Senate lawmakers debated whether cryptocurrencies should have special tax exemptions to encourage everyday use and the industry’s growth.
US lawmakers debated crypto tax policy at Wednesday’s Senate Committee on Finance hearing, including possible tax exemptions for crypto transactions below a certain threshold and how income from staking services should be classified.
Lawrence Zlatkin, the vice president of tax at crypto exchange Coinbase, urged the Senate committee to consider a de minimis tax exemption for cryptocurrency transactions under $300 to encourage commercial use in payments and ensure innovation occurs inside the US. Zlatkin said:
“The guiding principle is simple parity with traditional finance. The same tax rules should apply to the same economic activity, whether it involves commodities, stocks, or tokens on a blockchain. Right now, that parity does not exist. The lack of tailored rules has real consequences.”
Lawmakers also grappled with how to close the annual tax gap of about $700 billion through enforcing tighter reporting requirements for cryptocurrency transactions, minimizing tax exemptions, and potentially classifying revenue from staking services as earned income subject to taxation under the tiered income tax system.
Tax policy is a major issue for cryptocurrency users, industry executives, and companies who are left uncertain about the implications of their activities and whether the Internal Revenue Service (IRS) will penalize them for engaging with the digital economy.
Related: US Senate Finance Committee to discuss crypto tax matters next week
“Crypto holders aren’t paying at least $50 billion per year in taxes that they owe,” Massachusetts Senator Elizabeth Warren said during the hearing.
Warren argued that by carving out special tax exemptions for cryptocurrencies, other asset classes would suffer, as investors abandoned those asset classes to take advantage of the tax savings in crypto.
“The Joint Committee on Taxation estimates that this proposal alone would be a $5.8 billion tax boost for the crypto investors,” Warren added.
Senator Warren drew a link between special tax exemptions for crypto and money laundering, arguing that exemptions would provide cover to evade US sanctions and surveillance by the Financial Crimes Enforcement Network (FinCEN).
She concluded by saying that no special tax exemptions should be granted for digital assets and that all money made from crypto transactions should be taxed under the existing policy framework governing securities and commodities investing.
