Saturday, August 7, 2021
Following up on Wednesday's post, Hemel: Decrypting The Crypto Reporting Proposal In The Bipartisan Infrastructure Bill: Daniel Hemel (Chicago; Google Scholar), The Biden Administration’s Strange Stance on Crypto and the Climate:
The debate on Capitol Hill over a cryptocurrency tax reporting provision in the bipartisan infrastructure bill got really weird Thursday night when Senator Mark Warner (D-Virginia) proposed an amendment that would favor one energy-inefficient mechanism of blockchain validation over a more environmentally friendly alternative … and then the White House backed Warner’s amendment (with Treasury Secretary Janet Yellen personally lobbying senators to support it).
What on earth is going on?
I don’t have a theory as to why Senator Warner—or Secretary Yellen—would do this. But the Warner amendment would impose potentially significant environmental costs for approximately zero tax-enforcement gains. ...
Supporters of the Warner-Portman-Sinema amendment are right that a robust information reporting regime will need to include decentralized exchanges … somehow. But again, none of the proposals on the table give Treasury the broad authority it will need to shut U.S. users off from those exchanges. And if we’re going to wall off a portion of the Internet to U.S. users—which may turn out to be necessary—we probably ought to have a debate lasting more than a few hours about whether the tax-compliance benefits outweigh the Internet-freedom costs.
All this is further proof that the Senate should not have rushed to write complicated cryptocurrency tax compliance rules as part of a must-pass infrastructure package without a committee markup. There are a ton of other ways to improve tax compliance that don’t have climatic consequences (e.g., fund the IRS!). We certainly need more robust information reporting requirements for cryptocurrency. But Warner-Portman-Sinema doesn’t solve the tax-compliance problem—and it exacerbates a planetary problem along the way.