I don’t praise politicians often. And I rarely praise former President Bill Clinton. But in 1998, Clinton fought for and signed into law a 10-year moratorium on taxing internet access. The new law also prevented most e-commerce purchases from being taxed.
Clinton argued at the time that the internet was just emerging as an economic force. And that taxing it could stifle its growth.
Clinton was right. The internet — and e-commerce — was still in its infancy. And any undue burden (most states wanted to tax e-commerce) might have doomed the industry.
Clinton’s decision to protect the internet might go down as the most consequential policy decision he ever made. Thanks to his forward thinking, global e-commerce is a $4.9 trillion market. And in the U.S., it’s an $843 billion market.
More than 20 years later, the crypto industry is in the same place the internet was in 1998. Congress wants to pay for its $1 trillion infrastructure plan. And it wants $28 billion of that money to come from taxes on crypto gains.
Let’s skip over the fact that there’s no evidence that collecting taxes on crypto gains will generate $28 billion. Most crypto investors are law-abiding citizens who are willing to pay taxes. So that’s not the issue here.
Instead, let’s focus on how the government wants to collect these taxes. The way the infrastructure bill is currently written, it calls for brokers who help make digital transactions to report those transactions to the IRS.
Forcing exchanges like Coinbase to report transactions isn’t the worst thing in the world. Stock brokers face similar requirements.
The real problem is the law — as written — considers everyone in the crypto universe a broker. Bitcoin miners validating the transaction? Brokers! Digital wallet software developers? Brokers! Governance token owners? Brokers!
Basically, any person who touches a crypto transaction — or any company that makes software that touches the transaction — is a broker who has to report the transaction to the IRS, even though they don’t have any relevant information to report to the IRS.
It’s enough to make your head hurt — and possibly force crypto innovators to leave the U.S. The crypto industry needs to find its version of Clinton.
Sens. Ron Wyden (D-Ore.), Cynthia Lummis (R-Wyo.) and Pat Toomey (R-Pa.) may take on that mantle. Thanks to some intense lobbying from the crypto industry, they’ve introduced an amendment that would exclude miners, software developers and other “non-financial intermediaries” from the broker definition.
There’s no guarantee that this amendment will pass. Common sense is in short supply in Washington.
But most legislators don’t want to kill crypto. They just want the money. And this amendment doesn’t affect the money train. So I’m optimistic that a reasonable solution will eventually be reached. And I’ll keep you posted on any updates.