US Congressman Ted Budd is outlining how tax policies could cripple the adoption of cryptocurrencies, stifle blockchain innovation and drive talent overseas. He calls it a “national security issue”. In his testimony to the House Ways and Means Committee of the United States House of Representatives on June 4, Budd asks for bipartisan support of The Cryptocurrency Tax Fairness Act and the Virtual Value Tax Fix of 2018. The bills are instrumental in addressing low adoption rates for Bitcoin and other cryptocurrencies.
Budd points out that the playing field isn’t even and that crypto can’t really compete with money because Bitcoin and crypto enthusiasts face double taxation that is not extended to fiat currency. The double taxation prevents people from spending crypto like regular money and without addressing this issue, affecting the rate of adoption and innovation in the US.
“First I want to talk about why virtual currencies should have a de minimis exemption because currently, as you all probably know, cryptocurrencies and blockchain tokens do not qualify. The IRS treats virtual currencies as property under US tax law and this, of course, means that the sale or exchange of blockchain tokens for fiat currency or other goods or services is a taxable event. For example, if a token user spends $.65 worth of Bitcoin to buy soda from a vending machine, he is required by law to calculate and pay the tax liability associated with that transaction.
This is not a sustainable model in my opinion. Luckily there is legislation in this space already to fix this problem. The Cryptocurrency Tax Fairness Act introduced last Congress by former representative and now governor of Colorado Jared Polis, and this Committee’s own and my friend David Schweikert. I was a proud co-sponsor of this legislation.
The simplest fix to this problem is for lawmakers to extend the de minimis exemption for personal transactions in foreign currency to cover transactions in blockchain tokens as well. I’m sure this bill will be introduced at some point in this Congress, and I urge this Committee to consider the legislation, and it’s vital that we do so.
Secondly, I’d like to talk about a piece of my own legislation from last Congress, the Virtual Value Tax Fix of 2018 H.R.7361. I hope to have an updated version of this bill with the Democrat lead ready for introduction soon. This is another simple bill that would simply ensure that digital assets are recognized as property eligible for the like-kind exchange or the tax deferral treatment historically allowed under section 1031.
What we have without this like-kind exchange is essentially three things. First, the effective double taxation of blockchain’s transactions whose economic reality is a purchase as well as a sale. Second, tax treatment calls the much higher disproportionate recordkeeping burdens on taxpayers. And third, a deterrent impact on all blockchain-based activity resulting from the foregoing impacts.
An effective sales tax of nearly 40% penalizes the use of digital units of commerce. The use of digital assets is already treated as a sale of the asset even though the economic reality of the transaction is a purchase of a simple consumer good.
In fact, for knowledgeable consumers and digital asset holders, the use of digital units would be very strongly deterred by this tax change. For instance, a consumer using Bitcoin to buy a flat screen TV set faces double taxation, first a sales tax on the purchase and second, a capital gain on the Bitcoin used for the purchase.
The bottom line is this is a national security issue and of utmost importance that we continue to develop this technology in the United States. I would respectfully urge the members of this Committee to hear and consider the two bills that I’ve highlighted today. It would be bipartisan and I know they would help develop the most important technology since the invention of the internet.”
Budd points out that there are trade organizations such as the Coin Center, the Blockchain Association and the Chamber of Digital Commerce that are ready to work with legislators in order to draft the necessary policies to stimulate the industry.