US government proposes a 30% cryptocurrency mining tax to reduce its environmental impact
The Joe Biden administration has proposed a 30% tax on the electricity used for cryptocurrency mining operations in its budget for 2025.
The computers that secure cryptocurrencies such as Bitcoin consume large amounts of power. Known as mining, this process involves intense computation and, as a result, consumes significant electricity. This not only has implications for climate change, but can also contribute to rising energy prices.
According to analyses by tech nonprofit WattTime and energy consultancy Wood Mackenzie, Texas will see a nearly 5% increase in electricity prices by mid-2023 due to industrial-scale cryptocurrency mining.
With many other cryptocurrency mining operations across the US, President Joe Biden’s proposed budget for the fiscal year 2025 includes a proposal to impose a 30% excise tax – taxes levied on goods like fuel – on digital asset mining.
Within the US Department of the Treasury document – General explanations of the administration’s fiscal year 2025 revenue proposals – the administration highlighted that current laws do not provide tax rules specifically addressing digital assets, apart from broker and cash transaction reporting.
The document states that due to the negative environmental effects of digital asset mining and corresponding rise in energy prices, “an excise tax on electricity usage by digital asset miners could reduce mining activity along with its associated environmental impacts and other harms”.
The proposal will see any firm using computing resources, whether owned by the firm or leased from others, to mine digital assets subject to 30% excise tax.
If implemented, firms engaged in cryptocurrency mining must report the amount and type of electricity used, as well as the value of the electricity if purchased externally. Meanwhile, firms that lease computational capacity would be mandated to report the value of the electricity of the company that leased them the capacity, which would serve as the tax base.
According to the proposal document, this would be effective for taxable years after 31 December 2024. The excise tax would be phased in over three years at a rate of 10% in 2025, 20% in 2026 and 30% thereafter.
An identical tax was proposed by Biden last year, but it failed to pass the House of Representatives and Senate and become law.
While many within the cryptocurrency industry hope it fails again, others have stated that this proposed tax may even bring about unintended consequences. According to an article in New Scientist, when China banned bitcoin mining in 2021 it led to companies moving their operations to countries like Kazakhstan, where fossil fuels including coal produce more than 90% of the nation’s electricity supply.
