Taxing cryptocurrencies just picked up serious momentum, with potentially serious ramifications for DeFi.
The U.S. Senate’s $1 trillion infrastructure package now under consideration includes a provision that would tax transactions involving Bitcoin and its ilk to raise around $28 billion in funding. That means swapping Ethereum and other DeFi tokens may have to be recorded and taxed every year just like other securities.
But that’s still a ways off. As soon as the bill hit the floor it triggered a debate. Sen. Pat Toomey (R-Penn) urged senators not to rush ahead with a “hastily-designed tax reporting regime.” At issue are legal definitions of brokers, exchanges, miners, and cryptocurrencies themselves. Ever since Bitcoin emerged in 2009, lawmakers and regulators around the world have struggled to establish precisely what a cryptocurrency is — an asset, a security, a commodity, or something else entirely.
That’s crucial because to tax crypto the government would finally have to define its status once and for all. While this bill is aimed at rebuilding the country’s deteriorating roadways, bridges and other infrastructure, it may also take a big step in settling this fundamental question about digital money.
Toomey, a pro-business moderate in the GOP, is already calling for changes. For starters, he said crypto exchanges don’t have the Internal Revenue Service documents that TradFi brokers such as eTrade routinely maintain for customers, so how would they record taxable transactions?
“Simply put, the text is unworkable,” he tweeted yesterday. “I plan to offer an amendment to fix it.”
He’s not alone. Sen. Ron Wyden, the Democratic chair of the Senate Finance Committee, wants to make sure blockchain software developers aren’t swept up into an onerous regime, and is preparing his own amendments. Other senators are also weighing in.
But don’t overlook the subtext — there was a time not too long ago when most senators dismissed Bitcoin as a fringey technology with little import for the wider world. Now, with its proposal to tax it, the Senate is tacitly endorsing crypto’s place in the financial mainstream. If the mechanics of tax reporting and definitions can be ironed out, there may be consensus that the time has finally come to tax cryptocurrency transactions.