Under President Joe Biden’s budget proposal, US crypto miners could be subject to a 30% tax on electricity costs to reduce mining activity. According to a supplementary budget explainer paper released by the Department of the Treasury on March 9, any firm using resources for digital asset mining – whether owned or rented – would be subject to an excise tax of 30% on electricity used.
The proposed tax would be implemented after December 31, phased in over three years at 10% each year, reaching the maximum rate of 30% by the third year. Crypto miners will also have to adhere to reporting requirements on the amount and type of electricity used and its corresponding value. Even those who acquire their electricity needs off-grid would still be subject to the tax, requiring them to estimate the cost of generating electricity from any associated plant.
The US Treasury argued that the energy consumption associated with cryptocurrency mining operations has detrimental environmental effects, inflates prices for those who share a grid with these operations, and creates risks to local utilities and communities. In addition, they suggested that an excise tax on electricity usage by digital asset miners could reduce such activity, along with its associated negative impacts and other harms.
On March 9, the White House officially announced that it was looking to end a popular tax strategy for cryptocurrency transactions, citing estimates that this would result in an additional $24 billion in revenue. This strategy —tax-loss harvesting—allows investors to sell digital assets at a loss for tax purposes and immediately buy back those same cryptocurrencies. In addition, the proposed rules would bring cryptocurrency trading tax laws in line with stocks, where such a practice is not allowed under the so-called ‘wash sale’ regulations.