Biden’s Proposed Nonsensical 30% Tax Would Kill Bitcoin Mining in the U.S.

In a surprising turn of events, the government’s budget plan for the next fiscal year, unveiled in March, includes a new tax on cryptocurrency mining. This contrasts sharply with previous pro-crypto remarks from former President Trump, who this week advocated for the US to lead the bitcoin mining industry. The outcome of this proposed tax and Trump’s potential crypto policies are yet uncertain. Recently, there have been debates about whether President Biden may be becoming more supportive of the sector.

For further reading: Trump’s Plea to Bitcoin Miners Serves as a Reminder for Cryptocurrency to Maintain Political Neutrality | Opinion

A 30% federal tax on digital asset mining should be noted as a potential death blow to this industry in the United States, with billions of dollars in investor value at risk of being wiped out. This outcome is also likely to impact Canada significantly, as its regulatory approach tends to mirror that of the U.S. government.

Taras Kulyk is founder and CEO of SunnySide Digital.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

In the “land of liberty,” such authoritarian directives regarding digital mining blatantly contradict the democratic values purportedly upheld by the present White House occupants. Initially, they targeted your data mining activities with heavy-handedness, yet you remained inactive.

The fine print on Biden’s proposed tax

In his budget plan for fiscal year 2025, the controversial mining tax on digital assets, introduced despite significant investments in the sector, is intended to tackle environmental issues and oversee the digital mining industry. The tax will be gradual, starting at 10% in its initial year, rising to 20% in the second, and ultimately reaching a full 30% in the third. Important to note, this tax specifically targets digital mining operations, not data centers in general.

As an analyst, I’ve come across the administration’s perspective that imposing a tax on cryptocurrency mining is essential to mitigate its adverse environmental effects, such as excessive energy consumption and potential price hikes in communities where these operations are situated. However, it’s important to note that some research contradicts this viewpoint, suggesting that the economic reality and operational impact for power utilities may not align with this concern.

Although I don’t have a legal background and my comments should be viewed with caution, it’s worth mentioning that imposing a tax on a particular industry’s energy consumption by a presidential administration seems unlikely to be constitutional. There is no historical precedent for such an action.

A tax on energy consumption in a particular industry raised by the government may be perceived as infringing upon various constitutional provisions. For instance, it could potentially conflict with:

Additionally, this issue raises ethical concerns that go beyond mere constitutional violations. Deception of such magnitude is a worrying trend that our country’s founders sought to address through the very framework of our Constitution.

How to kill an emerging industry 101

The new tax proposal from the Biden administration could severely impact the financial situation of digital mining businesses, potentially rendering their operations unsustainable due to increased costs. Already contending with fierce competition and thin profit margins, this tax would worsen their financial woes, resulting in substantial losses for investors.

Due to unfavorable tax laws, numerous mining companies might have to close shop or move abroad, resulting in significant job cuts and decreased economic output in the US.

Additionally, the suggested tax could put smaller digital mining businesses at a disadvantage, as they might not be able to cope with the increased expenses or relocate to other regions. Consequently, this situation may lead to an uneven competitive landscape, benefiting larger, well-established companies and hindering competition, innovation, and decentralization within the sector.

As a researcher studying economic policies, if the objective of this current administration is to inflict harm upon small businesses, suppress innovation, and establish a negative image for shrinking economic activity within the United States, then they seem to be making significant strides towards achieving those goals.

Environmental concerns and the ineffectiveness of the tax

The Biden administration argues that the proposed tax on bitcoin mining is essential to mitigate the environmental consequences of this activity due to its substantial energy consumption. Yet, it’s important to note that numerous mining operations have already integrated renewable energy sources into their processes and are making efforts to decrease their carbon footprint.

The proposal fails to acknowledge the implementation of alternative methods such as methane flaring and landfill mining. Methane flaring cuts CO2-equivalent emissions by approximately 63% compared to conventional methods, while landfill mining achieves the same reduction in greenhouse gas emissions as planting and growing five million trees over a decade. Bitcoin mining plays a crucial role in fortifying electrical grids and occasionally decreases energy expenses for nearby communities.

As an analyst, I would argue that imposing a tax on energy consumption for cryptocurrency mining may inadvertently discourage the industry from pursuing greener energy sources within the United States. Instead, miners might be driven to relocate their operations to countries where fossil fuels are more prevalent, leading to a substantial exodus of mining activities from the U.S. With its abundant renewable energy resources, this departure could result in missed opportunities for reducing carbon emissions and promoting sustainable practices within the industry.

Approximately 90% of global carbon emissions originate outside the US borders. Given that addressing “environmental issues” is a worldwide challenge, their argument implies they would merely exacerbate the situation by taking action themselves.

What’s the role of the government in this situation? Should they do nothing and allow the free market to take charge? Bitcoin miners can be compared to dung beetles in terms of energy usage. They are drawn to the cheapest energy sources, making fossil fuels less attractive due to their high upfront costs and renewable energy’s low operational expenses. Consequently, a significant portion of Bitcoin mining originates from renewable energy sources.

Global competition

The Bitcoin mining sector is fiercely competitive with nations like China, Russia, and Canada seeking to lead. A proposed tax in the US might jeopardize our standing in this global contest. Consequentially, this could lead to a substantial decrease in investment, human capital, and technological progress within the country. Ultimately, it would weaken America’s influence in the digital economy.

As a researcher studying the impact of regulations on the bitcoin mining industry, I’ve come to realize an important lesson from China’s ban on bitcoin mining in 2021. Contrary to expectations, the industry proved to be remarkably resilient and adaptable. Mining operations simply relocated to countries with more lenient regulations and abundant renewable energy resources. This incident underscores the fact that the Bitcoin network is not confined to a specific geographic location and can effectively adapt to regulatory changes.

Furthermore, the move towards renewable energy revealed a promising opportunity for bitcoin mining to play a constructive role in the world’s energy transformation process.

Additionally, the proposed tax on bitcoin mining carries potential wider repercussions for the cryptocurrency sector. By focusing on this specific area, the Biden administration risks unintentionally stifling progress and financial inflows, which could negatively impact the industry’s growth and America’s technological edge.

You can’t ban mining, you can only ban yourself

To put it simply, the proposed tax on Bitcoin mining by the Biden administration could inflict significant harm on this sector and the larger digital economy in the US, ultimately affecting their own goals.

See also: Bitcoin Miners Show Muscle Pushing Back Against a Warrantless EIA Survey

Such a policy would place a heavy financial strain on mining businesses, potentially leading them to forgo eco-friendly mining methods, and weaken America’s standing as a competitive player in the international mining industry. This approach aligns more closely with authoritarian regimes like China or the USSR, and it is deeply disappointing to witness such a stance from the United States.

Similar to how the industry united to challenge the constitutional EIA survey, let’s give this issue the same level of focus. It’s important to note that no one has the power to prohibit Bitcoin mining entirely; instead, it’s a personal choice not to participate.