Headline:  Crypto Mining taxation

Body:  Taxes are nobody’s friend, and when a new one is added, there is an outpouring of outrage.  I very well remember being in Philadelphia when there was a new “soda tax” added to the panoply of taxes.  People complained bitterly (especially if they had  kids at home) and bottlers were up in arms.  The rationale was simple: The government needed more money (when do they not) and soda is unhealthy for you, so, this could dissuade casual use.  Now it would appear that the government might be trying to impose a separate tax on mining bitcoin.  It would appear that the rationale is similar.  So, how does this new proposed tax work?  Let’s  plumb the depths a bit and find out.

What exactly is the reasoning?  After all, bitcoin mining doesn’t rot your teeth.

No, your teeth are likely to be ok.   But, the current administration is proposing that they would tax up to 30% of a miner’s electricity costs.  Many of these “rigs” are bootstrapped supercomputers, and the heat they create is intense.   So, the cooling needed to compensate is HUGE as well.  Essentially, the government (thru its green initiative) wants to really make people think twice before taking this on, and placing themselves in danger and using massive amounts of electricity. (It’s true that some industries take FAR more electricity, but the claim is that these industries contribute a lot more to the national economy, usually in many industries.) The DAME tax would go toward compensating the American People.  Despite the name, the tax would mainly affect the Bitcoin area as the other major cryptocurrencies use the proof of stake consensus model.  Per the White House estimates, the DAME tax could derrive revenues of $3.5 Billion over 10 years.

What are the arguments against the DAME tax?

Cryptomiers will quickly claim that they use sustainable sources of electrical power that do not pull significantly from the grid, thus denying one reason for the tax.    They also suggest that since cryptocurrency is global, if the tax is set too high, the miners will simply decide to go to another country that offers a better deal.

The Verdict

Tax policy is not sexy.   It shouldn’t be, really.   Going back to fundamentals, we have to remember the 2 large reasons to have taxation.   First, it funds our government (cue all the jokes about saussage-making, etc.)  This is well known, but the second prong is not oft-remembered.    The tax code is written to change behavior of the citizens.  Fraud is considered especially heinous, so, there is a code section that lays out large penalties if caught.  The government is trying to change the behavior of some citizens, in order to make life better for all.  There are thousands of other mechanisms like this one, and each one is designed to modify behavior.  So, the DAME tax, to me, is not as much of a stretch as some make it out to be.


Biden Wants 30% Crypto Mining Tax, But Can It Work? (investopedia.com)

Riot Platforms (RIOT), Marathon Digital (MARA) Could Face Hefty U.S. Crypto Mining Tax (coindesk.com)

How Crypto Taxes Work In New Zealand | CoinLedger

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.


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