On January 1, the Biden Administration released the U.S. President’s 182-page budget proposal for fiscal year 2024, which aims for “economic growth from the bottom up and middle out.” Although the budget includes an $83.5 billion increase in military spending, the administration claims it will reduce the deficit by $3 trillion over the next decade. In addition, the budget proposes “closing loopholes that benefit wealthy crypto investors” and plans to gradually introduce a 30% tax on electricity used to mine cryptocurrencies.
Biden budget aims to reduce the deficit by raising taxes
Unlike many past U.S. presidents who promised not to impose new taxes, President Joe Biden has no qualms about imposing more taxes on American citizens and businesses. However, the Biden administrationclaimsthat the tax increases are targeted at the country’s wealthy, and its latest budget proposal aims to add a minimum tax of 25% on the wealthiest Americans.
The White House’sbudget proposalis subject to review, revision, and approval and is not yet finalized or set in stone. Biden, of course, is running for re-election next year and faces the possibility of losing to another candidate. Biden’s proposed budget would increase the corporate tax rate from 21% to 28% and raise taxes on fossil fuel companies involved in oil and gas.
According to the Biden administration’s budget fact sheet, the administration claims that the current tax system gives “special treatment” to the wealthiest Americans, allowing many of them to pay lower tax rates through tax planning and “loopholes.” The plan also addresses “wealthy crypto investors” and “real estate investors.” In the “Closes Tax Loopholes” section of Biden’s budget, the plan refers to Section 1031 of the Internal Revenue Code.
Section 1031 of the Internal Revenue Code, also known as “like-kind exchanges,” allows individuals and businesses to delay paying taxes when they exchange certain types of property for similar property. This tax system was first introduced in 1921.
The repeal of the like-kind exchange provision or 1031 exchange rule could have serious consequences for crypto investors. It could result in higher tax bills, administrative burdens, and discourage investment in the market. President Biden’s budget proposal could lead to a significant increase in taxes for active crypto traders who trade frequently.
2017 1031 Exchange Rule Changes, Biden’s Plan Aims to Tax Crypto Miners
The 1031 exchange rule underwent significant changes in 2017 with the passage of the Tax Cuts and Jobs Act. The rule was limited to real property and a transition rule was introduced to provide a grace period for taxpayers who have already made a physical exchange of personal property. Additionally, the 2017 changes established a threshold for taxable gain.
President Biden’s budget proposal claims that the “ultra-wealthy” will take advantage of the tax benefits of this provision to “accumulate tax-free wealth.” However, some argue that it is not only billionaire types who would benefit from the like-kind exchange provision. Low-income and middle-class investors also have the opportunity to defer taxation, increase liquidity, and diversify their investments.
President Biden’s budget proposal targets cryptocurrency miners with a tax by proposing an excise tax on cryptocurrency mining operations that consume electricity. This tax would be gradually increased to 30%. According to the proposal, “companies engaged in mining digital assets would be required to report the amount and type of electricity used and the value of that electricity if purchased externally.”
It is also proposed that “companies leasing computing capacity would be required to report the value of electricity used by the lessor company attributable to the leased capacity, which would be the tax base…Starting in the tax year following December 31, 2023, at rates of 10%, 20% and 30% over three years.” The excise tax would be phased in.
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