The Biden administration unveiled its budget with an “ironclad promise” stating that “no one earning less than $400,000 per year would pay an additional penny in new taxes.” However, the millions of Americans using cryptocurrency would probably beg to differ considering that part of the funding for the $5.58 trillion budget is from the still yet‐to‐be clarified crypto‐tax provisions in the Infrastructure Investment and Jobs Act (Infrastructure Act). Oddly, the estimates in the budget appear to clash with the estimates in the Infrastructure Act, making it even more difficult to decipher the details.
The new budget suggests that “information reporting by certain financial institutions and digital asset brokers” will bring in $2 billion in tax revenue over the next 10 years. The budget does not provide an explanation of how exactly the tax revenue will be generated, but it does offer a table detailing the expected revenue over time (Table 1).
Interestingly, this 10‐year prediction has been revised significantly down from what was reported last November when President Biden signed the Infrastructure Act into law. At the time, the cryptocurrency provisions were inserted into the law as funding provisions to help offset the spending. The Joint Committee on Taxation (JCT) did not explain how they came up with their estimates, but they did include a table detailing the expected revenue over time (Table 2).
The two revenue estimates do share a similar expected growth rate (Figure 3), but that’s where the similarities end. The tax revenue estimate in Biden’s budget is less than 10 percent of the estimate in the Infrastructure Act that the president signed into law just a few months ago. Cryptocurrencies have had ups and downs during the past few months, but volatility is not a new phenomenon for this market. There is little to explain such a strong downward revision if the previous estimates in the Infrastructure Act are assumed to have been accurate.
But as I pointed out in both this briefing paper and blog, there were many reasons to doubt the accuracy of the original estimates. It made little sense when Congress suggested the law would increase tax revenue while simultaneously setting a de facto ban on some of the legal activities it plans to tax. More so, the cryptocurrency industry has a proven history of voting with its feet in response to overbearing laws so it’s possible that much of the tax base will leave the country if the laws go unchanged. While it’s not possible to know how the JCT made their original estimates for the Infrastructure Act because their methods are confidential, the estimates in Biden’s budget are further evidence that “a single, un‐audited estimation should not be the deciding factor for any policy––especially when it leaves so many questions unanswered.”
Congress should take note of the Biden administration’s revised estimate and re‐review the validity of the cryptocurrency provisions in the Infrastructure Investment and Jobs Act before the tax reporting requirements go into effect next year.
