The increasing popularity of cryptocurrencies has caught the attention of governments across the world, leading to debates about how to regulate these digital assets. A significant area of concern for governments has been the lack of taxation on cryptocurrencies. As a result, several governments have introduced crypto excise taxes to address the issue. However, these taxes are not only ineffective, but they are also bad policy for several reasons.
Firstly, crypto excise taxes are highly inefficient, as they fail to target the right people. Most of the people investing in cryptocurrencies are very technologically adept, and they have developed many methods to avoid being taxed. Additionally, many cryptocurrency exchanges are located in countries with lax regulations, which makes it harder for governments to keep track of these transactions. This means that the people who are most likely to evade these taxes are the same ones who are already the wealthiest and most knowledgeable about cryptocurrencies.
This leads into the second reason why crypto excise taxes are bad policy: they exacerbate existing inequalities. Wealthy investors are already more likely to invest in cryptocurrencies due to their wealth and their access to financial information. Introducing yet another barrier to entry, such as an excise tax, only makes it harder for average citizens to participate in the cryptocurrency market. This effectively locks poorer citizens out of the potential benefits that cryptocurrencies can offer, such as higher returns on investment.
The third reason why crypto excise taxes are bad policy is that they disincentivize innovation and technological advancement. Cryptocurrencies, and the blockchain technology that underpins them, are still in their infancy. They have the potential to revolutionize the financial industry and provide new avenues for wealth creation. By introducing taxes on these assets before they have even had a chance to mature, governments are stunting their growth and development. Instead of encouraging technological innovation, taxes on cryptocurrencies create a hostile environment that may scare away potential investors and entrepreneurs.
Additionally, crypto excise taxes may encourage people to leave their countries of origin in search of more favorable regulatory environments for their investments. This is especially true for younger and more technologically adept individuals who are most likely to invest in cryptocurrencies. By driving away these people, governments are risking losing out on the potential economic benefits that cryptocurrencies and blockchain technology could bring to their countries.
The fourth reason why crypto excise taxes are bad policy is that they make it harder for businesses to accept cryptocurrencies as payment. Taxation is a complicated process, especially for businesses that have to navigate different tax codes and regulations. By introducing taxes on cryptocurrencies, governments are creating yet another unnecessary hurdle for businesses that want to accept cryptocurrencies as payment. This may discourage businesses from accepting cryptocurrencies entirely and hinder the growth of the cryptocurrency market.
Lastly, crypto excise taxes are bad policy because they are shortsighted. Cryptocurrencies are still a nascent technology, and the market is still evolving. Introducing taxes on these assets now may make sense in the short term, but it may not be viable in the long run. Additionally, it may be difficult to reverse these policies once they have been implemented. Instead, governments should focus on working with cryptocurrency companies to develop effective taxation strategies that target the right people and incentivize innovation.
In conclusion, crypto excise taxes are bad policy for several reasons. Not only are they highly inefficient, but they also exacerbate existing inequalities, disincentivize innovation, encourage people to leave their countries of origin, make it harder for businesses to accept cryptocurrencies as payment, and are shortsighted. Instead of introducing taxes on cryptocurrencies, governments should work with the industry to develop effective taxation strategies that will benefit everyone involved. By doing so, they can help ensure that the growth and development of this nascent industry are not stifled by unnecessary taxes and regulations.
The proposal by the Council of Economic Advisers to impose a 30% excise tax on bitcoin mining organizations has drawn critiques from the crypto industry. Although the idea lost momentum after the initial shock, the CEA revived the debate via a Twitter thread seeking to explain and justify the proposal. The arguments against the excise tax include the use of renewable energy sources in crypto mining and the possibility of the industry relocating overseas. However, the policy conversations around crypto mining and the sector in general have not kept pace with market innovation, and an excise crypto mining tax misses the mark from an economic and crypto perspective. An important point to note is that bitcoin is only one cryptoasset, and this policy ignores the progress made on the Ethereum 2.0 upgrade, which has transitioned from a proof of work consensus model to proof of stake. Moreover, the crypto mining world has increasingly moved towards sustainable investing options, with the percentage of energy consumed by the bitcoin mining community derived from sustainable sources increasing to 64.8% according to a report by the Bitcoin Mining Council. Instead of blaming crypto, policymakers should objectively look at the energy landscape. Payments and the efficient transmission of digital information are the driving factors that will determine which corporations, trading blocs, and nation-states occupy leadership positions moving forward. Enacting an excise tax on an industry that is believed to be the future of transactions, payments, and data transmission is bad political policy and poor economic decision making. The crypto industry may not be perfect, but hampering future investment and development by imposing a punitive tax ignores the changing nature of crypto and taxes firms that have embraced renewable energy.