Biden's budget proposal looks to alter crypto tax rules and the CFTC once again lays claim to regulating certain tokens
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(Kitco News) - The upcoming budget proposal from U.S. President Joe Biden has some unpleasant surprises for crypto traders and investors, including limitations on crypto wash sales and a proposed doubling of the capital gains tax.
According to a report from the Wall Street Journal, the new measures will be included in Biden’s fiscal 2024 budget plan, set to be released on Thursday, as part of the administration’s goal to cut the federal budget deficit by nearly $3 trillion over the next decade.
But the proposal is expected to face staunch opposition from Republicans, who are opposed to many of Mr. Biden’s plans and will likely result in months of spending negotiations with lawmakers.
The measures targeting crypto are expected to help raise around $24 billion by changing the tax treatment of cryptocurrency transactions. The Biden administration says that crypto transactions are not currently subject to the same wash-sale rules that apply to stocks and bonds, and the new budget looks to rectify that.
The idea is to eliminate the ability for people to sell underwater crypto investments in order to record a tax-deductible loss, only to buy right back into the same investment. This process is outlawed under the wash sale rules, but since digital assets have not yet been classified as securities, cryptos are not subject to the same laws as stocks and bonds. The previous Congress debated applying such a change, but no law was ever passed.
Biden’s budget proposal is also seeking to nearly double the capital gains tax rate for investors making at least $1 million, increasing it from the current tax rate of 20% to 39.6% on long-term investments.
Other changes to the tax code in the proposed budget include requiring the richest 0.01% of Americans to pay at least a 25% tax rate, increasing the top tax rate for Americans making $400,000 to 39.6% from 37%, and increasing the corporate tax rate to 28% from 21%.
The great commodity/security debate
As Biden looks to change crypto tax laws, the debate over how to classify certain digital assets is heating up as Rostin Behnam, Chair of the Commodity Futures Trading Commission (CFTC), recently reiterated the agency’s stance that stablecoins and Ether (ETH) are commodities that should fall under the purview of the CFTC.
Behnam made his remarks during Wednesday’s Senate Agricultural Hearing in response to a question from Senator Kirsten Gillibrand about the differing views held by the regulator and the Securities and Exchange Commission (SEC) following the CFTC’s 2021 settlement with stablecoin issuer Tether.
“Notwithstanding a regulatory framework around stablecoins, they’re going to be commodities in my view,” Behnam replied. “It was clear to our enforcement team and the commission that Tether, a stablecoin, was a commodity.”
Amid the collapse of FTX, the CFTC filed a lawsuit against the exchange, its founder Sam Bankmank-Fried, and Alameda Research, claiming violations of the Commodity Exchange Act and demanding a jury trial. Contained within the Dec. 13 court filing from the CFTC is a statement that reads, “Certain digital assets are “commodities,” including bitcoin (BTC), ether (ETH), tether (USDT) and others, as defined under Section 1a(9) of the Act, 7 U.S.C. § 1a(9).”
During Wednesday’s hearing, Behnam noted that the CFTC “would not have allowed” Ether futures products to be listed on CFTC exchanges if it “did not feel strongly that it was a commodity asset,” and added that the agency has “litigation risk, we have agency credibility risk if we do something like that without serious legal defenses to support our argument that [the] asset is a commodity.”
These comments from Behnam directly oppose the view held by SEC chair Gary Gensler, who as recently as Feb. 23 said that “everything other than Bitcoin” is a security. This sets the stage for a future battle between the regulators as each vies for control over the growing crypto industry.
From the crypto industry’s perspective, the consensus is that regardless of who oversees the industry, the government needs to develop a clear regulatory framework so that investors and creators have a known foundation from which to operate moving forwards.
Crypto has experienced a lot of fraud and scams over the past year and needs clearer regulation.— Adam Sternbach (@adamsternbach) March 9, 2023
Crypto is the most powerful technological innovation of the last 20 years and is not going away.
Both of these things can be true. It’s time to move onto productive discussions.