Senate deliberations continued over the weekend on a $ 1 trillion infrastructure bill, with a special focus on how the bill could affect the cryptocurrency world. The Infrastructure Act, known as HR 3684, provides funds for building roads, bridges, transportation systems and promoting clean energy, among other things. The bill contains a tax provision that plans to raise around $ 28 billion for this $ 1 trillion package through taxes from crypto transactions.
“As we know, cryptocurrency is a digital asset that more and more people are investing in. We should want it to stay that way, in a healthy and sustainable way, ”said Senator Rob Portman (R-OH) during the Senate session on Sunday. Portman, along with other senators, proposed changing the cryptocurrency tax regime in the bill to address concerns about digital rights. However, Portman was the second proposed change to address this concern. The two competing novellas shed light on the concerns of those in the crypto space who are particularly dissatisfied with one key word in the tax regulation: “brokers”.
Cryptocurrency investors are dissatisfied with the new tax regulation
The bill identifies a “broker” as anyone “responsible for transferring digital assets on behalf of another person and providing a service on a regular basis” and any person so identified would be subject to tax reporting. This apparently includes people like “miners” who use a “proof of work” system by solving algorithms using computers and software that, when correct, serve as verification for crypto transactions. Miners don’t have customers, so they might not be able to access the information needed to fill out a 1099 tax form – something the regulation requires brokers. Brokers are also required to submit reports to the Internal Revenue Service (IRS) of all transactions over $ 10,000 that were requested of them prior to the bill being presented.
The digital rights nonprofit, the Electronic Frontier Foundation (EFF) believes such requirements are also a privacy issue. “The mandate to collect names, addresses and transactions from customers means that almost every company that is even tangentially connected to cryptocurrencies may suddenly be forced to monitor its users,” the foundation wrote in a statement that was released last week.
Cryptocurrency’s decentralized financial system and its blockchain transactions do not tie information to a person, but to the series of transactions that have previously taken place. Twitter CEO Jack Dorsey commented on the current state of the crypto discussions. “Imposing reporting rules on Americans who develop software and hardware, dismantle and secure the network, or operate the nodes to build resilience and efficiency is an impossible task that will only advance the development and operation of this critical technology outside of the United States,” tweeted Dorsey.
For Americans developing software and hardware, dismantling and securing the network, or running the nodes to build resilience and efficiency, enforcing reporting rules, is an impossible task that will only propel the development and operation of this critical technology outside of the United States.
– jack⚡️ (@jack) August 8, 2021
The tax bill met opposition from other digital rights advocates like the nonprofit Fight for the Future, which urged supporters to call senators and encourage lawmakers to reconsider crypto regulations. “We firmly believe that policies that affect basic civil liberties and rights in the digital age should never be tied to laws like an infrastructure bill,” Evan Greer, director of Fight for the Future, told CNN . Additional backlash came from cryptocurrency players like Square, Coinbase and RibbitCapital, which were part of a group of companies that signed a joint letter addressing the bill’s shortcomings and encouraging alternatives.
The debate about who should be excluded from financial reporting
In response to the criticism, Sens. Cynthia Lummis (R-WY), Ron Wyden (D-OR) and Pat Toomey (R-PA) proposed an amendment to the tax provision of the bill that would reintroduce protection for individual investors. The change removes the need for organizations – including miners, software designers, and protocol developers – to report data that would be difficult or impossible for them to collect. In particular, if passed, the amendment would exempt brokers from the following reporting requirements:
“(A) validating distributed ledger transactions, (B) selling hardware or software whose sole function is to allow a person to control private keys used to access digital assets on a distributed ledger, or (C) development of digital assets or their respective protocols by other persons, unless such other persons are customers of the person developing such assets or protocols. “
And then there is the proposed change by Sens. Mark Warner (D-VA), Rob Portman (R-OH) and Kyrsten Sinema (D-AZ), which is also supported by the White House. The Warner-Portman-Sinema amendment would exempt traditional cryptocurrency miners who participate in time-consuming “Proof of Work” (PoW) systems such as Bitcoin and Ethereum 1.0 from the financial reporting requirements described in tax regulations. However, it would maintain reporting requirements for those using a “Proof of Stake” (PoS) system used by many Altcoins (other cryptocurrencies than Bitcoin) that is less energy intensive and mining power based on the percentage of coins bestowed by a miner.
Currently, only Altcoins (any cryptocurrency other than Bitcoin) use PoS systems, which puts their users at a greater disadvantage if the Warner-Portman-Sinema amendment were to pass. From a legislative point of view, however, this option can be more attractive and more support from the administration.
White House Press Secretary Jen Psaki praised the Warner-Portman-Sinema change because the government believes it is “striking the right balance and taking an important step forward in promoting tax compliance.” Treasury Secretary Janet Yellen spoke to lawmakers Thursday about concerns about the Wyden-Loomis-Toomey Amendment, which meant they should support the Warner-Portman-Sinema Amendment instead, according to the Washington Post.
This gap between supporters of the two amendments led to a more public reprimand for the Warner-Portman-Sinema amendment from one of the authors of the Wyden-Loomis-Toomey amendment. “While I acknowledge that my colleagues and the White House admitted that their original crypto tax was flawed, the Warner-Portman addition picks winners and losers based on the type of technology used,” Toomey tweeted. “The Warner-Portman Plan exempts Bitcoin miners, but not other transaction validators or software developers who create these platforms.”
While I acknowledge that my colleagues and the White House admitted that their original crypto tax had flaws, the Warner-Portman addition picks winners and losers based on the type of technology used. That’s terrible for innovation.
– Senator Pat Toomey (@SenToomey) August 6, 2021
Some experts believe that the conflict over the changes in how difficult it is to regulate cryptocurrencies is completely absent. Angela Walch, a research fellow at the UCL Center for Blockchain Technologies, wrote for Coindesk, recommending that lawmakers treat cryptocurrency as a separate topic instead of putting it in one big spending bill.
“Just because policymakers and regulators have allowed it [the crypto financial system] Growing largely unchecked to where it is now does not mean that quick, piecemeal regulation is the best way to address the situation, ”she wrote.
Talks are ongoing as the Senate works to pass an infrastructure bill that has been hampered by bipartisan differences in the past. Given the chorus of voices from across the political spectrum talking about cryptocurrency, the infrastructure bill seems like a start rather than the last word on the future of how the US will deal with crypto.