase in energy consumption attributable to the growth of digital asset mining has negative environmental effects and can have environmental justice implications as well as increase energy prices for those that share an electricity grid with digital asset miners.
Adding on, the document also said that digital asset mining puts local communities and utilities at risk. The authorities said that the imposed tax on electricity consumption will decrease usage and simultaneously reduce environmental hazards. The document read:
Digital asset mining also creates uncertainty and risks to local utilities and communities, as mining activity is highly variable and highly mobile. An excise tax on electricity usage by digital asset miners could reduce mining activity along with its associated environmental impacts and other harms.
This proposed budget has to go through the House of Representatives and Senate and has to be passed. This is a mandate for the budget which includes these types of revenue-generating tax rules before they can be implemented. However, it is important to note that the Republican-led House is unlikely to adopt the Democratic president’s proposal as-is.
Thursday’s budget session highlighted a separate provision that would close a so-called wash sale loophole in the tax code. Sources reveal that the Green Book mentioned this provision alongside a third crypto-related proposal that would expand the securities loan rules to include digital assets. It read:
The proposal would amend the securities loan nonrecognition rules to provide that they apply to loans of actively traded digital assets recorded on cryptographically secure distributed ledgers, provided that the loan has terms similar to those currently required for loans of securities.
Notably, another provision in the document addresses Foreign Account Tax Compliance Act rules. Referring to the 2021 Infrastructure Investment and Jobs Act’s crypto tax reporting provision, the Green Book proposes capturing foreign account holders in the information reporting rules as part of the government’s ongoing information-sharing efforts on financial brokers.
Similarly, a fifth provision would require people with foreign financial accounts holding at least $50,000 in crypto to report these holdings in their tax reports. Mark-to-market rules would be amended to include crypto in a sixth provision. Mark-to-market is an accounting practice that involves adjusting the value of an asset to reflect its value as determined by current market conditions.
It is important to note that the budget session this year held a significant place for US lawmakers. The US presidential elections will take place in 2024 and the proposal indicates Biden’s fiscal priorities as he gears up to announce his candidature for a second term.