President Joe Biden has proposed an up to 30% tax on cryptocurrency mining aimed at deterring economic and environmental concerns, but experts say the plan would be tough to implement.
- President Biden wants to tax up to 30% of crypto miners' electricity costs in three years as part of his proposed 2024 federal budget.
- The White House said the tax was aimed at curbing environmental and economic concerns.
- The tax would mostly affect bitcoin miners, as other major crypto networks use proof-of-stake (PoS) rather than proof-of-work (PoW).
- Critics of the tax proposal say that miners could easily move offshore to avoid taxation.
The White House Wants To Make Miners Pay
Introduced in President Biden's 2024 federal budget, the proposal for the Digital Asset Mining Energy (DAME) excise tax would tax up to 30% of crypto miners' electricity costs—in 10% increments spread over three years starting January 2024. The tax, expected to raise about $3.5 billion over 10 years, is geared toward combating climate change.
"Currently, crypto mining firms do not have to pay for the full cost they impose on others, in the form of local environmental pollution, higher energy prices, and the impacts of increased greenhouse gas emissions on the climate. The DAME tax encourages firms to start taking better account of the harms they impose on society," the President's Council of Economic Advisers (CEA) wrote in a statement Tuesday.
The CEA estimates crypto mining in the United States consumed as much electricity in 2022 as all the country's home computers or residential lighting.
Notably, Biden's proposed tax on crypto mining would affect bitcoin more than the rest of the crypto market, as it is the only major crypto network that uses proof-of-work (PoW) as its underlying mechanism for achieving consensus. Other networks, such as Ethereum and BNB Chain, use an alternative method known as proof-of-stake (PoS), which uses much less energy.
The crypto industry, however, contends a large share of crypto mining relies on sustainable energy sources.
While proponents of cryptocurrency tout enhancing financial inclusion, security, and transparency as its benefits, the CEA said crypto's "broader social benefits have yet to materialize."
Challenges In Implementing Crypto Mining Tax
Of course, a key issue with any crypto-related tax policy is this industry is a global phenomenon. If taxes on crypto mining in the United States are too high, then miners could move to a more favorable jurisdiction. Especially, as the limited supply of bitcoin increases competition among miners and the rewards for mining bitcoin diminish.
While the administration's plan acknowledges the risk of miners moving abroad it does little to ensure that mining operations do not shuffle between states in search of the lowest tax rates,
Castle Island Ventures Founding Partner Nic Carter tweeted. New York, for example, banned bitcoin mining operations that use carbon-based energy last year. Among countries, China banned crypto mining in 2021.
"To ensure that crypto mining is not simply pushed from one local community to another, a national policy is needed," the CEA said.